While attending a Nashville Health Care Council event last week, Vince Galloro of Modern Healthcare (subscription required) heard "quite a bit of resentment" toward Community Health Systems for its ultimately failed takeover battle for Tenet Healthcare:
And, as one non-Nashville attendee told me, the public bickering between Community and Tenet and the lawsuit once again paint the entire investor-owned sector in a bad light, just as past Medicare fraud investigations have. This attendee, I should add, seemed more disappointed with Tenet's filing of the lawsuit than with Community's actions.
Although Community Health Systems ended its pursuit to acquire Tenet Healthcare, Tenet has no plans to drop its lawsuit against CHS. In fact, the company is seeking damages for costs incurred while fending off the Franklin-based company. Bloomberg had the report on Friday.
Tenet Healthcare has asked the court for additional time to respond to Community Health Systems’ motion to dismiss its lawsuit.
According to documents filed in the U.S. District Court for the Northern District of Texas this week, Tenet plans to respond to CHS’ dismissal motion and file an amended complaint against CHS on Monday. Additionally, Tenet has withdrawn its motion for expedited discovery, given that CHS has withdrawn its slate of directors for Tenet’s board.
Tenet filed suit against CHS in April, alleging CHS committed hundreds of millions of dollars in Medicare fraud. CHS was pursing an acquisition of Tenet at the time, but last week it officially ended the chase by withdrawing its “best and final offer” for the company and the slate of directors it had nominated for consideration at Tenet’s November shareholder meeting.
Another law firm has filed a class-action lawsuit against Community Health Systems. Robbins Geller Rudman & Dowd's complaint alleges that the Franklin-based hospital company and its officers were in violation of the Securites Exchange Act by failing to disclose material adverse facts about its true financial condition, business and prospects.
Community Health Systems Chief Financial Officer Larry Cash told a group of investors Tuesday that the company lost two acquisition deals because of publicity about the company’s tangle with Tenet Healthcare.
Responding to questions at the Bank of America Merrill Lynch Health Care Conference, Cash said the company’s development and acquisition teams have not been distracted by CHS’ failed effort to buy Tenet Healthcare and Tenet’s Medicare fraud lawsuit against the company — but that the “toxic type comments” surrounding the situations likely led to CHS losing a deal for a small nonprofit in the north and bigger system in Knoxville.
Though Cash didn’t specifically name the Tennessee health system, his comments indicated the lost deal involved Mercy Health Partners-Tennessee, a seven-hospital system in Knoxville that Catholic Health Partners ultimately decided to sell to Health Management Associates. The same day that Catholic Health announced that HMA is the buyer, CHS made its ‘best and final’ offer for Tenet.
“It was a deal we thought we should have and would have had if it had happened a couple months earlier or later,” Cash said of the Tennessee deal.
CHS decided to offer its best price for Tenet once it was out of the running for the Tennessee deal, he said, in order to resolve the situation and hopefully move forward to other deals.
Local Robert W. Baird analyst Whit Mayo this morning reiterated his 'outperform' rating on shares of Community Health Systems (Ticker: CYH), noting that any outcome in the company's ongoing drama with Tenet Healthcare was good for shareholders by ending a period of uncertainty.
Tenet's rejection of CHS — expected by Mayo and pretty much everyone else who has been following these companies — likely puts that company's stock (Ticker: THC) into a holding pattern. From the note:
We do not find THC's long-term guidance (too bullish in our view) to be very credible, and believe over the intermediate term, the buy-side will likely agree. THC's "hockey stick" outlook seems to set up a difficult, if not improbable growth scenario. We believe THC shares will now move into a holding pattern, trading at a sustained discount to the group average.
The investment group that's been threatening a "no vote" campaign against Community Health Systems directors who are up for re-election has taken action, mailing a letter to shareholders denouncing the hospital company's respone to its — and others' — allegations about CHS' billing practices.
In the letter, available here, CtW Investment Group says CHS has dodged CtW's concerns and "made a series of assertions that are inaccurate and misleading" — which it details in the four-page correspondence. Here's one gem about CHS CEO Wayne Smith's April 29 mention of CtW's allegations:
"Mr. Smith's letter is nothing more than a blatant and offensive attempt to deflect attention from the substantive issues to which management apparently cannot compellingly refute. That board condoned such a letter says more about the board than the letter says about management's antagonistic approach to shareholders."
In other CHS news, Footnoted.org has a look at some of the court filings in Tenet Healthcare's lawsuit against CHS. It points out some less-than-cordial back-and-forth between the parties' attorneys, most of it centered on just how much information Tenet may be getting from former CHS workers. See it here.