In an effort to fend off a hostile takeover by its rival hospital operator Community Health Systems, Inc. (CYH), Tenet Healthcare Corporation (THC) has filed a lawsuit against Community Health for overbilling its Medicare.
According to the lawsuit by Tenet, Community Health has been artificially enhancing its performance over the years by showing more payments from Medicare. Further, Tenet accused that Community Health has increased its inpatient admissions by admitting thousands of patients into hospitals that should only be kept for outpatient observation, which is less expensive.
Tenet estimates improper Medicare billings of between $280 million and $377 million over three years, beginning in 2006, for as many as 82,000 patients.
This new defensive technique adopted by Tenet has raised questions over billing practices across the entire industry. While Tenet has accused Community Health only in using such practices, the charges of Tenet have invited more scrutiny of the federal regulators.
However, Community Health has denied all the allegations made by Tenet, and states that it conducts business with utmost integrity and adheres to the highest business practice standards. Community Health believes that Tenet’s action is an effort to distract shareholders from its pending offer.
The charges came after Community Health had proposed an offer to acquire all of the outstanding shares of Tenet for $6.00 per share, including $5 a share in cash and $1 per share of its common stock on December 9, 2010.
This was the second attempt of Community Health to bid for Tenet. Earlier on November 12, 2010, Community Health made an identical offer but Tenet’s board rejected the same as the price offered by Community Health was inadequate, owing to weak industry stock valuations, which was not in favor of Tenet’s shareholders.
Tenet had doubts whether Community Health will be able to manage and integrate the operations of its businesses, as Tenet believes that Community Health is incapable of meeting its own 2011 guidance given slowing growth.
Tenet even adopted a poison pill strategy against the takeover, but Community Health was determined to buy Tenet. To pressurize Tenet, Community Health nominated a full slate of 10 independent directors on January, 2011 to Tenet’s board, which is up for re-election at the 2011 annual meeting, which has been delayed until November 3, 2011.
Though Community Health is rejecting all the accusations, the lawsuit states that if found guilty, Community Health would be liable to pay well over $1 billion for its practices during the 2006-2009 period.
Further, the company could face investigations from Medicaid and private insurers, in addition to Medicare.
Community owns, leases or operates 130 hospitals in 29 states, while Tenet runs 49 hospitals in 11 states.
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