UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SAMEH M. YAMANY, Individually and
On Behalf of All Others Similarly Situated,
Plaintiff,
v.
TENET HEALTHCARE CORPORATION,
TREVOR FETTER, and DANIEL J.
CANCELMI,
Defendants.
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§ Case No. 3:16-cv-2848
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§ DEMAND FOR JURY TRIAL
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CLASS ACTION COMPLAINT FOR VIOLATION OF
THE FEDERAL SECURITIES LAWS
Plaintiff Sameh M. Yamany (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by his undersigned attorneys, for his complaint against Defendants, alleges the
following based upon personal knowledge as to himself and his own acts, and information and
belief as to all other matters, based upon, inter alia, the investigation conducted by and through
his attorneys, which included, among other things, a review of the Defendants’ public
documents, conference calls and announcements made by Defendants, U.S. Securities and
Exchange Commission (“SEC”) filings, wire and press releases published by and regarding
Tenet Healthcare Corporation (“Tenet” or the “Company”), analysts’ reports and advisories
about the Company, and information readily obtainable on the Internet. Plaintiff believes that
substantial evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
1
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of a class consisting of all
persons other than Defendants who purchased or otherwise acquired Tenet securities between
February 26, 2013 and September 30, 2016, both dates inclusive (the “Class Period”), seeking to
recover damages caused by Defendants’ violations of the federal securities laws and to pursue
remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange
Act”) and Rule 10b-5 promulgated thereunder, against the Company and certain of its top
officials.
2.
Tenet, together with its subsidiaries, primarily operates acute care hospitals and
related healthcare facilities. The Company operates through three segments: Hospital Operations
and Other, Ambulatory Care, and Conifer. As of December 31, 2015, the Company operated 86
hospitals, 20 short-stay surgical hospitals, approximately 475 outpatient centers, and 9 private
hospitals and clinics, as well as 249 ambulatory surgery centers, 20 imaging centers, and 35
urgent care centers in the United Kingdom.
3.
Tenet was founded in 1967 and is headquartered in Dallas, Texas. Tenet’s stock
trades on the New York Stock Exchange (“NYSE”) under the ticker symbol “THC.”
4.
Throughout the Class Period, Defendants made materially false and misleading
statements regarding the Company’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i) certain of
Tenet’s hospitals had paid kickbacks for obstetric referrals; (ii) these kickbacks were in violation
of federal law; (iii) these kickbacks subjected Tenet to the risk of heightened regulatory scrutiny,
as well as substantial fines; and (iv) as a result of the foregoing, Tenet’s public statements were
materially false and misleading at all relevant times.
2
5.
On August 1, 2016, post-market, Tenet announced that the Company had reached
an agreement in principle with federal and state authorities pursuant to which the Company
would pay nearly $514 million to settle allegations that four Tenet hospitals in Georgia and
South Carolina paid kickbacks for obstetric referrals.
Under the settlement, two Tenet
subsidiaries would plead guilty to one count of conspiracy to violate federal kickback laws.
6.
On this news, Tenet’s share price fell $1.34, or 4.64%, to close at $27.57 on
August 2, 2016.
7.
On October 3, 2016, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing that the Company had finalized the agreement in principle
described supra at ¶ 5.
8.
On this news, Tenet’s share price fell $0.91, or 4.02%, to close at $21.75 on
October 3, 2016.
9.
As a result of Defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
10.
The claims asserted herein arise under and pursuant to §§10(b), 14(e) and 20(a) of
the Exchange Act (15 U.S.C. §§78j(b), 78n(e) and 78t(a)) and Rule 10b-5 promulgated
thereunder by the SEC (17 C.F.R. §240.10b-5).
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §§1331 and 1337, and Section 27 of the Exchange Act, 15 U.S.C. §78aa.
12.
Venue is proper in this Judicial District pursuant to §27 of the Exchange Act and
28 U.S.C. §1391(b), as Defendant Tenet is headquartered in this Judicial District.
3
13.
In connection with the acts, conduct and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
PARTIES
14.
Plaintiff, as set forth in the attached Certification, acquired Tenet securities at
artificially inflated prices during the Class Period and was damaged upon the revelation of the
alleged corrective disclosures.
15.
Defendant Tenet is incorporated in Nevada, and the Company’s principal
executive offices are located at 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202. Tenet’s
common stock trades on the NYSE under the ticker symbol “THC.” Tenet may be served with
process by serving its registered agent, CT Corporation System at 1999 Bryan Street, Suite 900,
Dallas, Texas 75201.
16.
Defendant Trevor Fetter (“Fetter”) has served at all relevant times as the
Company’s Chief Executive Officer, President, and Director. Fetter may be served with process
at Tenet’s principal executive offices located at 1445 Ross Avenue, Suite 1400, Dallas, Texas
75202.
17.
Defendant Daniel J. Cancelmi (“Cancelmi”) has served at all relevant times as the
Company’s Chief Financial Officer. Cancelmi may be served with process at Tenet’s principal
executive offices located at 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202.
18.
The Defendants referenced above in ¶¶ 16-17 are sometimes referred to herein as
the “Individual Defendants.”
4
SUBSTANTIVE ALLEGATIONS
Background
19.
Tenet, together with its subsidiaries, primarily operates acute care hospitals and
related healthcare facilities. The Company operates through three segments: Hospital Operations
and Other, Ambulatory Care, and Conifer. As of December 31, 2015, the Company operated 86
hospitals, 20 short-stay surgical hospitals, approximately 475 outpatient centers, and 9 private
hospitals and clinics, as well as 249 ambulatory surgery centers, 20 imaging centers, and 35
urgent care centers in the United Kingdom.
20.
Tenet was founded in 1967 and is headquartered in Dallas, Texas. Tenet’s stock
trades on the NYSE under the ticker symbol “THC.”
Materially False and Misleading Statements Issued During the Class Period
21.
The Class Period beings on February 26, 2013, when Tenet filed an Annual
Report on Form 10-K with the SEC, announcing the Company’s financial and operating results
for the quarter and year ended December 31, 2012 (the “2012 10-K”). For the quarter, Tenet
reported net income of $4.1 billion, or $0.73 per diluted share, on revenue of $20.6 billion,
compared to net income of $3.4 billion, or $0.61 per diluted share, on revenue of $21.49 billion
for the same period in the prior year. For 2012, Tenet reported net income of $152 million, or
$1.30 per diluted share, on revenue of $9.12 billion, compared to net income of $82 million, or
$0.48 per diluted share, on revenue of $8.65 billion for 2011.
