Community Health says Tenet "misguided and wrong"

CHICAGO Thu Apr 28, 2011 6:27pm EDT

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CHICAGO (Reuters) - Community Health Systems Inc (CYH.N), which has been trying to buy Tenet Healthcare Corp (THC.N), rejected Tenet's accusations that it improperly admitted patients to its hospitals, calling its smaller rival "misguided and wrong."

Community Health said it would work tirelessly to defend its reputation against Tenet's claims that it admitted patients to its facilities at a higher rate than other hospitals while observing fewer patients on an out-patient basis.

"We believe that Tenet's contrived statistics lead to faulty and irresponsible conclusions," Community Health Chief Executive Wayne Smith said on Thursday during a conference call in which the company discussed its first-quarter results and rebutted Tenet's accusations in a lengthy slide presentation.

Community Health executives on the call declined to take questions from analysts about Tenet's allegations and did not discuss the $3.3 billion bid for its uncooperative takeover target.

Community Health said it expects the accusations made by Tenet to have no material impact on operations going forward.

It said its organization, employees and physicians adhere to high ethical standards, its management team has high credibility and a strong reputation, and its compliance program is a model in the industry.

Tenet's claims are a "direct and unfair attack" on the ethics and judgment of the company's 16,000 physicians, with whom the decision to admit a patient to the hospital ultimately rests, Smith said.

"Be assured we will defend our reputation. We will work tirelessly to restore any erosion of confidence or trust that may have been caused by these accusations," the CEO said.

Community Health, the second-largest U.S. hospital operator, announced in December an unsolicited $6-per-share bid for No. 3-ranked Tenet, which has been working to fend off the overture ever since.

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In an unusual swipe at an unwanted suitor, Tenet filed a lawsuit on April 11 accusing Community Health of admitting patients for unnecessary hospital stays to inflate profits by overcharging Medicare and private insurers.

"Nothing we heard today from Community Health diminishes our confidence in our analysis or allegations," said Tenet spokesman Rick Black.

"We plan to vigorously pursue our claims in court."

Community Health has filed a motion to dismiss the suit, saying it is without merit, and said it will cooperate fully with all government inquiries.

The U.S. Department of Justice, multiple federal prosecutors' offices and the Office of the Inspector General for the Department of Health and Human Services are investigating the claims.

In the 110-page slide presentation, Community Health said that in the past two weeks it has reconstructed and tested Tenet's analyses of its hospital admissions practices.

Its preliminary conclusion "leads us to believe that Tenet is misguided and wrong," it said.

Tenet draws false conclusions based on biased use of selectively chosen data, Community Health said.

It defended its patient admissions criteria, which it said its physicians and other healthcare professionals had developed over time, and noted that Medicare does not endorse any one brand of screening guidelines.

"High-quality patient care and safety are our most important priorities. Our entire workforce is a model for other organizations," Smith said.

Community Health sweetened its $6-a-share offer for Tenet on April 18, changing it to all cash from a mix of cash and stock, but has not raised the offer price.

Tenet rejected the revised offer, insisting the price "grossly undervalues" the company.

Community Health posted slightly better-than-expected earnings results late on Wednesday.

Shares of Community Health, which have fallen 23 percent since Tenet filed its lawsuit, closed down 3 cents at $31.32 on the New York Stock Exchange. Tenet shares fell 1 cent to close at $6.93, still above Community's offer price, suggesting investors believe Tenet is still in play.

(Reporting by Susan Kelly; editing by Gerald E. McCormick, Tim Dobbyn, Gary Hill)

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