Zacks_Analysts' Blog : Community Health Resists Tenet Lawsuit - Analyst Blog

A lawsuit filed by Tenet Healthcare Corp. (THC) against rival healthcare operator Community Health Systems Inc. (CYH) is facing resistance from Community Health.

On April 11, 2011, Tenet had filed a lawsuit against Community Health seeking the recovery of an unspecified amount for costs incurred in rejecting takeover attempts by Community Health. The charge also includes the expenses incurred in studying the supposedly “false and misleading proxy solicitations and statements” of Community Health.

However, Community Health appealed to the federal court yesterday, seeking dismissal of the lawsuit on the grounds that Tenet has no legal standing in seeking the recovery of such costs. Community Health further alleges that the lawsuit is Tenet’s attempt to harm Community Health's reputation.

Since November 2010, Tenet had been the target of multiple takeover bids by Community Health that was finally rejected in the latter’s third and final bid in May this year stating undervaluation as the reason.

In an effort to fend off a hostile takeover bid, Tenet had filed another lawsuit against Community Health in April this year citing over-billing of Medicare bills. According to the lawsuit, Community Health has been artificially enhancing its performance over the years by showing more payments from Medicare.

Further, Tenet accused Community Health of increasing its in-patient admissions by admitting thousands of patients into hospitals that should only be kept for outpatient observation, as inpatient admission is more expensive.

However, Community Health has denied the allegations made by Tenet and stated that it conducts business with utmost integrity and adheres to the highest business practice standards. Community Health also claimed that Tenet's action was an effort to distract shareholders from the pending offer.

Although Community Health is no longer attempting to take over Tenet, both the cases are pending in court and it remains to be seen whether the court upholds Community Health’s appeal and rejects Tenet’s latest lawsuit.

Both Tenet and Community Health currently carry a Zacks #3 Rank, which translates into a short term Hold rating.