Tenet Sues CHS: New Battle Lines in Healthcare Takeovers — Whistleblowing

In what may be seen as a low blow, Tenet Healthcare has used a new tactic to try and fend off a hostile takeover by Community Health Systems. Brentwood, Tenn.-based CHS filed an unsolicited bid to purchase Dallas-based Tenet last November, and Tenet has fended off the acquisition since. Now, Tenet is showing its teeth with a federal lawsuit accusing CHS of overbilling.

Dallas-based Tenet has accused Brentwood, Tenn.-based CHS of systematically overbilling Medicare and unnecessarily converting emergency department visits, or observation stays, into inpatient admissions, which see a substantial difference in Medicare payments. If treated as false claims, Tenet says CHS' conduct could result in liabilities in excess of $1 billion for 2006 to 2009 alone, according to a statement released by the system.

Tenet says it found discrepancies between CHS' admission patterns and the industry when it conducted due diligence to explore potential affiliations with CHS. In a statement, Tenet also claims CHS' stock is worth less than stated and its ability to finance the cash portion of an offer to acquire Tenet "may be impaired." CHS has called the allegations "self-serving" and an attempt to distract Tenet shareholders from CHS' pending offer with a "'scorched earth' defense," according to a company statement.

Analysts from Standard & Poor's are calling the allegations a "major overhang" for CHS stock, which plunged by as much as 45 percent yesterday. At 4 p.m. in NYSE trading, the stock was down $14.41, or 36 percent, at $25.89, according to a Wall Street Journal report. Yet CHS wasn't the only party to see a decline — Tenet's stock fell $1.11 yesterday, or 15 percent, to $6.44, according to the WSJ report.

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