22.
In the 2012 10-K, Tenet stated, in part:
ANTI-KICKBACK AND SELF-REFERRAL REGULATIONS
***
In accordance with our ethics and compliance program, which is described in
detail under “Compliance and Ethics” below, we have policies and procedures in
place concerning compliance with the Anti-kickback Statute and the Stark law,
5
among others. In addition, our ethics and compliance, law and audit services
departments systematically review a substantial number of our arrangements with
referral sources to determine the extent to which they comply with our policies
and procedures and with the Anti-kickback Statute, the Stark law and similar state
statutes.
***
Review of Arrangements with Local Service Provider. 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 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 predominately to Hispanic women. The hospitals contracted with HMM for
translation services, marketing services and Medicaid eligibility assistance. The
investigation is being conducted by the U.S. Attorney’s Office for the Middle
District of Georgia along with the Civil Division of the DOJ. We understand the
government’s review focuses on whether the arrangements violated the federal
Anti-kickback Statute and False Claims Act. We have produced documents and
information responsive to the subpoena and are cooperating with the
government’s review. At this time, we are unable to determine the potential
impact, if any, that will result from the final resolution of this investigation.
23.
The 2012 10-K contained signed certifications pursuant to the Sarbanes Oxley
Act of 2002 (“SOX”) by the Individual Defendants, stating that the financial information
contained in the 2012 10-K was accurate and disclosed any material changes to the Company’s
internal control over financial reporting.
24.
On April 30, 2013, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended March 31, 2012 (the “Q1 2013 8-K”). For the quarter, Tenet reported a net
loss of $88 million, or $0.85 per diluted share, on revenue of $2.39 billion, compared to net
income of $64 million, or $0.53 per diluted share, on revenue of $2.30 billion for the same
period in the prior year.
6
25.
Also on April 30, 2013, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q1 2013 8-K
and reporting in full the Company’s financial and operating results for the quarter ended March
31, 2013 (the “Q1 2013 10-Q”). In the Q1 2013 10-Q, Tenet stated, in part:
Review of Arrangements with Local Service Provider. 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 known as 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
and Medicaid eligibility determination services. The investigation, which is 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 and the DOJ, relates
to HMM’s relationships with various hospitals. We understand the government’s
review focuses on whether the arrangements violated the federal Anti-kickback
Statute and False Claims Act. We have produced documents and information
responsive to the subpoena and are cooperating with the government’s review. At
this time, we are unable to determine the potential impact, if any, that will result
from the final resolution of this investigation.
26.
The Q1 2013 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q1 2013 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
27.
On August 6, 2013, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended June 30, 2013 (the “Q2 2013 8-K”). For the quarter, Tenet reported a net loss
of $50 million, or $0.49 per diluted share, on revenue of $2.42 billion, compared to a net loss of
$2 million, or $0.04 per diluted share, on revenue of $2.27 billion for the same period in the prior
year.
7
28.
Also on August 6, 2013, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q2 2013 8-K
and reporting in full the Company’s financial and operating results for the quarter ended June 30,
2013 (the “Q2 2013 10-Q”). In the Q2 2013 10-Q, Tenet stated, in part:
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 known as
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 and Medicaid eligibility determination services. The
investigation, which is 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 relates to HMM’s
relationships with various hospitals. The investigation arises 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 Count 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 and are cooperating 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 this time. 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. If the qui tam action continues, we
will vigorously defend the matter. At this time, we are unable to determine the
potential impact, if any, that will result from the final resolution of this
investigation.
29.
The Q2 2013 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q2 2013 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
8
30.
On November 4, 2013, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended September 30, 2013 (the “Q3 2013 8-K”). For the quarter, Tenet reported net
income of $28 million, or $0.27 per diluted share, on revenue of $2.41 billion, compared to net
income of $41 million, or $0.37 per diluted share, on revenue of $2.22 billion for the same
period in the prior year.
31.
Also on November 4, 2013, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q3 2013 8-K
and reporting in full the Company’s financial and operating results for the quarter ended March
31, 2013 (the “Q3 2013 10-Q”). In the Q3 2013 10-Q, Tenet stated, in part:
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
9
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.
32.
The Q3 2013 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q3 2013 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
33.
On February 24, 2014, Tenet filed an Annual Report on Form 10-K with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2013 (the “2013 10-K”). For the quarter, Tenet reported a net loss of $62 million,
or $0.45 per diluted share, on revenue of $2.33 million for the same period in the prior year. For
2013, Tenet reported a net loss of $134 million, or $1.32 per diluted share, on revenue of $11.10
billion, compared to net income of $152 million, or $1.30 per diluted share, on revenue of $9.12
billion for 2012.
34.
In the 2013 10-K, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action— As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals 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
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
investigation is being conducted by the Civil Division of the DOJ, the U.S.
Attorney’s Office for the Middle District of Georgia and the Georgia Attorney
General’s Office, while the parallel criminal investigation is being conducted by
the Criminal Division of the DOJ and the U.S. Attorney’s Office for the Northern
District of Georgia.
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.
10
filed in the U.S. District Court for the Middle District of Georgia. Tenet and four
of its hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. The Georgia Attorney General’s Office,
on behalf of the State of Georgia, has intervened in the qui tam action and, on
February 18, 2014, the Civil Division of the DOJ and the U.S. Attorney’s Office
for the Middle District of Georgia filed a motion seeking leave of court to
intervene in the action on behalf of the United States. Our motion to dismiss,
which was filed on November 8, 2013, is pending.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal health care programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves. Management has established a reserve, as described
below, to reflect the current estimate of probable liability for these matters, but it
is impossible at this time to predict the amount and terms of any potential
resolution. We will continue to vigorously defend against the government’s
allegations.
35.
The 2013 10-K contained signed certifications pursuant to the Sarbanes Oxley
Act of 2002 (“SOX”) by the Individual Defendants, stating that the financial information
contained in the 2013 10-K was accurate and disclosed any material changes to the Company’s
internal control over financial reporting.
