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INDIANAPOLIS — Tenet Healthcare has charged rival hospital operator Community Health Systems with systematically bilking Medicare and the burgeoning legal fight sent shares of the entire sector plummeting Monday.
The charges come months after Community launched a $3 billion hostile takeover bid for Tenet. The Dallas company said it uncovered overbilling by Community Health while researching the offer, which Tenet has already rejected.
Tenet Healthcare Corp. claims that Community Health Systems Inc. has squeezed more money out of Medicare by admitting thousands of patients to its hospitals instead of just keeping them for observation.
That sent ripples through the industry, with investors growing antsy over the possibility that the charges from Tenet have invited the prying eyes of federal regulators.
“The whole industry is trading down today because people are worried about an open-ended investigation,” said Oppenheimer analyst Michael Wiederhorn.
Community Health has made a big push to get a foothold in Northeast Pennsylvania in the past three years.
It purchased the Wyoming Valley Health Care System, which included Wilkes-Barre General Hospital; First Hospital, Kingston; and several other ancillary facilities for $271 million on May 1, 2009.
Then just last month a Lackawanna County judge approved the $150 million sale of Scranton’s Mercy Hospital; Mercy Tyler Hospital, Tunkhannock; and Mercy Special Care Hospital, Nanticoke, and affiliated facilities to Community Health.
The system has had issues with unions at multiple hospitals it owns, including Wilkes-Barre General. But the allegations made by Tenet go far beyond labor practices.
Tenet said in a complaint filed Monday that it estimates improper Medicare billings of between $280 million and $377 million over three years, beginning in 2006, for as many as 82,000 patients.
“(Community) artificially increases inpatient admissions for the purpose of receiving substantially higher and unwarranted payments from Medicare and other sources,” Tenet said.
Community adamantly rejected those claims, saying that Tenet wants to distract shareholders from its pending offer.
“Its actions today prove that Tenet has adopted a ‘scorched earth’ defense without regard for the best interests of shareholders,” Community Health said.