Community Health Systems agreed to pay $53 million to settle allegations that shareholders lost $891 million because executives overstated the investor-owned hospital chain's financial health.
Shareholders initially sued CHS, CEO Wayne Smith and former Chief Financial Officer Larry Cash in 2011, claiming that CHS billed Medicare for unnecessary inpatient stays, which sunk share prices. Smith and Cash sold their CHS shares before the value dropped, netting each more than $7 million, according to the securities fraud lawsuit.
Tenet Healthcare Corp. exposed the alleged Medicare fraud in a separate 2011 lawsuit after the hospital chain rebuffed a buyout offer from CHS. The lawsuit accused CHS of fraudulently billing Medicare for hospital stays when the outpatient setting would have sufficed. CHS allegedly used its Blue Book, a guide that pushed physicians to classify patients as inpatient rather than outpatient. The scheme spanned at least 10 years, according to the lawsuit.
CHS initially denied the claims and said in a statement that it stopped using the Blue Book and switched to a nationally recognized system in 2011. The company did not return requests for comment regarding the settlement agreement.
In 2014, company paid the U.S. Justice Department $98 million to settle an internal whistle-blower's similar fraudulent billing allegations.
CHS has been divesting hospitals to pay down its debt, although it hasn't hit its sales targets.