CHS faces $891M class-action lawsuit

The U.S. District Court for Middle Tennessee has certified an $891 million class-action lawsuit filed against Franklin, Tenn.-based Community Health Systems, according to the Nashville Post.

The class-action complaint dates back to 2011 and alleges CHS made misleading statements that resulted in artificially inflated prices for the company's common stock.

The fraud allegations first surfaced in April 2011 in a complaint filed by Dallas-based Tenet Healthcare, which sued CHS to avoid a hostile takeover bid. Immediately after Tenet sued, CHS issued a press release stating Tenet's allegations were meritless. CHS' stock fell nearly 36 percent after Tenet sued.

CHS released weaker-than-expected earnings in October 2011. On an earnings call, Larry Cash, who then served as CHS' CFO, said inpatient admissions had declined at 75 percent of its hospitals after physicians phased out the Blue Book. Blue Book was a guide CHS created that allegedly prompted physicians to provide inpatient services for many conditions other hospitals would treat as outpatient cases. On that same call, CHS Chairman and CEO Wayne Smith said, "there's no question we've had some adverse impact related to issues … around the Tenet lawsuit," according to court documents. The day after the earnings call, CHS' stock price dropped another 11 percent.

Shareholders subsequently sued CHS, claiming they lost a combined $891 million in the little more than six months between when Tenet sued and the day of the earnings call and the executive admissions.

Although CHS continued to deny Tenet's allegations, the company entered into a $98.15 million settlement with the Department of Justice in 2014 to resolve allegations that it knowingly billed government payers for inpatient services that should have been billed as outpatient or observation services.

The district court dismissed the consolidated lawsuit filed by shareholders in 2016. The court said the shareholders failed to show Tenet's lawsuit caused CHS' stock to drop and triggered their losses.

An appeals panel revived the shareholder suit in December 2017, finding that CHS executives' public admissions combined with the fraud allegations were enough to keep the shareholders' lawsuit alive.

The recent class certification means that anyone who purchased CHS shares between July 27, 2006, and April 8, 2011, potentially suffered damages due to the alleged fraud scheme, according to the Nashville Post.

In an Aug. 6 filing with the Securities and Exchange Commission, CHS provided an update on the consolidated lawsuit. The company said the lawsuit is meritless, and it will "vigorously defend this case."

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