Hospital Firms Spar Over Takeover Bid, Fraud Allegations

Tenet Healthcare Corp., a Dallas-based hospital company under siege by Community Health Systems, has sued its competitor and potential parent for allegedly overbilling Medicare.

Tenet alleges — and has hired outside analysts who agree — that CHS, which operates 18 hospitals in Texas, consistently admits emergency room patients who should only be billed for observation, charging Medicare an additional $3,300, on average, per patient. Their analysis indicates that CHS, which follows its own unique admissions protocol, keeps patients in the less-costly observation status far less than many other hospitals, at a cost to Medicare of between $280 million and $377 million between 2006 and 2009.  

Tenet’s lawsuit seeks to force CHS to disclose its patient admissions criteria and billing practices. Tenet officials argue that CHS has at best misled the public and its shareholders, and at worst broken the law. Medicare only reimburses hospitals for treatment that is reasonable and necessary. Patients generally can’t tell the difference between being observed and being admitted — the care is the same — but the billing structure is different. Admitting a patient when only observation is required drives up the cost.

CHS officials say Tenet’s lawsuit, filed in federal court in Dallas, is effectively sour grapes — an effort to stave off CHS’s $3.3 billion hostile takeover bid to acquire the hospital company — and that any allegations of impropriety are unfounded. 

“Tenet’s allegations are completely without merit and we intend to vigorously defend ourselves against these unfounded and irresponsible claims,” the Tennessee-based company said in a statement. “…Its actions today prove that Tenet has adopted a ‘scorched earth’ defense without regard for the best interests of shareholders. The bottom line is that these self-serving allegations are an attempt by Tenet’s management and board to continue their entrenchment strategy and to distract Tenet shareholders from CHS’ pending offer.” 

According to CHS’s own filings with the U.S. Securities and Exchange Commission, the Texas Attorney General’s Office late last year issued civil investigative demands for all of the company’s Texas hospitals over “emergency department procedures and billing.” A year earlier, the Office of the Inspector General of the U.S. Department of Health and Human Services issued a subpoena for documents related to CHS’s admission criteria, billing and compliance in its Laredo hospital.

Tenet officials said they only started investigating the issue this winter, in response to a conference call where CHS proposed opportunities for “synergies.” In particular, they looked at Triad Hospitals, a system CHS acquired in 2007, and found admissions grew dramatically after that company's takeover.