36.
On May 5, 2014, Tenet issued a press release and filed a Current Report on Form
8-K with the SEC, announcing certain of the Company’s financial and operating results for the
quarter ended March 31, 2014 (the “Q1 2014 8-K”). For the quarter, Tenet reported a net loss of
$32 million, or $0.33 per diluted share, on revenue of $3.93 billion, compared to a net loss of
$88 million, or $0.85 per diluted share, on revenue of $2.39 billion for the same period in the
prior year.
37.
Also on May 5, 2014, Tenet filed a Quarterly Report on Form 10-Q with the SEC,
reiterating the financial and operating results previously announced in the Q1 2014 8-K and
11
reporting in full the Company’s financial and operating results for the quarter ended March 31,
2014 (the “Q1 2014 10-Q”). In the Q1 2014 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals had with Hispanic Medical
Management, Inc. (“HMM”). HMM was an unaffiliated entity that owned and
operated clinics that provided, among other things, prenatal care predominantly to
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
investigation is being conducted by the Civil Division of the DOJ, the U.S.
Attorney’s Office for the Middle District of Georgia and the Georgia Attorney
General’s Office, while the parallel criminal investigation is being conducted by
the Criminal Division of the DOJ and the U.S. Attorney’s Office for the Northern
District of Georgia.
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 U.S. District Court for the Middle District of Georgia. Tenet and four
of its hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. The Georgia Attorney General’s Office,
on behalf of the State of Georgia, has intervened in the qui tam action and the
United States filed its complaint in intervention on March 18, 2014. Our motion
to dismiss both the state’s and the relator’s complaints, which was filed in
November 2013, is pending. We plan to file our motion to dismiss the United
States’ complaint in May 2014.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal healthcare programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves. Management has established a reserve, as described
below, to reflect the current estimate of probable liability for these matters, but it
is impossible at this time to predict the amount and terms of any potential
resolution. We will continue to vigorously defend against the government’s
allegations.
38.
The Q1 2014 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q1 2014 10-Q was
12
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
39.
On August 4, 2014, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended June 30, 2014 (the “Q2 2014 8-K”). For the quarter, Tenet reported a net loss
of $26 million, or $0.27 per diluted share, on revenue of $4.04 billion, compared to a net loss of
$50 million, or $0.49 per diluted share, on revenue of $2.42 billion for the same period in the
prior year.
40.
Also on August 4, 2014, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q2 2014 8-K
and reporting in full the Company’s financial and operating results for the quarter ended June 30,
2014 (the “Q2 2014 10-Q”). In the Q2 2014 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals had with Hispanic Medical
Management, Inc. (“HMM”). HMM was an unaffiliated entity that owned and
operated clinics that provided, among other things, prenatal care predominantly to
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
investigation is being conducted by the Civil Division of the DOJ, the U.S.
Attorney’s Office for the Middle District of Georgia and the Georgia Attorney
General’s Office, while the parallel criminal investigation is being conducted by
the Criminal Division of the DOJ and the U.S. Attorney’s Office for the Northern
District of Georgia.
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 U.S. District Court for the Middle District of Georgia. Tenet and four
of its hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. Both the Georgia Attorney General’s
Office, on behalf of the State of Georgia, and the U.S. Attorney’s Office, on
13
behalf of the United States, have intervened in the qui tam action. We submitted
answers to the complaints filed by the relator, the State of Georgia and the United
States on July 15, 2014 following the court’s denial of our motions to dismiss in
June 2014. On July 25, 2014, the civil court granted the United States’ unopposed
motion to stay discovery in the case.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal healthcare programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves. In a Bill of Information filed on July 23, 2014 with the
U.S. District Court for the Northern District of Georgia, Atlanta Division, the U.S.
Attorney for that District asserted charges of one count of criminal conspiracy
against a former owner of HMM (a non-employee of Tenet) related to the
agreements between HMM and the Tenet hospitals described above. In a separate
Bill of Information also filed with the court on July 23, 2014, the U.S. Attorney
asserted charges of one count of criminal conspiracy against a former employee of
a Tenet hospital, but such charges relate to an unaffiliated entity. Management has
established a reserve, as described below, to reflect the current estimate of
probable liability for these matters, but it is impossible at this time to predict the
amount and terms of any potential resolution. We will continue to vigorously
defend against the government’s allegations.
41.
The Q2 2014 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q2 2014 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
42.
On November 3, 2014, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended September 31, 2012 (the “Q3 2014 8-K”). For the quarter, Tenet reported net
income of $9 million, or $0.09 per diluted share, on revenue of $4.18 billion, compared to net
income of $28 million, or $0.27 per diluted share, on revenue of $2.41 billion for the same
period in the prior year.
14
43.
Also on November 3, 2014, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q3 2014 8-K
and reporting in full the Company’s financial and operating results for the quarter ended
September 30, 2014 (the “Q3 2014 10-Q”). In the Q3 2014 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals had with Hispanic Medical
Management, Inc. (“HMM”). HMM was an unaffiliated entity that owned and
operated clinics that provided, among other things, prenatal care predominantly to
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
investigation is being conducted by the Civil Division of the DOJ, the U.S.
Attorney’s Office for the Middle District of Georgia and the Georgia Attorney
General’s Office, while the parallel criminal investigation is being conducted by
the Criminal Division of the DOJ and the U.S. Attorney’s Office for the Northern
District of Georgia.
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 U.S. District Court for the Middle District of Georgia. Tenet and four
of its hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. Both the Georgia Attorney General’s
Office, on behalf of the State of Georgia, and the U.S. Attorney’s Office, on
behalf of the United States, have intervened in the qui tam action. We submitted
answers to the complaints filed by the relator, the State of Georgia and the United
States on July 15, 2014 following the court’s denial of our motions to dismiss in
June 2014. The parties have agreed to stay discovery in the case until March 31,
2015.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal healthcare programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves. In a Bill of Information filed on July 23, 2014 with the
U.S. District Court for the Northern District of Georgia, Atlanta Division, the U.S.
