Community Health Systems is suing St. Francis Hospital in Columbus, Ga., for allegedly concealing a federal investigation while the organizations negotiated a deal that ultimately fell apart.
Community Health Systems, an investor-owned hospital operator based in Franklin, Tenn. claims that St. Francis misrepresented material facts about its legal and regulatory problems and then backed out of the deal when confronted about the issues. The company is suing St. Francis Hospital to recover its $5 million good-faith initial deposit, negotiation expenses, legal fees and punitive damages.
A spokeswoman for Community Health Systems said the company generally doesn't comment on pending litigation. A spokeswoman for St. Francis Hospital didn't return multiple requests for comment on Tuesday.
The legal dispute comes after St. Francis signed a new letter of intent late last month to be acquired by Brentwood, Tenn.-based LifePoint Health. A LifePoint spokeswoman said in a statement that LifePoint "is not involved in this pending litigation; therefore, it would not be appropriate for us to comment about it."
"We understand that St. Francis is working in good faith to resolve this matter," the statement said.
The lawsuit was filed under temporary seal in U.S. District Court in Columbus, Ga., on Aug. 7. CHS requested the seal because it was concerned that certain allegations violated a confidentiality agreement related to the acquisition, but District Judge Clay Land unsealed the case Tuesday, concluding there was no “compelling government interest” to seal the case.
While CHS and St. Francis were in initial talks earlier this year, the Columbus Ledger-Enquirer reported that St. Francis had entered exclusive discussions with Atlanta-based Piedmont Healthcare, which hospital officials said they favored over CHS. When that deal fell through months later, St. Francis Chairman Richard Bradley said it was because Piedmont didn't want to take on the hospital's debt.
But the CHS complaint alleges that Piedmont ended the negotiations because it had discovered that St. Francis was under investigation by the U.S. Department of Housing and Urban Development for potentially violating regulatory requirements. CHS says the hospital repeatedly lied about its legal problems before and after an agreement was signed, failing to disclose the HUD audit and Medicare regulatory problems until the two parties were deep into due diligence and the HUD report was about to be made public.
After CHS told St. Francis it would need assurances from HUD that the hospital wouldn't be affected by the investigation, St. Francis backed out of the deal, saying that the buyer had “modified” their agreement. The hospital has not paid back a $5 million good-faith deposit that it received upon an initial agreement.
CHS says in the suit that it would not have entered talks with St. Francis had it known about the HUD audit because it could affect the hospital's Medicare status. The company also alleged St. Francis violated the exclusivity and confidentiality clauses of the deal by negotiating with other buyers and sharing confidential information even after an agreement was signed with CHS.