Community Health Systems, Inc. CYH subsidiary Health Management Associates (HMA) will pay more than $260 million to settle whistleblower lawsuits alleging wide-ranging misconduct in emergency rooms. This includes $62.5 million to settle allegations that HMA forced physicians to make unnecessary admissions to its hospitals.

HMA was charged for intentionally and systematically getting patients admitted to hospitals. The company would then charge the government for those unnecessary admissions.

One of the lawsuits claimed that the company has earmarked a certain percentage of the patients it received to be hospitalized. This percentage was based on the amount of profitability the company has projected. The physicians were then forced to prescribe patients for unwanted hospitalization. The company would then get reimbursements from the government on Medicare and Medicaid on account of such patients.

HMA became part of Community Health Systems in 2014 via its acquisition by the latter. The deal added approximately 70 hospitals to the acquirer’s portfolio, making Community Health Systems one of the largest hospital chains in the country. These fraud cases are related to events occurring over the 2008-2012 period, a couple of years before Community Health Systems bought the company in 2014.

A $260-million charge will not be much of a shocker to Community Health Systems, which was aware of the ongoing probe at the time of purchasing HMA. Community Health Systems therefore created a payment provision for these charges during the acquisition. It also revamped HMA’s management by changing all the directors and senior executives from its board. The settlement includes a non-prosecution agreement and the government will not slap any criminal charges against Community Health Systems.

However, the company has been grappling with low admissions. Year to date, its same-store admissions declined 2.2% and adjusted admissions slid 1%. In an effort to improve its admissions volumes, the company has undertaken numerous hospital divestitures in low-growth areas. The organization wants to commit toward future investments in attractive locations, which can contribute to its growth.

Year to date, the stock has shed 18.5% of value versus the industry’s growth of 34%.

Cases of whistleblower lawsuits are rampant across the hospital industry in the United States as players try all sorts of unlawful means to achieve profits. In June, a unit of LifePoint Health Inc. LPNT was made to pay $0.8 million in a similar unwanted hospital admission fraud case.   

Community Health Systems carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Medpace Holdings, Inc. MEDP, sporting a Zacks Rank #1 (Strong Buy) and HCA Healthcare, Inc. HCA with a Zacks Rank #2 (Buy).

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Both Medpace and HCA Healthcare beat earnings estimates in three of the trailing four quarters with an average positive surprise of 24% and 8.24%, respectively.

 

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