CHS Asks Federal Judge to Toss Tenet Suit

Community Health Systems, Inc. has asked a federal judge in Dallas to throw out a "baseless lawsuit" brought by rival Tenet Healthcare Corp., alleging that CHS practices widespread and systematic overbilling of Medicare.

In a petition filed in U.S. District Court for the Northern District of Texas on Tuesday, Franklin, TN-based CHS said the Tenet suit is "entirely without merit and contains a number of fatal flaws."

CHS said that its move this week to reconfigure its Tenet buyout offer to $6 a share in cash – replacing a previous offer of cash and stock -- negates Tenet's primary basis for a federal securities lawsuit. "Now that the offer is all cash, and the stock component has been eliminated, so has Tenet's pretext for alleging a securities law violation.  For this reason alone, Tenet's claim must be dismissed," CHS said in its filing.

Dallas-based Tenet issued a brief statement in response to the CHS filing, stating: "This changes nothing. We intend to vigorously prosecute our claims."

The CHS filing is the latest twist in a very public and very bitter battlebetween the rival for-profit hospital chains. Last November, Tenet's board rejected what it said was a "grossly undervalued" acquisition offer by CHS, of $6 per share, which included $5 per share in cash and $1 per share in CHS common stock. Scorned, CHS went public with its offer in December, alleging that the Tenet board was keeping its shareholders in the dark about the deal. CHS announced plans in January to pack the Tenet board with its own proxy candidates, who would approve the acquisition.

Earlier this month, Tenet filed the federal suit alleging that CHS overbilled Medicare by as much as $377 million using medically unnecessary admissions that improved its bottom line and appeal to investors. CHS has denied the allegations, but last week confirmed that it has received a subpoena, dated March 31, from the Office of Inspector General, related to an investigation of "possible improper claims submitted to Medicare and Medicaid."

• Tenet's suit attacks the ethics and professional judgment of thousands of attending physicians at CHS-affiliated hospitals, which has no basis and is not material to the proxy contest concerning the election of Tenet's directors. 
• Tenet is not seeking to compel CHS to disclose facts, but instead is attempting to compel CHS to confess some sort of culpability, which has no basis under the securities laws. 
• A ruling for CHS will dispose of this case in its entirety.