Community Health Negotiating End to U.S. Billing Probe

Community Health Systems Inc., the second-largest U.S. hospital system, is negotiating with the Justice Department to resolve investigations into five years of admissions and a hospital in Laredo, Texas.

While a deal isn’t complete, Community Health took a third-quarter charge of $98 million, or 65 cents a share, for a legal reserve to cover the claims and expenses in connection with the probes, the Franklin, Tennessee-based company said yesterday in a statement.

Community Health, with 135 hospitals in 29 states, is acquiring Health Management Associates, of Naples, Florida, which operates 71 U.S. hospitals in 15 states, mainly in non-urban areas. Like others in the sector, the hospital chain has been grappling with declining patient volume and higher-than-anticipated bad debts that have helped to stall revenue growth. The investigations into admissions and billing practices, disclosed in 2011, also have hung over the company, analysts said.

The legal costs announced yesterday reduced net income from continuing operations to $21.6 million, or 4 cents a share, from $58.8 million, or 50 cents, a year earlier. Revenue increased less than 1 percent to $3.2 billion as admissions for the hospital chain fell 6.8 percent. Adjusted same-hospital admissions declined 3.9 percent from the period a year earlier.

“This is highly anticipated at this point,” said Brian Tanquilut, an analyst at Jefferies & Co. in Nashville, Tennessee, referring to the admissions decline in an interview before the earnings were released.

Estimates Topped

Excluding one-time items, earnings per share were 72 cents, topping by 4 cents the average of 21 analysts’ estimates compiled by Bloomberg.

The hospital company’s shares rose 1.8 percent to $43.63 at the close in New York. Community Health has gained 59 percent in the past 12 months.

Community Health was subpoenaed in 2011 by federal investigators seeking documents related to billings for Medicare, the U.S. health plan for the elderly and disabled, and Medicaid, the government program for the poor. The company said in July it received an additional subpoena relating to the investigation.

The negotiations with the Justice Department concern short-stay hospital admissions from 2005 to 2010 and an investigation into the Laredo hospital, Community Health said in the statement. The legal reserve doesn’t cover claims related to an investigation from Tricare, Medicaid or other legal expenses, the company said.

(Updates with closing share price in seventh paragraph.)
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