Community Health Systems executives have settled a securities fraud class action lawsuit for $53 million, according to a brief filed Tuesday in federal court.
The lawsuit was filed in 2011 by various shareholders after Dallas-based Tenet Healthcare leaders — who at the time were looking to thwart a potential buyout by CHS — accused the company of multiple counts of fraud by failing to disclose improper admissions practices. Investors claimed those alleged practices artificially inflated CHS’ stock price.
The class action alleged that CHS misused an in-house admissions guide that incentivized physicians to admit Medicare patients to the hospital instead of lower-acuity outpatient facilities and, as a result, allegedly misled investors on the hospital operator’s success. Plaintiffs initially sued for $891 million.
The lawsuit was dropped in 2016 but resurfaced later that year after an appeals panel found that CHS executives admitted the program skewed admissions data in an earnings call in October 2011 — keeping the shareholders’ case alive.
The class action was certified in August to cover all people and entities who bought CHS common stock from July 27, 2006 through April 8, 2011. A group of New York City pension funds serves as class representative.
CHS officials were unable to comment on the settlement prior to publication. Shares of the company (Ticker: CYH) fell 3 percent Tuesday to $2.53. They are essentially flat over the past six months.