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From Becker’s Hospital Review last week (…/appellate-court-rev…): “On Wednesday, the Sixth Circuit U.S. Court of Appeals revived a shareholder class-action lawsuit against Franklin, Tenn.-based Community Health Systems, alleging the for-profit hospital operator deceived shareholders by keeping secret that its profits were based on Medicare fraud.”

The reference to Medicare fraud is derived from a Tenet Healthcare complaint that CHS improperly used a “Blue Book Guide” for emergency room physicians to admit patients for conditions that might have been treated as outpatient services.The investigation of that complaint by CMS caused CHS to agree to an eventual settlement (without admitting liability) of $98 million plus a later $60 million settlement relating to the actions of the CHS board of directors.

As modern Healthcare reported (…/20171214/…/171219937…):
– U.S. Circuit Judge Raymond Kethledge wrote for the panel, “The lulling misrepresentations thus served the same function as the earlier ones: to convince investors that (CHS’) revenues were sustainable when in fact they were not. All the misrepresentations served the same fraud.”
– “The shareholders initially sued CHS, CEO Wayne Smith and former CFO Larry Cash in 2011, claiming that revelations about CHS’ alleged practice of billing Medicare for more expensive and unnecessary inpatient stays prompted the downturn that ultimately lost them money. The shareholders say they lost $891 million, and claim that Smith and Cash avoided the shareholders’ fate by selling their own CHS shares before their value dropped, netting each over $7 million.Kethledge wrote in the appellate court’s opinion that lots of securities claims fail to prove a ‘strong interference’ of fraudulent intent. These plaintiffs do, ‘not least because of the remarkable timing of Smith’s and Cash’s stock sales,’ he wrote.”…/20171214/…/171219937…

The bottom line:
– ASL Strategic Value describes itself as a “long-term investor” in CHS and four months ago called for the replacement of the company’s board chair and CEO Wayne Smith (…/chs-investor-calls-…). “CHS has lost approximately 50% of its capital over the past 17 years.During this time, Mr. Smith received compensation of more than $350 million. . .”
– The ASL request seems extreme considering Smith’s earlier successes. However, one cannot deny that CHS seems involved in a daunting number of lawsuits and settlements that continue to drain the company of profits, a significant amount earned at Lutheran Health Network (LHN).
– NICHE has been heartened by promises to spend here and to rebuild LHN.We hope to hear from local LHN administrators that these costs and legal distractions will not interfere with their plans for an upgraded Lutheran Hospital and a new St. Joseph’s Hospital. Details of those plans will be most appreciated by this community.