Tenet launches legal war against rival suitor

April 11, 2011

Tenet Healthcare filed a complaint today against rival hospital operator Community Health Systems (CHS) accusing the company of systematically bilking Medicare hundreds of millions of dollars—a move that caused both companies’ stocks to plummet. [SanFranciscoChronicle]

Tenet alleges the Nashville based company, CHS, improperly billed Medicare between $280 million and $377 million over three years, beginning in 2006, by unnecessarily admitting 82,000 patients to its hospitals.

The charges come months after CHS launched a $3 billion hostile takeover bid for Tenet Healthcare which is the parent company of several Central Coast medical facilities, including Sierra Vista Regional Hospital in San Luis Obispo; Twin Cities Community Hospital in Templeton; imaging centers MRI of San Luis Obispo and Selma Carson DIS.

Tenet said it uncovered the CHS overbilling while researching the offer, which it has since rejected. The Dallas based company claims CHS’s stock has been artificially inflated for years.

In a statement CHS responded, “Tenet’s allegations are completely without merit and we intend to vigorously defend ourselves against these unfounded and irresponsible claims.”

The news sent shareholders of both companies reeling today.

CHS shares plummeted 34 percent, or $13.65, to $26.65, and trading was halted at least four times due to the volatility under extraordinarily heavy volume.

Tenet shares fell more than 13 percent, or $1.03, to $6.52, the largest drop of any company in the Standard & Poor’s 500 index.

“Its actions today prove that Tenet has adopted a ‘scorched earth’ defense without regard for the best interests of shareholders,” CHS said.

Despite the new legal battle brought forth today, the company reaffirmed its commitment to acquire Tenet Healthcare.