Healthcare Business News

Medicare whistle-blower cases against HMA may be consolidated

By Joe Carlson
Posted: January 6, 2014 - 7:15 pm ET

Investor-owned hospital chain Health Management Associates is facing enough whistle-blower lawsuits over how its hospitals admit Medicare patients that federal prosecutors and the company are trying to consolidate the cases into a single multidistrict docket.

Seven complaints against the Naples, Fla.-based company have been unsealed in recent weeks, including one late last week in U.S. District Court in Rock Hill, S.C. Federal prosecutors have joined the plaintiffs in each of those False Claims Act cases, and HMA executives have told stockholders to brace for federal officials to intervene in at least eight such lawsuits.

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Traditionally cases in which the government intervenes are more likely to succeed for the whistle-blowers.

HMA shareholders are preparing to vote Wednesday on whether to accept a $3.9 billion buyout offer from Community Health Systems that would create the nation's largest health system by hospital count, with 206 facilities in 29 states. The deal includes a “contingent value right” that would compensate stockholders up to $1 per HMA share for a favorable resolution of HMA's legal woes.

CHS said Monday that its financial results for the year that ended Dec. 31 would reflect weaker than expected volume, with admissions down 6.7% compared with 2012 and admissions adjusted for outpatient activity down 4%. The company also launched a new $2.26 billion long-term credit facility to finance the expected acquisition of HMA.

CHS officials have declined to comment on whether the litigation against HMA could affect interest in the deal. The company is facing its own troubles with federal investigators and last October set aside $98 million for an as-yet unfinalized settlement that would resolve allegations including questionable hospital-admissions practices from 2005 to 2010.

The two companies also have overlapping shareholders—HMA investors already own about 60% of CHS' stock.

In the case unsealed in South Carolina Jan. 3, Michael Cowling, a former CEO of HMA hospitals in Pennsylvania and North Carolina, accuses HMA of encouraging local hospitals to admit Medicare patients for costly inpatient care even though less-expensive outpatient observation care or even discharge would have been more appropriate. The lawsuit also claims HMA paid financial kickbacks to doctors to encourage them to meet companywide benchmarks on the number of patients admitted for inpatient care.

The government has intervened in and unsealed cases alleging similar conduct in Florida, Georgia, Illinois and North Carolina. The eighth case alleging substantially the same allegations remains under seal somewhere in the country, HMA officials say.

The government's motion to intervene in the South Carolina case says federal officials plan to try to consolidate the similar cases into a single district this month.

An HMA spokeswoman said the company has a policy of not commenting on pending litigation but noted that the cases were disclosed in SEC filings in a generalized way long before they were unsealed.

“While our legal team addresses these matters and continues to cooperate with the Department of Justice's ongoing investigation, HMA associates and physicians who practice at our facilities are focused on providing the highest quality patient care in all of our hospitals,” spokeswoman MaryAnn Hodge said in an emailed comment.

As of Monday, HMA had not filed a notice with the Securities and Exchange Commission about the South Carolina case but addressed all eight cases in a Dec. 16 SEC filing: “The company intends to contest the allegations in these matters, including by seeking dismissal of these complaints for, among other things, failure to state a claim or plead with the requisite factual particularity.”

Follow Joe Carlson on Twitter: @MHJCarlson

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