Tenet’s law­suit against Com­mu­nity dis­missed

Modern Healthcare - - NEWS - Beth Kutscher

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

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