Fighting words at Tenet & Community Health…

May 4, 2011

The no-holds-barred battle between Tenet Healthcare (THC) and Community Health Systems (CYH) would be amusing if there weren’t so much at stake: Tenet is fighting for its independence in the face of a decidedly hostile overture from Community Health; Community Health is now facing so many lawsuits and government inquiries you need a spreadsheet to keep track of them, including a scathing lawsuit from Tenet.

We’ve written about several recent developments over at Footntoed Pro as they’ve happened. Others are doing a fine job of keeping up with the blow-by-blow (including the WSJ and Bloomberg). But on Monday, Tenet gave investors a glimpse of what goes on behind the scenes when lawyers get testy with one another, in one of multiple DEFA14A filings that day. It’s entertaining, and potentially illuminating, stuff.

In addition to various legal motions and the exhaustive list of questions and requests — interrogatories, in lawyer-speak — that Tenet sent CYH as part of its lawsuit, and a brief reference to the Indiana qui tam lawsuit over Community Health’s hospital admission practices, there’s a touchy and affectedly breathless exchange between the companies’ law firms.

In Community Health’s initial letter to Tenet, Kirkland & Ellis attorney Peter Duffy Doyle spins a spiel about CYH’s code of conduct and confidentiality provisions, and then adds:

“I want to alert you that disgruntled, former employees of CHS affiliates and Triad may presently work for, or consult with, Tenet. These individuals may seek to peddle purported information about CHS or Triad, even though they are legally prohibited from disclosing such information. Some malefactors may possess stolen CHS or Triad information, which has been altered, is incomplete, or is outdated. These former employees may harbor grudges and may, with malice, attempt to harm CHS and its affiliates.”

Yikes. Then Doyle proceeds to the threat: “Because the motives of such scofflaws are suspect in all events, there will be serious legal consequences for knowingly, or with willful blindness, relying on stolen or inauthentic documents, or data…” (Points to Doyle for use of the word “scofflaw,” which doesn’t show up in SEC filings very often — less than three dozen times as far back as Edgar goes, that we can tell.) Doyle goes on to hint that he suspects Tenet may be behind still more scurrilous behavior:

“To our shock, we have received troubling reports that uninvited strangers have approached CHS employees, including doctors, and asked questions under false pretenses… lied to them; falsely claimed to be CHS researchers; showed them suspect data; and asked questions about matters related to subject matters raised in your lawsuit. This letter serves as notice of these illegal and unethical pretextual practices. We trust that these pre-texting agents are not working for your firm. … I am confident that your firm will re-check these anonymous sources [cited in the lawsuit] in light of this letter, and investigate the ethics and legality of their methods and practices.

Never fear — Tenet’s lawyers wield a sharp pen as well. Gibson, Dunn & Crutcher attorney Robert C. Walters, for Tenet, starts by politely denying the accusations — “We would not allow or condone these practices. … we are committed to prosecuting our claims by the rules and not through surreptitious information gathering…” — and then moves on to his own kind of taunt:

“[Y]ou should know that we have received many unsolicited calls since the filing of the lawsuit, from a variety of sources in positions to know of such things, confirming conclusions we reached from public data and other sources. Among other things, these callers have confirmed (1) the inappropriate Blue Book admissions criteria and the admission of patients who under accepted clinical practice should be treated in observation; (2) the relentless pressures placed on emergency department doctors by CHS hospital administrators to increase revenues by raising admission conversion rates; (3) and the concomitant pressures imposed on physicians to decrease CHS hospital observation rates.”

The callers, Walters continues,

“are concerned that CHS has failed to operate an effective regulatory compliance program or to treat seriously information provided by whistleblowers. In effect, these callers have confirmed (and added considerably to) what we learned before we filed our Complaint. And nothing we have learned since causes us to doubt the accuracy of a single allegation.”

Given the tenor and posturing of the letters — the shock, the surprise, the delicate and bruised sensibilities — we suspect these letters are written for public consumption as much as anything else. Indeed, Walters, Tenet’s lawyer, accuses CYH of writing its letter as “nothing more than an overt threat” to stop Tenet from talking with CYH employees and physicians, and to “smear … former employees … and to stifle the legitimate collection of important evidence.” We doubt the posturing is all on one side.

All of which makes for decent spectator sport — mud-slinging often is, assuming you don’t have too much riding on the stocks’ performance, that is. But as we said earlier, the stakes are very real. It’ll be interesting to see how it plays out.

Image source: via Wikimedia Commons (read more on bare-knuckle champion John L. “Boston Strong Boy” Sullivan)

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Over at FootnotedPro, we’re batting .300 with last week—s news that Lawson Software (LWSN) is being acquired in a $2 billion deal. Two other companies from our January 14 report on top M&A targets for 2011 have also announced deals: Smurfit-Stone Container (SSCC) and Pride International (PDE). FootnotedPro: Interesting. Actionable. Profitable.

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