CLAIMS AND LAWSUITS | 9 Months Ended |
Sep. 30, 2013 |
CLAIMS AND LAWSUITS | ' |
CLAIMS AND LAWSUITS | ' |
NOTE 10. CLAIMS AND LAWSUITS |
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We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to continue to be instituted or asserted against us. The resolution of any of these matters could have a material adverse effect on our results of operations, financial condition or cash flows in a given period. |
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In accordance with ASC 450, “Contingencies,” and related guidance, we record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and the amount of the loss, or a range of loss, can be reasonably estimated. Where a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range of loss, is not reasonably estimable, based on available information. |
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1. Governmental Reviews—Health care companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. Certain of our individual facilities have received inquiries from government agencies, and our facilities may receive such inquiries in future periods. The following material governmental reviews, which have been previously reported, are currently pending. |
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· Review of Billing Practices for Kyphoplasty Procedures. The U.S. Department of Justice (“DOJ”), in coordination with the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services has contacted a number of hospitals nationwide requesting information regarding their billing practices in connection with kyphoplasty procedures. More specifically, the government is investigating the appropriateness of Medicare patients receiving kyphoplasty — which is a minimally invasive spinal procedure used to treat vertebral compression fractures — on an inpatient as opposed to an outpatient basis. In March 2009, one of our hospitals received an information request from the DOJ regarding these procedures and, in July 2010, we were notified that six additional hospitals were also under review. Following a chart review by our external clinical expert and non-binding discussions with the government, we entered into an agreement with the DOJ in January 2013 for approximately $900,000 (which was previously reserved) to settle claims relating to the first hospital to receive an information request. In September 2012, we reached agreement with the DOJ on the appropriate methodology to review the billing practices of a second hospital, and our expert has completed the chart review for that hospital. As a result, in the three months ended December 31, 2012, management established a reserve, as described below, to reflect the current estimate of probable liability for that second hospital. We are unable to calculate an estimate of loss or a range of loss with respect to the five remaining hospitals under review because (i) our external clinical expert has not completed its report on the billing practices of three of those hospitals, and (ii) we have not reached agreement with the DOJ on the appropriate review methodology with respect to the remaining two hospitals. The parties are currently engaged in non-binding discussions regarding a resolution of all remaining matters in dispute, but it is impossible at this time to predict the outcome of those discussions or the amount of any potential resolution. |
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· Review of Billing Practices for Cardiac Defibrillator Implantation Procedures. The DOJ has contacted a number of hospitals nationwide requesting information regarding their Medicare billing practices in connection with the implantation of cardiac defibrillators. As previously reported, in March 2010, the DOJ issued a civil investigative demand to one of our hospitals pursuant to the federal False Claims Act seeking information to determine if procedures to implant cardiac defibrillators at that hospital from 2002 to 2010 were performed in accordance with Medicare coverage requirements. Also as previously reported, in September 2010, the DOJ notified us that its review may extend to billing procedures at 32 of our other hospitals in addition to the hospital that received the original information request. The number of hospitals under review may increase or decrease depending on the timeframe of the government’s examination. The parties are currently engaged in non-binding discussions regarding a resolution of any potential liability associated with claims submitted to Medicare for the implantation of cardiac defibrillators during the relevant period, but it is impossible at this time to predict the outcome of those discussions or the amount of any potential resolution. |
