CHS Discloses Long List of Pending Legal Matters

The 'very large or indeterminate damages sought in some of these matters' could affect the company's bottom line.

In a quarterly filing to the Securities and Exchange Commission on Wednesday, Community Health Systems outlined a long list of the legal proceedings in which the company is currently involved.

Although an organization as large as CHS is bound to be wrapped up in multiple legal matters at any given time—and being involved in a proceeding does not imply wrongdoing—the length of this list goes to show how entangled in controversy the company has become.

In its filing, CHS notes that state regulators, state Medicaid fraud-control units, the Centers for Medicare & Medicaid Services, the Department of Justice, and other authorities send it inquiries or subpoenas on occasion.

"In addition to the matters discussed below," the filing states, "we are currently responding to subpoenas and administrative demands concerning" the following:

• certain cardiology procedures, medical records and policies at a New Mexico hospital,
• an inquiry regarding sleep labs at two Louisiana hospitals,
• a subpoena regarding wound care services at one of our Florida hospitals (which appears to be related to unsealed cases against Healogics, Inc.),
• a civil investigative demand concerning short-term Medicaid eligibility determinations processed by third party vendors at one of our Pennsylvania hospitals and
• certain cardiology procedures, medical records and quality assurance committee meeting minutes at a Tennessee hospital.

Additionally, CHS notes that it is subject to other claims and lawsuits pertaining to its ordinary business.

"Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company," the filing states.

"However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond our control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period."

Excluding medical malpractice, general liability, and employment claims, the filing lists a number of specific legal proceedings, including the following:

• Class action shareholder federal securities cases: Three class action cases were filed in the U.S. District Court for the Middle District of Tennessee, alleging that those who bought CHS common stock between July 27, 2006, and April 11, 2011, were harmed by misleading statements that artificially inflated the price of CHS stock. The cases were consolidated in 2011; the company's motion to dismiss was granted in 2016; and the plaintiffs appealed to the Sixth Circuit, which reversed the lower court's dismissal in 2017. Last month, the company asked the U.S. Supreme Court to review the Sixth Circuit's decision.
   
• Independent lab billing: A hospital in Dothan, Alabama, received a civil investigative demand (CID) in 2015 from the DOJ for information about whether the facility qualifies as a covered hospital under certain lab bill regulations.
   
• Florida low-income pool program: A hospital in St. Petersburg, Florida, received a CID from the DOJ last September seeking information about its participation in the Florida Low Income Pool Program, which helps cover uncompensated care. The CID pertains to agreements between the hospital and Pinellas County.
   
• Former CFO's lawsuit: Becker v. Community Health Systems, Inc., was filed in 2012 by a former chief financial officer at Rockwood Clinic in Spokane, Washington. It alleges wrongful termination. The plaintiff was awarded about $1.9 million in 2016, but the company has appealed.
   
• Cyberattack: As previously disclosed, the CHS computer network was targeted by "an external, criminal cyber-attack" in 2014. The incident prompted multiple purported class action lawsuits that allege sensitive patient information was inadequately protected. "At this time, we are unable to predict the outcome of this litigation or determine the potential impact, if any, that could result from this litigation," the filing states, "but we intend to vigorously defend these lawsuits."
   
• Charity care allegations: Empire Health Foundation sued CHS in Spokane, Washington, in 2017, accusing the company's Deaconess and Valley Hospitals of failing to meet its charity care obligations under the terms of a 2008 asset purchase agreement. "We believe these claims are without merit and will vigorously defend the case," the filing states.
   
• Arkansas payer contracts: A purported class action lawsuit filed in the U.S. District Court for the Western District of Arkansas in 2015, claims CHS-affiliated Arkansas hospitals violated payer contracts. The court certified the claimants as a class, and CHS reached a tentative settlement. (The company faces similar allegations in at least two other states.)
   
• Quorum: A purported class action lawsuit that seeks to represent Quorum Health Corporation shareholders alleges that CHS violated federal securities laws by failing "to record a goodwill and long-lived asset impairment charge against QHC at the time of the spin-off." Last month, a federal judge denied all defendants' motions to dismiss.

• R2 Investments: An investment firm sued both CHS and Quorum Health Corporation in Tennessee court last fall, alleging common law fraud and state law violations.
   
• Microsoft: The software giant sued CHS in the U.S. District Court for the Middle District of Tennessee in March, alleging willful copyright infringement and other misdeeds pertaining to the continued use of Microsoft products following CHS divestitures. CHS' response to the complaint is due this Monday.

The full list of pending legal proceedings is included under Part II, Item 1, of CHS' Form 10-Q filing for the first quarter of 2018.