A Tennessee federal judge on Tuesday approved a $60 million agreement Franklin, Tenn.-based Community Health Systems and its executives inked with investors to resolve breach of fiduciary duty allegations.
In 2011, CHS shareholders filed derivative actions alleging the company's directors and some of its officers breached their fiduciary duties by causing CHS to engage in a fraud scheme to maximize reimbursement payments from Medicare and other payers. The derivative actions were consolidated in September 2011, and the plaintiffs filed an amended consolidated complaint in March 2012.
In the amended complaint, the investors claim CHS executives caused the company to implement an unlawful inpatient admissions policy, which allegedly enabled CHS to artificially inflate reimbursement payments.
At the direction of the court, the parties began engaging in settlement negotiations in April 2015, which resulted in the parties reaching a $60 million agreement in late 2016. CHS' board unanimously approved the settlement on Nov. 2, and the court signed off on the agreement Jan. 17.
CHS executives and board members who agreed to settle include:
- Wayne T. Smith, chairman of the board and CEO
- W. Larry Cash, member of the board, president of financial services and CFO
- John A Clerico, member of the board of directors
- John A. Fry, member of the board of directors
- William Norris Jennings, MD, member of the board of directors
- Julia B. North, member of the board of directors
- H. Mitchell Watson Jr., member of the board of directors
The settling defendants continue to deny the plaintiffs' claims and didn't admit any wrongdoing under the settlement.
All parties involved said they agreed to settle to avoid the expense, uncertainty and risks of litigation.
The settlement comes more than two years after CHS agreed to pay more than $98 million to resolve a government investigation into its billing practices. The Department of Justice began an investigation into CHS' billing practices in 2011. The government claimed CHS billed Medicare, Medicaid and Tricare for expensive short-stay admissions through emergency departments, which should have been billed as outpatient or observations cases.
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