CtW Investment Group is calling for shareholders to vote against the re-election of three Community Health Systems directors over concern about the company’s Medicare and Medicaid billing practices, which are also subject of a Department of Health and Human Services subpoena, according to a statement from the union-affiliated corporate governance activist group.
The directors “are most culpable for the board’s failure to properly oversee compliance, regulatory, and reputational risk management,” William Patterson, the group’s executive director, wrote in a letter to the company.
“Management’s troubling disregard for the looming compliance crisis facing Community Health shareholders only reinforces the importance of proactive board supervision and engagement with concerned shareholders,” according to a group statement Monday.
The three directors are W. Larry Cash, executive vice president and CFO; and James S. Ely III and John A. Fry, both members of the audit and compliance committee of the board of directors.
“The audit and compliance committee is charged with overseeing the effectiveness of management’s enterprise risk management process,” the CtW letter stated. Audit and compliance committee members Messrs. Ely and Fry “must bear responsibility for that committee’s failure to timely respond to shareholder concerns,” the CtW letter stated, raising allegations of excessive emergency department admissions. Also, Mr. Cash, “as the executive with primary responsibility for ensuring the company’s financial stability … must also be held accountable for his role in adopting billing practices (that allegedly) threaten the investments of long-term shareholders,” the letter stated.
Community Health disclosed on Friday that it had been subpoenaed by the HHS Department’s office of inspector general “in connection with an investigation of possible improper claims submitted to Medicare and Medicaid,” according to a company statement. The department asked for “information about our relationships with emergency department physicians, including financial arrangements,” according to the CHS statement. The request also “appears to concern emergency department processes and procedures,” including their use of a Tenet Healthcare Corp. software system that assists with the management of patient care and operational support and data collection for emergency department management.
Also, Monday Community Health revised its bid to acquire Tenet Healthcare to $6 in cash per share from $5 in cash and $1 in CHS stock, according to a CHS statement.
Tenet’s board of directors plans to review the revised offer “to determine the course of action that it believes is in the best interests of the company and its shareholders,” according to a Tenet statement.
CHS’ initial $5 cash/$1 stock offer made Nov. 12 was rejected by Tenet on Dec. 6.
Tenet on April 11 filed suit against CHS in U.S. District Court for the Northern District of Texas, raising allegations about the company’s business practices.
“We do not know if the subpoena is related in any way to the allegations contained in the lawsuit,” a CHS statement said.
The CtW group works on shareholder issues with pension funds sponsored by unions affiliated with Change to Win, a federation of unions. The funds with which the group works own a combined 470,000 CHS shares.
Tomi Galin, CHS vice president-corporate communications, couldn’t be reached for comment.
The CHS annual meeting is May 17.
