Community Health Systems Refutes Tenet’s Allegations

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imageIn the midst of a hostile, $6-per-share, $3.3 billion takeover bid for rival Tenet Healthcare, Community Health Systems (CHS) last Thursday defended itself against Tenet’s allegations of improper patient admission practices, calling them “contrived and biased.” The move follows a lawsuit filed by Tenet on April 11, in which it charged CHS—whose offer it alleges “undervalues” the company--with illegal admissions practices.

During the course of an April 28 conference call, CHS announced its first-quarter earnings and, in an effort to refute Tenet’s claims, presented 109 pages of statistical analysis and other details of the company’s “Blue Book” admissions guide. In the lawsuit, Tenet claims that CHS deliberately admits more patients to its hospitals instead of classifying them for observation status, which are billed at lower rates. Presenting as evidence data from two outside firms, Tenet contends that CHS’ observation rates are less than half the industry standard and that, as a result, the company overbilled Medicare by $280 billion over a three-year period. It also calls into question the use of Community Health Systems’ “Blue Book” internal patient admissions manual.

For its part, CHS, using industry data from 2009, noted that the Tenet analysis failed to use data from an industry peer, United Health Services, which demonstrated similar observation rates. It also showed that while its observation rate was below industry average, this was not statistically significant since all peer group hospital groups, including CHS hospitals, fell within one standard deviation of the mean.

“The past several weeks have been challenging as we have worked through a number of issues presented by the Tenet litigation,” says CHS Chairman and CEO Wayne T. Smith. “We believe the lawsuit against Community Health Systems and the proxy contest could negatively affect the entire healthcare sector.”

He adds that a number of analysts have deemed the Tenet lawsuit “misguided and wrong”. CHS, he purports, holds that Tenet's allegations and calculations of inappropriate admissions “are based on contrived and biased metrics,” and questions why, if the company believes the observation rate is a material statistic, it did not disclose this metric in its Securities & Exchange Commission (SEC) filings.

In a response to the CHS defense, Rick Black, a spokesperson for Tenet, asserts that “nothing” said by CHS executives can diminish the provider’s confidence in its analysis or allegations. “We plan to vigorously pursue our claims in court,” he states.

Prior to the conclusion of the call, CHS commented briefly on the ongoing and widening probe of its billing practices by federal and state investigators. Executives say it is cooperating with the investigations, which in the long term may prove more harmful to the company than the Tenet lawsuit.