CHS Discloses Federal Subpoenas

Community Health Systems Inc. said Wednesday it is fighting legal battles on several fronts that include subpoenas from two federal oversight agencies.

In a filing with the Securities and Exchange Commission, Franklin, TN-based CHS disclosed that it has been has been subpoenaed separately by the SEC, and the Department of Health and Human Services Office of Inspector General in Houston.

The SEC subpoena, dated May 13, requests "documents related to or requested in connection with the various inquiries, lawsuits, and investigations regarding, generally, emergency room admissions or observation practices at our hospitals," CHS CFO W. Larry Cash said in the SEC filing. "The subpoena also requests documents relied upon by the company in responding to the Tenet litigation, as well as other communications about the Tenet litigation."

The May 10 subpoena from HHS OIG calls for 71 patient medical records from a CHS hospital in Shelbyville, TN to be sent to the Assistant U.S. Attorney handling the OIG investigation of a CHS hospital in Laredo, TX. "We are unaware of any connection between these two facilities other than they are both affiliated with us. We will cooperate fully with the Department of Justice and the Office of the Inspector General in this investigation," Cash said in the SEC filing.

Also Wednesday, Cash said in the SEC filing that rival Tenet Healthcare Corp. -- until last week the subject of a hostile takeover attempt by CHS -- has filed an amended lawsuit in federal court in Dallas that "expands on the unverified facts set out in its prior complaint (filed April 11, 2011) and continues to assert that a mathematical difference between our observation visit rate and/or inpatient admission rate and industry averages is, in and of itself, fraudulent."

Cash said the refiled suit seeks an award of costs and disbursements that Tenet purportedly incurred in analyzing alleged false and/or misleading disclosures in CHS' proxy solicitations and related statements. "The suit arises out of the now withdrawn offers to acquire the common stock of Tenet and notification of an intention to nominate directors at Tenet's annual meeting of stockholders," Cash said in the filing. "We believe the allegations are without merit and will vigorously defend this suit."

Finally, Cash said in the SEC filing that CHS is a defendant in at least two shareholder lawsuits filed in federal court in Nashville. "Although we have not yet been served in either case, we are aware that two lawsuits have been filed, both in U.S. District Court for the Middle District of Tennessee. Norfolk County Retirement System v. Community Health Systems, Inc., Wayne T. Smith, and W. Larry Cash was filed on May 9. De Zheng v. Community Health Systems, Inc., Wayne T. Smith, and W. Larry Cash was filed on May 12," Cash said in the SEC filing.

"Both suits seek class certification on behalf of purchasers of our common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for our common stock. We believe these suits are without merit and will vigorously defend them."

In a somewhat related filing with the SEC earlier on Wednesday, CHS said that shareholders had overwhelmingly reelected three board members this week, including Cash, despite the call by one investor group to toss them out.

William Patterson, executive director of CtW Investment Group, in an April 21 letter to fellow shareholders, had called for the ouster of Cash, and board members James S. Ely III, and John A. Fry, "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."

Patterson was referring to Tenet's allegations in a lawsuit filed in April that CHS overbilled Medicare by as much as $377 million using medically unnecessary admissions that improved its bottom line and appeal to investors.

CHS abandoned its hostile takeover bid for Dallas-based Tenet earlier this month, after the Tenet board unanimously rejected what CHS called its "best and final offer" of $7.25 per share cash, or about $4.1 billion. Tenet CEO Trevor Fetter and Tenet board chair Edward A. Kangas said in a letter to Smith that the offer "grossly undervalues the company and is not in the best interests of Tenet or its shareholders."