Attorney for that District asserted charges of one count of criminal conspiracy
against a former owner of HMM (a non-employee of Tenet) related to the
15
agreements between HMM and the Tenet hospitals described above. In a separate
Bill of Information also filed with the court on July 23, 2014, the U.S. Attorney
asserted charges of one count of criminal conspiracy against a former employee of
a Tenet hospital, but such charges relate to an unaffiliated entity. It is impossible
at this time to predict with any certainty the amount and terms of any potential
resolution of these matters; however, we believe the amount of the reserve
established continues to reflect our current estimate of probable liability. We will
continue to vigorously defend against the government’s allegations.
44.
The Q3 2014 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q3 2014 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
45.
On February 23, 2015, Tenet filed an Annual Report on Form 10-K with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2014 (the “2014 10-K”). For the quarter, Tenet reported net income of $61
million, or $0.61 per diluted share, on revenue of $4.47 billion, compared to a net loss of $24
million, or $0.24 per diluted share, on revenue of $3.89 billion for the same period in the prior
year. For 2014, Tenet reported a net income of $12 million, or $0.12 per diluted share, on
revenue of $16.60 billion, compared to a net loss of $134 million, or $1.32 per diluted share, on
revenue of $11.10 billion for 2013.
46.
In the 2014 10-K, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action —As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals had with Hispanic Medical
Management, Inc. (“HMM”). HMM was an unaffiliated entity that owned and
operated clinics that provided, among other things, prenatal care predominantly to
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
16
investigation is being conducted by the Civil Division of the DOJ, the U.S.
Attorney’s Office for the Middle District of Georgia and the Georgia Atto rney
General’s Office, while a parallel criminal investigation is being conducted by the
Criminal Division of the DOJ and the U.S. Attorney’s Office for the Northern
District of Georgia.
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 U.S. District Court for the Middle District of Georgia. We and four of
our hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. Both the Georgia Attorney General’s
Office, on behalf of the State of Georgia, and the U.S. Attorney’s Office, on
behalf of the United States, have intervened in the qui tam action. We submitted
answers to the complaints filed by the relator, the State of Georgia and the United
States on July 15, 2014 following the court’s denial of our motions to dismiss in
June 2014. The parties have agreed to stay discovery in the case until March 31,
2015.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal healthcare programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves. In a Bill of Information filed on July 23, 2014 with the
U.S. District Court for the Northern District of Georgia, Atlanta Division, the U.S.
Attorney for that District asserted charges of one count of criminal conspiracy
against a former owner of HMM (a non-employee of Tenet) related to the
agreements between HMM and the Tenet hospitals described above. In a separate
Bill of Information also filed with the court on July 23, 2014, the U.S. Attorney
asserted charges of one count of criminal conspiracy against a former employee of
a Tenet hospital, but such charges relate to an unaffiliated entity. It is impossible
at this time to predict with any certainty the amount and terms of any potential
resolution of these matters; however, we believe the amount of the reserve
established , as described below, continues to reflect our current estimate of
probable liability. We will continue to vigorously defend against the
government’s allegations.
47.
The 2014 10-K contained signed certifications pursuant to the Sarbanes Oxley
Act of 2002 (“SOX”) by the Individual Defendants, stating that the financial information
contained in the 2014 10-K was accurate and disclosed any material changes to the Company’s
internal control over financial reporting.
17
48.
On May 4, 2015, post-market, Tenet issued a press release and filed a Current
Report on Form 8-K with the SEC, announcing certain of the Company’s financial and operating
results for the quarter ended March 31, 2015 (the “Q1 2015 8-K”). For the quarter, Tenet
reported net income of $47 million, or $0.47 per diluted share, on revenue of $4.42 billion,
compared to a net loss of $32 million, or $0.33 per diluted share, on revenue of $3.93 billion for
the same period in the prior year.
49.
Also on May 4, 2015, post-market, Tenet filed a Quarterly Report on Form 10-Q
with the SEC, reiterating the financial and operating results previously announced in the Q1
2015 8-K and reporting in full the Company’s financial and operating results for the quarter
ended March 31, 2015 (the “Q1 2015 10-Q”). In the Q1 2015 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—As previously reported,
we received a subpoena in May 2012 from the Office of Inspector General
(“OIG”) of U.S. Department of Health and Human Services in Atlanta seeking
documents from January 2004 through May 2012 related to the relationship that
certain of our Georgia and South Carolina hospitals had with Hispanic Medical
Management, Inc. (“HMM”). HMM was an unaffiliated entity that owned and
operated clinics that provided, among other things, prenatal care predominantly to
uninsured patients. The hospitals contracted with HMM for translation,
marketing, management and Medicaid eligibility determination services. The civil
investigation is being conducted by the Civil Division of the U.S. Department of
Justice (“DOJ”), the U.S. Attorney’s Office for the Middle District of Georgia and
the Georgia Attorney General’s Office, while a parallel criminal investigation is
being conducted by the Criminal Division of the DOJ and the U.S. Attorney’s
Office for the Northern District of Georgia.
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 U.S. District Court for the Middle District of Georgia. We and four of
our hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. Both the Georgia Attorney General’s
Office, on behalf of the State of Georgia, and the U.S. Attorney’s Office, on
behalf of the United States, have intervened in the qui tam action. We submitted
answers to the complaints filed by the relator, the State of Georgia and the United
States in July 2014 following the court’s denial of our motions to dismiss in June
18
2014. This civil matter has since been stayed pending further proceedings in the
criminal case described below.
In a Bill of Information filed on July 23, 2014 with the U.S. District Court for the
Northern District of Georgia, Atlanta Division, the U.S. Attorney for that District
asserted charges of one count of criminal conspiracy against a former owner of
HMM (a non-employee of Tenet) related to the agreements between HMM and
the Tenet hospitals described above. In a separate Bill of Information also filed
with the court on July 23, 2014, the U.S. Attorney asserted charges of one count
of criminal conspiracy against a former employee of a Tenet hospital, but such
charges relate to an unaffiliated entity. On April 10, 2015, the DOJ informed us
that our four hospital subsidiaries that are Defendants in the qui tam action
have also been designated as targets of the government’s criminal investigation.
