CHS Opens Another Defense of Medicare Admissions

[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."

Smith's Friday letter to shareholders was the latest twist in CHS's bitter hostile takeover bid for Tenet. Last Thursday, CHS issued a 109-page rebuttal of allegations raised in the Tenet suit. "We believe that the analysis prepared by Tenet Corp. contains contrived statistics that lead to faulty and irresponsible conclusions," Smith said in a conference call with the media and financial analysts.

"The analysis and allegations contain unreliable and inaccurate statements and represent a direct attack on the ethics and judgment of our 16,000 physicians and 85,000 employees. At the end of the day the ultimate decision to admit a patient into a hospital is based on a physician's judgment and medical necessity," Smith said. "Be assured we will defend our reputation. We will dedicate whatever resources are required to reach an ultimate resolution to these matters. And we will work tirelessly to restore any erosion of confidence or trust that may have been caused by these accusations." 

Tenet officials said last week they were not impressed by CHS' rebuttal. "Nothing we heard (Thursday) from Community Health diminishes our confidence in our analysis or allegations. We plan to vigorously pursue our claims in court," Tenet spokesman Rick Black said in a media release.