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· Review of Arrangements with Local Service Provider. As previously reported, we received a subpoena from the OIG in Atlanta seeking documents from January 2004 through May 2012 related to the relationship that Atlanta Medical Center, North Fulton Regional Hospital, South Fulton Medical Center (now Atlanta Medical Center — South Campus) and Spalding Regional Hospital (all located in Georgia) and Hilton Head Hospital (located in South Carolina) had with Hispanic Medical Management, Inc. (“HMM”). HMM is an unaffiliated entity that owns and operates clinics that provide, among other things, prenatal care predominantly to Hispanic women. The hospitals contracted with HMM for translation, marketing, management and Medicaid eligibility determination services. The parallel criminal and civil investigations, which are being conducted by the U.S. Attorney’s Office for the Middle District of Georgia, the U.S. Attorney’s Office for the Northern District of Georgia, the DOJ and the Georgia Attorney General’s Office, relate to HMM’s relationships with various hospitals. The investigations arose out of a qui tam action captioned United States of America, ex. rel. Ralph D. Williams v. Health Management Associates, Inc., et al. filed in the United States District Court for the Middle District of Georgia. We understand the government’s review focuses on whether the arrangements violated the federal and state anti-kickback statutes and false claims acts. We have produced documents and information responsive to the subpoena, have voluntarily produced additional documents, and have had a series of meetings with representatives of the DOJ and the State of Georgia as part of our ongoing cooperation with the government’s review. On April 30, 2013, the U.S. Attorney’s Office and the DOJ filed a notice that the government was choosing not to intervene in the qui tam suit at the time of the filing. The Georgia Attorney General’s Office filed a notice of intervention on May 31, 2013 and filed its complaint in intervention on July 31, 2013. Our response to both complaints must be filed by November 11, 2013, and we intend to vigorously defend these matters. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations. |
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Except with respect to the matter settled in January 2013 involving one hospital, as discussed above, our analysis of these pending reviews is still ongoing, and we are unable to predict with any certainty the progress or final outcome of any discussions with government agencies at this time. Based on currently available information, as of September 30, 2013, we had recorded reserves of approximately $3 million in the aggregate with respect to three hospitals under review for their billing practices for kyphoplasty and cardiac defibrillator implantation procedures. Changes in the reserves may be required in the future as additional information becomes available. We cannot predict the ultimate resolution of any governmental review, and the final amounts paid in settlement or otherwise, if any, could differ materially from our currently recorded reserves. |
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2. Hospital-Related Tort Claim—In August 2013, we settled for $8 million a previously disclosed lawsuit — which is captioned Rosenberg v. Encino-Tarzana Regional Medical Center and Tenet Healthcare Corporation — filed in connection with an alleged April 2006 assault at Tarzana Regional Medical Center (a hospital we divested in 2008). Following a jury trial, and post-trial motions by both parties, the plaintiff had been awarded $9.8 million in damages, attorneys’ fees, interest and expenses. Both parties filed notices appealing all aspects of the final judgment. In the three months ended December 31, 2011, we recorded a reserve of approximately $6 million in discontinued operations for this matter, which reserve was computed as described in our Annual Report on Form 10-K for the year ended December 31, 2011. Following the settlement, we increased the reserve by approximately $2 million in discontinued operations in the three months ended September 30, 2013. |
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3. Class Action Lawsuits Relating to Vanguard Acquisition—On June 24, 2013, we agreed to acquire Vanguard Health Systems, Inc. (“Vanguard”) for $21 per share in cash. On June 25, 2013, a Vanguard stockholder filed a class action lawsuit in the Chancery Court for Davidson County, Tennessee, captioned James A. Kaurich v. Vanguard Health Systems, Inc., et al., and, on June 27, 2013, a second Vanguard stockholder filed a class action lawsuit in the Chancery Court for Davidson County, Tennessee, captioned Marion Edinburgh TTEE FBO Marion Edinburgh Trust U/T/D/ 7/8/1991 v. Vanguard Health Systems, Inc., et al. Both complaints name as defendants Vanguard, Tenet Healthcare Corporation, the merger subsidiary formed for the purpose of completing the merger with Vanguard, and the members of Vanguard’s board of directors, and allege, among other things, that we aided and abetted Vanguard’s directors’ breach of their fiduciary duties with respect to the process and terms of the merger. Both complaints seek to enjoin the merger and to create a constructive trust for the purportedly improper benefits received by Vanguard’s directors. |