If we or our subsidiaries were determined to have violated the anti-kickback
statutes, the government could require us to reimburse related government
program payments received during the subject period, assess civil monetary
penalties including treble damages, exclude individuals or subsidiaries from
participation in federal healthcare programs, or seek criminal sanctions against
current or former employees of our hospital subsidiary companies or the hospital
companies themselves.
It is impossible at this time to predict with any certainty the amount and terms of
any potential resolution of these matters; however, we believe the amount of the
reserve established, as described below, continues to reflect our current estimate
of probable liability. We will continue to vigorously defend against the
government’s allegations.
(Emphasis added.)
50.
On this news, Tenet’s share price fell $1.60, or 3.23%, to close at $47.89 on May
5, 2015.
51.
The Q1 2015 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q1 2015 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
52.
On August 3, 2015, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended June 30, 2015 (the “Q2 2015 8-K”). For the quarter, Tenet reported a net loss
19
of $61 million, or $0.61 per diluted share, on revenue of $4.49 billion, compared to a net loss of
$26 million, or $0.27 per diluted share, on revenue of $4.04 billion for the same period in the
prior year.
53.
Also on August 3, 2015, Tenet filed a Quarterly Report on Form 10-Q with the
SEC, reiterating the financial and operating results previously announced in the Q2 2015 8-K
and reporting in full the Company’s financial and operating results for the quarter ended June 30,
2015 (the “Q2 2015 10-Q”). In the Q2 2015 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—We received a subpoena
in May 2012 from the Office of Inspector General (“OIG”) of U.S. Department of
Health and Human Services in Atlanta seeking documents from January 2004
through May 2012 related to the relationship that certain of our Georgia and
South Carolina hospitals had with Hispanic Medical Management, Inc. (“HMM”).
HMM was an unaffiliated entity that owned and operated clinics that provided,
among other things, prenatal care predominantly to uninsured patients. The
hospitals contracted with HMM for translation, marketing, management and
Medicaid eligibility determination services. The civil investigation is being
conducted by the Civil Division of the U.S. Department of Justice (“DOJ”), the
U.S. Attorney’s Office for the Middle District of Georgia and the Georgia
Attorney General’s Office, while a parallel criminal investigation is being
conducted by the Criminal Division of the DOJ and the U.S. Attorney’s Office for
the Northern District of Georgia.
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 U.S. District Court for the Middle District of Georgia. We and four of
our hospital subsidiaries are Defendants in the qui tam action, which alleges that
the arrangements the hospitals had with HMM violated the federal and state antikickback statutes and false claims acts. Both the Georgia Attorney General’s
Office, on behalf of the State of Georgia, and the U.S. Attorney’s Office, on
behalf of the United States, have intervened in the qui tam action. We submitted
answers to the complaints filed by the relator, the State of Georgia and the United
States in July 2014 following the court’s denial of our motions to dismiss in June
2014. This civil matter had been stayed since July 2014 pending further
proceedings in the criminal case described below; however, on June 22, 2015, the
court entered an order partially lifting the stay and allowing limited discovery to
proceed.
In a Bill of Information filed on July 23, 2014 with the U.S. District Court for the
Northern District of Georgia, Atlanta Division, the U.S. Attorney for that District
20
asserted charges of one count of criminal conspiracy against a former owner of
HMM (a non-employee of Tenet) related to the agreements between HMM and
the Tenet hospitals described above. In a separate Bill of Information also filed
with the court on July 23, 2014, the U.S. Attorney asserted charges of one count
of criminal conspiracy against a former employee of a Tenet hospital, but such
charges relate to an unaffiliated entity. On April 10, 2015, the DOJ informed us
that our four hospital subsidiaries that are Defendants in the qui tam action have
also been designated as targets of the government’s criminal investigation. On
May 6, 2015, we received a grand jury subpoena pursuant to which the DOJ
informed us that it is seeking additional documents pertaining to the four
hospitals, as well as other hospitals in our Southern region. These are hospitals
that might have had interactions during the period from January 2000 through
May 2015 with certain individuals who are targets of the pending criminal
investigation. We are in the process of producing responsive documents to this
subpoena.
As previously disclosed, if we or our subsidiaries are determined to have violated
the anti-kickback statutes in connection with the civil matter discussed above, the
government could require us to reimburse related government program payments
received during the subject period and assess civil monetary penalties including
treble damages. If we or our subsidiaries are determined in the criminal
proceeding to have violated the anti-kickback statutes, the sanctions could also
include exclusion from participation in federal healthcare programs or criminal
sanctions against current or former employees of our hospital subsidiary
companies or the hospital companies themselves. Because these criminal
investigations and proceedings are at an early stage, it is impossible at this time to
predict with any certainty the terms, or potential impact on our business or
financial condition, of any potential resolution of these matters. We will continue
to vigorously defend against the government’s allegations.
Management has established a reserve of approximately $20 million to reflect
the low end of the range of probable liability in connection with the civil matter
discussed above. However, changes in the reserve may be required in the future
as additional information becomes available, and the ultimate amount required to
resolve such matter could materially exceed the reserve.
(Emphases added.)
54.
The Q2 2015 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q2 2015 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
21
55.
On November 2, 2015, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing certain of the Company’s financial and operating results for
the quarter ended September 30, 2015 (the “Q3 2015 8-K”). For the quarter, Tenet reported a net
loss of $29 million, or $0.29 per diluted share, on revenue of $4.69 billion, compared to net
income of $9 million, or $0.09 per diluted share, on revenue of $4.18 billion for the same period
in the prior year.
56.
Also on November 11, 2015, Tenet filed a Quarterly Report on Form 10-Q with
the SEC, reiterating the financial and operating results previously announced in the Q3 2015 8-K
and reporting in full the Company’s financial and operating results for the quarter ended
September 30, 2015 (the “Q3 2015 10-Q”). In the Q3 2015 10-Q, Tenet stated, in part:
Clinica de la Mama Investigations and Qui Tam Action—As previously
disclosed, we and four of our hospital subsidiaries are Defendants in civil
litigation (United States of America, ex rel. Ralph D. Williams v. Health
Management Associates, Inc., et al.) that alleges that our hospital subsidiaries’
contractual arrangements with Hispanic Medical Management, Inc. (“HMM”)
violated the federal and state anti-kickback statutes and false claims acts. HMM
owned and operated clinics that provided, among other things, prenatal care
predominantly to uninsured patients. The hospital subsidiaries contracted with
HMM for translation, marketing, management and Medicaid eligibility
determination services. The civil litigation originated as a qui tam lawsuit.
