Tenet’s lawsuit against Community dismissed
CHS’ ugly battle to acquire Tenet ends with dismissal of lawsuit
The unsuccessful takeover attempt Community Health Systems waged to acquire Tenet Healthcare Corp. became one of the uglier hostile merger bids in the hospital space. Last week brought some closure to the players involved, as a U.S. District Court in Dallas, where Tenet is based, threw out a lawsuit Tenet had brought against Community. Tenet had been seeking to recoup costs it incurred during the proxy fight.
But the suit didn’t end there. Tenet had also charged Brentwood, Tenn.-based Community with having improper admissions policies, and alleged that Community had overbilled Medicare by using short-stay admissions instead of observation.
In a research note, Sheryl Skolnick, an analyst at CRT Research, observed that the suit had originally sought to get Community to disclose its admissions practices, but was amended to include damages after Community withdrew its bid last May.
“When a target launches all the missiles it has … it can create a collateral damage.”
—Joe Lupica, Newpoint Healthcare Advisors
The suit largely faltered on a technicality. In her ruling granting Community’s motion to dismiss, Judge Barbara Lynn agreed that Tenet, as a corporation, did not have standing to recover damages, and that only shareholders with voting rights could do so.
Yet the case had been closely watched not only as the prologue to the failed megamerger, but because it put the entire hospital sector on watch.
Tenet’s allegations prompted Community to be subpoenaed by HHS’ inspector general’s office—and then by the Securities and Exchange Commission. Community disclosed in a July earnings call that same-facility admissions declined 5.6% in the second quarter compared with the same period in 2010.
The fallout depressed not only Community’s shares, but also share prices across the hospital sector, as fears mounted that regulators could initiate sweeping investigations.
“When a target launches all the missiles it has … it can create a collateral damage,” said Joe Lupica, chairman of Newpoint Healthcare Advisors. “That kind of activity can take a bite out of the market capitalization (of the industry) as a whole.”
The end of the lawsuit does not necessarily mean companies are out of the woods. But David Peknay, director, corporate ratings at Standard & Poor’s, said the ratings agency does