CHS Opens Another Defense of Medicare Admissions

John Commins, May 2, 2011

[UPDATE: 9:14 AM ET: CHS Raises 'Best and Final' Cash Bid for Tenet

Community Health Systems has launched another defense of its Medicare billing practices.

In a letter to shareholders on Friday, CHS Chairman/CEO/President Wayne T. Smith dismissed what he called "erroneous allegations" brought forward in April by CtW Investment Group, a major investor at CHS that also has ties to the Service Employees International Union.

CtW, which owns about 470,000 shares of CHS common stock has asked fellow shareholders to vote against the re-election of three board members, including CFO W. Larry Cash, for their alleged improper oversight of Medicare billing practices.

The April 21 letter to shareholders from CtW Executive Director William Patterson was disclosed Thursday in a CHS filing with the SEC. In the letter, Patterson urged shareholders to vote against the re-election of board members Cash, James S. Ely III, and John A. Fry, at CHS' annual shareholder meeting on May 17, "given their culpability for the growing scandal surrounding proper oversight of Medicare billing practices, which has precipitated a 25% decline in Community's market value."

On Friday afternoon, Smith fired back with a three-page letter to shareholders, urging them to reject "CtW's meritless and self-serving allegations and to express our firm belief that voting against the re-election of these incumbent directors is contrary to your best interests."

"We believe CtW's erroneous allegations are not based on valid stockholder concerns — but rather reflect its support for both SEIU's ongoing union organizing campaign, and Tenet's ongoing smear campaign, against CHS," Smith said in his letter, making reference to the Service Employees International Union.

Smith's letter continued, "CtW's professed concerns about allegedly inappropriate admissions practices are based on inaccurate data and lead to implausible conclusions. Furthermore, CtW's faulty conclusions fail to take into account the single most important aspect of admission decisions — the critical role of physician judgment and decision-making in the treatment of patients. The fact is that CtW's allegations are simply not true."

John Commins

John Commins is a senior editor at HealthLeaders Media.

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