A major investor with Community Health Systems, Inc. is urging fellow shareholders of the for-profit hospital chain to vote against the re-election of three board members --- including CFO W. Larry Cash –- for their alleged improper oversight of Medicare billing practices, according to a filing with the Securities and Exchange Commission.
The April 21 letter from William Patterson, executive director of CtW Investment Group was disclosed Thursday morning in a CHS regulatory filing with the SEC.
Patterson asked fellow 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."
Tenet Healthcare Corp. earlier this month made allegations that CHS overbilled Medicare by as much as $377 million using medically unnecessary admissions that improved its bottom line and appeal to investors.
Patterson said CHS failed to act on specific complaints that CtW – the owners of about 470,000 shares of CHS common stock -- raised in a Sept. 28, 2010 letter concerning widespread and improper admitting practices. Those alleged irregularities are at the center of a federal lawsuit filed against CHS byrival Tenet Healthcare Corp., which is fighting CHS' hostile takeover bid. News of the lawsuit earlier this month precipitated a 36% one-day drop in CHS share prices.
Franklin, TN-based CHS has since recovered some of its value but is still trading about 25% lower than before the suit was announced, Patterson said.
On April 8, CHS was subpoenaed by the Department of Health and Human Services' Office of the Inspector General in connection with the issues raised in the Tenet suit. The Texas Attorney General's Office launched a similar investigation last November.
Fry and Ely, as members of the board's Audit and Compliance Committee, are responsible for the failure to address the compliance risks created by CHS' excessive rate of emergency department admissions and to respond to shareholder concerns outlined in the CtW letter, Patterson said.
As CFO, Patterson charges, Cash failed in his responsible to guide the company's financial stability, as evidenced by the declining value of CHS stock, Patterson said.
"In our view, rebuilding credibility with regulators, shareholders and providers begins with holding these directors to account for their failure to address these concerns before the implications of the billing practices rose to such alarming proportions," Patterson said in the letter.
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.