A federal district court judge on Wednesday dismissed, with prejudice, the lawsuit brought against Community Health Systems (CHS) by Tenet Healthcare last spring, as it sought to fend off CHS' hostile takeover bid.
The lawsuit filed by Tenet accused CHS of improperly billing Medicare for higher-paying admissions rather than lower-paying outpatient observations. It also sought to recoup costs it had incurred fighting off the attempted takeover. U.S. District Court Judge Barbara Lynn dismissed the case, with prejudice, saying Tenet had no standing to bring the action.
Wayne T. Smith, chairman, president and CEO of Community Health Systems, Inc., said in a press release announcing the ruling: "We believe Tenet's Board and management team initiated this litigation for the purpose of distracting shareholders from our bid to buy their company. From the inception of this lawsuit, we have said there was no basis for Tenet to pursue its self-serving litigation. Today's ruling brings a conclusion to Tenet's unfounded lawsuit and we are pleased to put it behind us."
The ruling is perhaps the last chapter in what was a protracted hostile takeover bid of Tenet initiated by CHS in late 2010. The original bid of $6 per share for Tenet was soon trumped by Wall Street speculators who pumped the price per share above $7.50, thinking CHS's bid might bring another bidder to the table for Tenet.
Tenet employed a number of different maneuvers to avoid the takeover attempt, including a posion pill provision to make accumulating large blocks of Tenet stock financially untenable, delaying its annual meeting to avoid a proxy fight and also filing the lawsuit, which accused CHS of systematic Medicare fraud.
The lawsuit prompted CHS to mount a lengthy defense of its billing practices included as part of its Q1 2011 earnings conference call.
CHS eventually raised its offer for Tenet shares to $7.25 – or more than $4 billion – calling it the "last and best" offer it would make for the company. Tenet promptly rejected the offer and CHS soon after ceased the takeover attempt.
While the judgment in its lawsuit went against the company, Tenet spokesman Rick Black said the company was not backing down in its accusations against CHS.
"It's important to remember that this was not a ruling on the substantive claims regarding Community Health's admission policies; rather this ruling was based on the technical issue of whether Tenet had standing, following Community Health's decision to drop its takeover attempt, to recover costs incurred during Community Health's proxy fight," said Black in a prepared statement.