Subsequently, the Georgia Attorney General’s Office and the U.S. Attorney’s
Office intervened in the qui tam action. The four hospitals that are Defendants in
the proceeding are: Atlanta Medical Center, North Fulton Hospital, Spalding
Regional Hospital and Sylvan Grove Hospital.
In addition to the litigation, the civil and criminal divisions of the U.S.
Department of Justice (“DOJ”) are conducting civil and criminal investigations of
us, certain of our subsidiaries, and current and former employees with respect to
the contractual arrangements between HMM and the four hospitals. We believe
that the investigations focus on various time periods for each hospital (ranging
from three months to 13 years) during which the respective hospital provided care
to HMM patients. We are cooperating in the investigations and have responded,
and continue to respond, to document and other requests pursuant to subpoenas
issued to us and the four subsidiaries. Additional information regarding the
procedural history of these investigations and the related qui tam action is
22
contained in our Quarterly Report on Form 10-Q for the period ended June 30,
2015.
Although we intend to vigorously contest any allegations that we or our four
hospital subsidiaries violated the law, it is not possible at this time to predict the
ultimate outcome of the pending litigation, which has not yet proceeded to trial,
nor the ultimate outcome of the government’s ongoing civil and criminal
investigations. However, if the plaintiffs in the pending civil litigation were to
prevail, the potential sanctions could include reimbursement of relevant
government program payments received by the four hospital subsidiaries for
uninsured HMM patients treated at the hospitals, the assessment of civil monetary
penalties, including treble damages, and potential exclusion from participation in
federal healthcare programs. In addition, if we or our subsidiaries were
determined in any potential criminal proceeding to have violated the federal antikickback statute, the sanctions would also include fines, which could be
significant, mandatory exclusion from participation in federal healthcare
programs, or criminal sanctions against current or former employees. To the
extent that either the civil or the criminal matter discussed above is determined
adversely to our interests, such determination could have a material adverse effect
on our business, financial condition or cash flows.
57.
The Q3 2015 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q3 2015 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
58.
On February 22, 2016, Tenet filed an Annual Report on Form 10-K with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2015 (the “2015 10-K”). For the quarter, Tenet reported a net loss of $97 million,
or $0.98 per diluted share, on revenue of $5.03 billion, compared to net income of $61 million,
or $0.62 per diluted share, on revenue of $4.47 billion for the same period in the prior year. For
2015, Tenet reported a net loss of $140 million, or $1.41 per diluted share, on revenue of $18.63
billion, compared to net income of $12 million, or $0.12 per diluted share, on revenue of $16.60
billion for 2014.
59.
In the 2015 10-K, Tenet stated, in part:
23
Clinica de la Mama Qui Tam Action and Criminal Investigation —As previously
disclosed, we and four of our hospital subsidiaries are Defendants in civil qui tam
litigation (United States of America, ex rel. Ralph D. Williams v. Health
Management Associates, Inc., et al.) that alleges that the contractual arrangements
between each of Atlanta Medical Center, North Fulton Hospital, Spalding
Regional Medical Center and Hilton Head Hospital and Hispanic Medical
Management, Inc. (“HMM”) violated the federal and state anti-kickback statutes
and false claims acts. HMM owned and operated clinics that provided, among
other things, prenatal care predominantly to uninsured patients. Beginning in
2000, the hospital subsidiaries contracted with HMM for translation, marketing,
management and Medicaid eligibility determination services. Subsequently, the
Georgia Attorney General’s Office and the U.S. Attorney’s Office intervened in
the qui tam action.
If the plaintiff in the pending civil litigation were to prevail, the potential
sanctions could include up to three times the reimbursement of relevant
government program payments received by the four hospital subsidiaries for
uninsured HMM patients treated at the hospitals, the assessment of civil penalties
and potential exclusion from participation in federal healthcare programs.
Also as previously disclosed, the U.S. Department of Justice (“DOJ”) is
conducting a criminal investigation of us, certain of our subsidiaries and former
employees with respect to the contractual arrangements between HMM and the
four hospitals. We are cooperating in the investigation and have responded, and
continue to respond, to document and other requests pursuant to subpoenas issued
to us and the four subsidiaries. If we or our subsidiaries were determined in any
potential criminal proceeding to have violated the federal anti-kickback statute,
the sanctions would include fines, which could be significant, and mandatory
exclusion from participation in federal healthcare programs. Additional
information regarding the procedural history of the qui tam action and criminal
investigation is contained in quarterly and annual reports we have previously filed
with the SEC.
In January 2016, we commenced discussions with the DOJ and the State of
Georgia regarding potential resolution of these matters. Management increased
its aggregate reserve for these matters in the three months ended December 31,
2015 from $20 million to $238 million to reflect an offer we made on February
18, 2016 to resolve the criminal investigation and civil litigation. We expect that
the DOJ will make a counterproposal, and there can be no assurance that the
ongoing discussions to resolve these matters will be successful. The terms of a
final resolution may require us to pay significant fines and penalties and give rise
to other costs or adverse consequences that materially exceed the reserve we have
established. Based on the ongoing uncertainties and potentially wide range of
outcomes associated with any potential resolution, we cannot estimate the
ultimate amount of potential loss or range of reasonably possible loss we may
face.
24
In addition to the payment of a monetary penalty, the final terms of any resolution
of these matters could include: (i) the execution by the Company of a Corporate
Integrity Agreement or a non-prosecution agreement, which may provide for the
appointment of a corporate monitor and ongoing compliance audits; (ii) a deferred
prosecution agreement by an intermediate subsidiary of the Company; and (iii) a
commitment that one or more of the hospital subsidiaries subject to the
investigation and proceedings enter into a guilty plea. The non-monetary terms of
any resolution could expose us to increased operating costs, reputational harm,
administrative burdens, and diminished profits and revenues.
To the extent that either the civil or the criminal matter discussed above is
determined adversely to our interests, such determination could have a material
adverse effect on our business, financial condition, results of operations or cash
flows.
