"CHS' strategy of driving up admissions and driving down observations is unsustainable," Tenet said. "It depends on a continuing pipeline of acquisitions of hospitals with normal observation rates that can be driven down." Tenet said its research shows that after CHS acquired Triad in 2007, Triad's observation rate dropped 52%.
Tenet said it identified 63,000 Medicare fee-for-service inpatient admissions from 2006-2009 at CHS hospitals that would have been outpatient observations if CHS was within the national average. The high volume and lowest acuity Medicare inpatient admissions paid on average more than $3,300 per patient than for outpatient observation.
Medicare FFS patients generated 27% of CHS' net operating revenue in 2010, Tenet alleged in the complaint. As a result of the alleged unnecessary admissions, Tenet said it identified between $280 million and $377 million in overbillings in 2006-2009.
If Tenet's allegations are true, CHS could be liable for triple damages under the False Claims Act that would be in excess of $1 billion.
CHS insisted in its statement that it "conducts its business with the utmost integrity and adheres to the highest business practice standards. 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's pending offer. Its actions today prove that Tenet has adopted a 'scorched earth' defense without regard for the best interests of shareholders. CHS remains committed to its offer to acquire Tenet and both Credit Suisse and Goldman Sachs have reaffirmed their confidence in financing the transaction."
Tenet said it filed the federal complaint to "compel CHS to disclose fully its unique and non-industry standard patient admissions criteria and billing practices and the financial and legal implications arising from them. The allegedly unusually high admissions at CHS hospitals have resulted in "materially misleading financial reports and statements" that included overstated admissions, revenues, profits, and cash flow, Tenet said.