Federal law enforcement agencies have a major advantage when they pursue cases against publicly traded for-profit hospital chainsthe unrelenting scrutiny of investors.
Universal Health Services and Community Health Systems provided updates last week on separate federal investigations that may eventually catch the eye of investors.
Investigations like these always carry the risk of exclusion from Medicare, Medicaid and other government healthcare programs, and that always worries investors, said lawyer Robert Salcido, a partner in the healthcare practice at Akin Gump Strauss Hauer & Feld. If it worries them enough, investors will stop supplying capital to these companies, Salcido said. Thats where the government holds all the cards, he said.
Universal Health Services, King of Prussia, Pa., said Oct. 29 that federal prosecutors are investigating whether the companys South Texas Health System complied with a previously announced subpoena seeking physician contract details. Universal Health disclosed the widened scope of the probe in its third-quarter earnings release. The case appears to focus on possibly illegal payments made to physicians and other individuals, the company said.
Salcido is not familiar with the specifics of Universal Healths case, but he said the investigation is part of an uptick of cases on hospital-physician relationships. Whistle-blowers seem to be at the root of the increase, he added. The key issue with most of these cases is whether the relationship pays physicians at fair-market-value rates. Its going to be important for hospitals, to the extent that they are not already doing this, to be sure that they scrutinize their physician relationships, and the more efforts that they can undertake to ensure that theyre paying fair-market value, the far better off they will be, Salcido said.
Community Health Systems, Franklin, Tenn., said Oct. 31 that the U.S. Justice Department is alleging that three Community Health hospitals in New Mexico submitted claims that caused the state program that reimburses hospitals for indigent patients to file false claims with the federal government.
Federal officials made the assertion in an Oct. 4 letter, said Wayne Smith, chairman, president and chief executive officer of the company. The letter gave an update on a civil investigation that Community Health first learned about in February 2006, involving hospitals in Arkansas and South Carolina as well, securities filings show. Community Healths actions were legal and the company will vigorously defend itself in court if necessary, Smith said.