Community Health Systems has reportedly received a subpoena from the Securities and Exchange Commission seeking documents related to its emergency room admissions and observations practices at its hospitals.
The subpoena was disclosed in a May 18 securities filing by CHS – as was a second subpoena, filed by the Houston office of the U.S. Department of Health and Human Services' Office of the Inspector General, requesting that 71 patient records from its Shelbyville, Tenn., hospital be sent to the Assistant U.S. Attorney handling an ongoing investigation of a CHS hospital in Laredo, Texas.
The news comes as CHS faces widening legal challenges, most of which have come as a result of its unsuccessful hostile takeover bid for Tenet Healthcare, which it had launched in early December 2010 and abandoned on May 9.
[See also: Tenet files lawsuit against Community Health Systems; Feds widen probe of Community Health Systems' outpatient billing methods]
According to the filing, the SEC subpoena requests documents used in response to a lawsuit, filed by Tenet, that charged CHS with systematically overbilling Medicare by underusing patient observations and instead admitting patients – a practice which resulted in higher reimbursements to the hospital operator.
Tenet filed the lawsuit April 11 and recently amended the complaint to include additional information on its accusation of overbilling. The lawsuit was filed as Tenet defended itself against the CHS hostile bid and seeks reimbursement for costs and disbursements related to filing the lawsuit.
The Tenet lawsuit, ongoing government investigations of billing practices and the failed takeover have combined to wreak significant damage to CHS stock. Since April 11, the company's shares have traded near $30 per share, more than 25 percent lower than its closing price the day before the lawsuit was filed.
The company noted it is aware of two lawsuits filed in U.S. District Court for the Middle District of Tennessee that seek to certify a class on behalf of CHS shareholders who purchased stock between July 27, 2006 and April 11, 2011, alleging that misleading statements by the company led to an inflated stock price.
CHS said it had not been served with either complaint as of May 18.