(Emphasis added.)
60.
The 2015 10-K contained signed certifications pursuant to SOX by the Individual
Defendants, stating that the financial information contained in the 2015 10-K was accurate and
disclosed any material changes to the Company’s internal control over financial reporting.
61.
On May 2, 2016, Tenet issued a press release and filed a Current Report on Form
8-K with the SEC, announcing certain of the Company’s financial and operating results for the
quarter ended March 31, 2016 (the “Q1 2016 8-K”). For the quarter, Tenet reported a net loss of
$59 million, or $0.60 per diluted share, on revenue of $5.04 billion, compared to net income of
$47 million, or $0.47 per diluted share, on revenue of $4.42 billion for the same period in the
prior year.
62.
Also on May 2, 2016, Tenet filed a Quarterly Report on Form 10-Q with the SEC,
reiterating the financial and operating results previously announced in the Q1 2016 8-K and
reporting in full the Company’s financial and operating results for the quarter ended March 31,
2016 (the “Q1 2016 10-Q”). In the Q1 2016 10-Q, Tenet stated, in part:
Clinica de la Mama Qui Tam Action and Criminal Investigation—As previously
disclosed, we and four of our hospital subsidiaries are Defendants in civil qui tam
litigation (United States of America, ex rel. Ralph D. Williams v. Health
25
Management Associates, Inc., et al.) that alleges that the contractual arrangements
entered into by the hospital subsidiaries with Hispanic Medical Management, Inc.
(“HMM”) violated the federal and state anti-kickback statutes and false claims
acts. HMM owned and operated clinics that provided, among other things,
prenatal care predominantly to uninsured patients. Beginning in 2000, the hospital
subsidiaries contracted with HMM for translation, marketing, management and
Medicaid eligibility determination services. Subsequently, the Georgia Attorney
General’s Office and the U.S. Attorney’s Office intervened in the qui tam action.
Effective March 31, 2016, we sold the operating assets of three of the four
hospital subsidiaries; however, we retained any potential liabilities arising from
the litigation or the U.S. Department of Justice (“DOJ”) investigation discussed
below.
If the plaintiff in the pending civil litigation were to prevail, the potential
sanctions could include up to three times the reimbursement of relevant
government program payments received by the four hospital subsidiaries for
uninsured HMM patients treated at the hospitals, the assessment of civil penalties
and potential exclusion from participation in federal healthcare programs.
Also as previously disclosed, the DOJ has been conducting a criminal
investigation of us, certain of our subsidiaries and former employees with respect
to the contractual arrangements between HMM and the four hospitals. We are
cooperating in the investigation and have responded, and continue to respond, to
document and other requests pursuant to subpoenas issued to us and the four
subsidiaries.
In January 2016, we commenced discussions with the DOJ and the State of
Georgia regarding potential resolution of the qui tam action and criminal
investigation. In the three months ended March 31, 2016, we increased the
aggregate accrual for these matters from $238 million to $407 million to reflect
the most recent offer we made on April 25, 2016 to resolve the criminal
investigation and civil litigation. The offer was not accepted, but the parties
continue to engage in discussions to resolve these matters. There can be no
assurance that ongoing discussions will lead to a resolution. The terms of a final
resolution of these matters may require us to pay significant fines and penalties
and give rise to other costs or adverse consequences that materially exceed the
accrual we have established. Based on the ongoing uncertainties and potentially
wide range of outcomes associated with any potential resolution, we cannot
estimate the amount of potential loss or range of reasonably possible loss in
excess of the amount accrued that we may face.
In addition to the payment of a monetary penalty, the final terms of any resolution
of these matters could include: (i) the execution by the Company of a Corporate
Integrity Agreement or a non-prosecution agreement, which may provide for the
appointment of a corporate monitor and ongoing compliance audits; (ii) a deferred
prosecution agreement by an intermediate subsidiary of the Company; and (iii) a
26
commitment that one or more of the hospital subsidiaries subject to the
investigation and proceedings enter into a guilty plea. The non-monetary terms of
any resolution could expose us to increased operating costs, reputational harm,
administrative burdens, and diminished profits and revenues.
If our efforts to negotiate a settlement ultimately are unsuccessful, and we or our
subsidiaries are determined to have violated the federal anti-kickback statute, the
sanctions could include fines, which could be significant, and mandatory
exclusion from participation in federal healthcare programs.
To the extent that either the civil or criminal matter discussed above is determined
adversely to our interests, such determination could have a material adverse effect
on our business, financial condition, results of operations or cash flows.
(Emphasis added).
63.
The Q1 2016 10-Q contained signed certifications pursuant to SOX by the
Individual Defendants, stating that the financial information contained in the Q1 2016 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
64.
The statements referenced in ¶¶ 21-63 were materially false and misleading
because Defendants made false and/or misleading statements, as well as failed to disclose
material adverse facts about the Company’s business, operational and compliance policies.
Specifically, Defendants made false and/or misleading statements and/or failed to disclose that:
(i) certain of Tenet’s hospitals had paid kickbacks for obstetric referrals; (ii) these kickbacks
were violations of federal law; (iii) these kickbacks subjected Tenet to the risk of heightened
regulatory scrutiny, as well as substantial fines; and (iv) as a result of the foregoing, Tenet’s
public statements were materially false and misleading at all relevant times.
The Truth Begins to Emerge
65.
On August 1, 2016, post-market, Tenet filed a Quarterly Report on Form 10-Q
with the SEC, reiterating the financial and operating results previously announced in the Q2
27
2016 8-K and reporting in full the Company’s financial and operating results for the quarter
ended June 30, 2016 (the “Q2 2016 10-Q”). In the Q2 2016 10-Q, Tenet stated, in part:
Clinica de la Mama Qui Tam Action and Criminal Investigation—The Company
believes that it has reached an agreement in principle with the U.S. Department of
Justice (“DOJ”), the U.S. Attorneys’ Offices for the Northern and Middle
Districts of Georgia, and the Georgia Attorney General’s Office to resolve the
civil qui tam litigation (United States of America, ex rel. Ralph D. Williams v.
Health Management Associates, Inc., et al.) pending in the U.S. District Court for
the Middle District of Georgia and the parallel criminal investigation of the
Company and certain of its subsidiaries being conducted by the DOJ and the .S.
