A Tenet Healthcare Corp. shareholder has sued the hospital chain for misleading investors about its Medicaid reimbursements and the company's health after it unveiled a $514 million settlement over alleged kickbacks.
In a putative class action lawsuit filed in a California federal court on Friday, Nicholas Pennington accused the Dallas-based company of violating the Securities Exchange Act by repeatedly covering up a decadelong Medicaid kickback scheme in filings to the U.S. Securities and Exchange Commission, inflating the company's stock and damaging shareholders.
Earlier this month, Tenet finalized a $514 million settlement stemming from allegations that four of its hospitals made illegal payments to prenatal clinics operated by Clinica de la Mama and Hispanic Medical Management in exchange for patient referrals, which violated the federal anti-kickback statute and Stark law. The settlement caused Tenet's stock prices to drop 4% over the course of a few months.
“As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's common shares, plaintiff and other class members have suffered significant losses and damages,” the lawsuit said.
The putative class action also targets Tenet CEO Trevor Fetter, current Chief Financial Officer Daniel J. Cancelmi and former CFO Biggs C. Porter for their alleged knowledge of the scheme and misleading statements to shareholders.
Tenet declined to comment on the pending litigation on Monday.
As part of the underlying settlement with federal investigators, two former Tenet subsidiaries—Atlanta Medical Center and North Fulton Hospital in Georgia—pled guilty to conspiracy to violate federal anti-kickback laws and defraud the U.S. The federal government noted in its nonprosecution agreement with Tenet that individuals at the hospitals withheld information about the agreements with the clinics from the greater health system and circumvented policies to prevent these arrangements.
Tenet absorbed the settlement in its second-quarter earnings this year as it continued to miss earnings expectations. It also posted a $44 million net loss on continuing operations that quarter, following a $59 million net loss in the first quarter of 2016.