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On August 26, 2013, we and the other defendants entered into a memorandum of understanding (“MOU”) with the plaintiffs regarding the settlement of these lawsuits. Under the terms of the MOU, which is subject to customary conditions and court approval, Vanguard agreed to make certain supplemental disclosures related to the merger and to extend the period for its stockholders to exercise their appraisal rights. The MOU also contemplates that the parties will enter into a stipulation of settlement, and that Vanguard will cover the fees and expenses of the plaintiffs’ counsel for an amount that is less than $1 million. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. If the court ultimately approves the settlement, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the merger and any related disclosure, among other claims. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement even if the parties do enter into such stipulation. If the proposed settlement were not to be approved, we would continue to vigorously defend against each of these cases. |
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4. Ordinary Course Matters—Also, as previously reported, we are defendants in a class action lawsuit in which the plaintiffs claim that in April 1996 patient identifying records from a psychiatric hospital that we closed in 1995 were temporarily placed in an unsecure location while the hospital was undergoing renovations. The lawsuit, Doe, et al. v. Jo Ellen Smith Medical Foundation, was filed in the Civil District Court for the Parish of Orleans in Louisiana in March 1997 and is currently pending. The plaintiffs’ claims include allegations of tortious invasion of privacy and negligent infliction of emotional distress. The plaintiffs contend that the class consists of over 5,000 persons; however, only eight individuals have been identified to date in the class certification process. The plaintiffs have asserted each member of the class is entitled to common damages under a theory of presumed “common damage” regardless of whether or not any members of the class were actually harmed or even aware of the incident. We believe there is no authority for an award of common damages under Louisiana law. In addition, we believe that there is no basis for the certification of this proceeding as a class action under applicable federal and Louisiana law precedents. However, the trial court has denied our motions for summary judgment and our motion to decertify the proceeding as a class action, and our attempts to appeal the trial court’s decisions have been unsuccessful. The court is expected to set the matter for trial in the near term. At this time, we are not able to estimate the reasonably possible loss or reasonably possible range of loss given: the small number of class members that have been identified or otherwise responded to the class certification process; the novel theories asserted by plaintiffs, including their assertion that a theory of presumed common damage exists under Louisiana law; and the failure of the plaintiffs to provide any evidence of damages. We intend to vigorously contest the plaintiffs’ claims. |
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In addition to the matters described above, our hospitals are subject to investigations, claims and legal proceedings in the ordinary course of our business. Most of these matters involve allegations of medical malpractice or other injuries suffered at our hospitals. We are also party in the normal course of business to regulatory proceedings and private litigation concerning the terms of our union agreements and the application of various federal and state labor laws, rules and regulations governing, among other things, a variety of workplace wage and hour issues. Furthermore, our hospitals are routinely subject to sales and use tax audits and personal property tax audits by the state and local government jurisdictions in which they do business. The results of the audits are frequently disputed, and such disputes are ordinarily resolved by administrative appeals or litigation. It is management’s opinion that the ultimate resolution of these ordinary course investigations, claims and legal proceedings will not have a material adverse effect on our business, financial condition, results of operations or cash flows. |
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New claims or inquiries may be initiated against us from time to time. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business. |
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The table below presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded during the nine months ended September 30, 2013 and 2012: |
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| | Balances at | | Litigation and | | Cash | | Balances at | |
Beginning | Investigation | Payments | End of |
of Period | Costs | | Period |
Nine Months Ended September 30, 2013 | | | | | | | | | |
Continuing operations | | $ | 5 | | $ | 3 | | $ | (3 | ) | $ | 5 | |
Discontinued operations | | 5 | | 2 | | (1 | ) | 6 | |
| | $ | 10 | | $ | 5 | | $ | (4 | ) | $ | 11 | |
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Nine Months Ended September 30, 2012 | | | | | | | | | |
Continuing operations | | $ | 49 | | $ | 3 | | $ | (48 | ) | $ | 4 | |
Discontinued operations | | 17 | | 0 | | (12 | ) | 5 | |
| | $ | 66 | | $ | 3 | | $ | (60 | ) | $ | 9 | |
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For the nine months ended September 30, 2013 and 2012, we recorded net litigation and investigation costs of $5 million and $3 million, respectively, primarily related to costs associated with various legal proceedings and governmental reviews. |