Attorney’s Office for the Northern District of Georgia (collectively, the “Clinica
de la Mama matters”). The agreement in principle contemplates, among other
things, payment by the Company of $513,788,345, which is comprised of a civil
monetary payment of $368,000,000 and a criminal monetary payment of
$145,788,345. Based on the agreement in principle, we have increased our
reserve relating to the Clinica de la Mama matters from $407 million to $516
million to reflect the monetary payments and certain other costs to be paid by
us.
In addition to the monetary component, the agreement in principle contemplates
that: (i) Tenet HealthSystem Medical, Inc. (“THSM”), an indirect, wholly owned
subsidiary of the Company, will enter into a Non-Prosecution Agreement with the
DOJ; (ii) the DOJ will appoint a corporate monitor for a period of three years to
assess the Company’s compliance with the federal anti-kickback and Stark laws;
and (iii) our two indirect, wholly owned subsidiaries that previously operated
Atlanta Medical Center and North Fulton Hospital, and which currently have no
operating assets, will agree to plead guilty under 18 U.S.C. § 371 to a single count
of conspiracy to violate the federal anti-kickback statute and defraud the United
States. The agreement in principle also contemplates that the Company will enter
into a Corporate Integrity Agreement with the Office of Inspector General of the
U.S. Department of Health and Human Services. Based on discussions with the
government, and assuming definitive agreements are reached as contemplated by
the agreement in principle, none of our operating facilities will be subject to
exclusion from participation in federal healthcare programs or payment
suspension as a result of the Clinica de la Mama matters.
The implementation of the agreement in principle is subject to the negotiation and
approval of definitive agreements and the court’s acceptance of the plea
agreements, which we believe will be completed in the three months ending
September 30, 2016. We expect the civil monetary payment and the criminal
monetary payment will be due shortly after sentencing, which we believe will
take place in the three months ending September 30, 2016. We expect to fund the
payments through general corporate sources of liquidity, including cash on the
balance sheet and borrowings under our revolving credit facility.
28
Although we believe we will reach a final resolution of the Clinica de la Mama
matters, there can be no assurance that such a resolution will be reached or that
the court will accept the pleas. If a resolution is not reached or approved, or if the
terms of the final resolution are materially different than the agreement in
principle, the eventual loss related to these matters could materially exceed the
amount reserved and could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
As previously disclosed, the Clinica de la Mama matters relate to contracts that
were in effect for various periods from 2000 to 2013 between four hospitals
owned by THSM (Atlanta Medical Center, North Fulton Hospital, Spalding
Regional Medical Center and Hilton Head Hospital) and Hispanic Medical
Management, Inc. Although our Georgia hospitals have been sold, we have
retained any potential liabilities arising from the Clinica de la Mama matters.
(Emphasis added).
66.
On this news, Tenet’s share price fell $1.34, or 4.64%, to close at $27.57 per
share on August 2, 2016.
67.
On October 3, 2016, Tenet issued a press release and filed a Current Report on
Form 8-K with the SEC, announcing that the Company had finalized the agreement in principle
described supra at ¶ 65.
68.
On this news, Tenet’s share price fell $0.91, or 4.02%, to close at $21.75 per
share on October 3, 2016.
69.
As a result of Defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
70.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Tenet securities during the Class Period (the “Class”); and were damaged
upon the revelation of the alleged corrective disclosures.
29
Excluded from the Class are
Defendants herein, the officers and directors of the Company, at all relevant times, members of
their immediate families and their legal representatives, heirs, successors or assigns and any
entity in which Defendants have or had a controlling interest.
71.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Tenet securities were actively traded on the NYSE.
While the exact number of Class members is unknown to Plaintiff at this time and can be
ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by Tenet or its transfer agent and may be notified of
the pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
72.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
73.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
74.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
•
whether the federal securities laws were violated by Defendants’ acts as alleged
herein;
•
whether statements made by Defendants to the investing public during the Class
Period misrepresented material facts about the business, operations and
management of Tenet;
30
•
whether the Individual Defendants caused Tenet to issue false and misleading
financial statements during the Class Period;
•
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
•
whether the prices of Tenet securities during the Class Period were artificially
inflated because of the Defendants’ conduct complained of herein; and
•
whether the members of the Class have sustained damages and, if so, what is the
proper measure of damages.
75.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
76.
Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
•
Defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
•
the omissions and misrepresentations were material;
•
Tenet securities are traded in an efficient market;
•
the Company’s shares were liquid and traded with moderate to heavy volume
during the Class Period;
•
the Company traded on the NYSE and was covered by multiple analysts;
•
the misrepresentations and omissions alleged would tend to induce a reasonable
investor to misjudge the value of the Company’s securities; and
•
Plaintiff and members of the Class purchased, acquired and/or sold Tenet
securities between the time the Defendants failed to disclose or misrepresented
31
material facts and the time the true facts were disclosed, without knowledge of
the omitted or misrepresented facts.
77.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
78.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State
of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material
information in their Class Period statements in violation of a duty to disclose such information,
as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
Against All Defendants)
79.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
80.
This Count is asserted against Defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
81.
During the Class Period, Defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to,
and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and
32
other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of
Tenet securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise
acquire Tenet securities and options at artificially inflated prices. In furtherance of this unlawful
scheme, plan and course of conduct, Defendants, and each of them, took the actions set forth
herein.
82.
Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
Defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for Tenet securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about Tenet’s finances and business prospects.
83.
By virtue of their positions at Tenet, Defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, Defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to Defendants. Said acts and omissions of Defendants
were committed willfully or with reckless disregard for the truth. In addition, each Defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
33
84.
Defendants were personally motivated to make false statements and omit material
information necessary to make the statements not misleading in order to personally benefit from
the sale of Tenet securities from their personal portfolios.
85.
Information showing that Defendants acted knowingly or with reckless disregard
for the truth is peculiarly within Defendants’ knowledge and control. As the senior managers
and/or directors of Tenet, the Individual Defendants had knowledge of the details of Tenet’s
internal affairs.
86.
The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein.
Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Tenet. As officers and/or directors of a publicly-held company, the Individual Defendants had a
duty to disseminate timely, accurate, and truthful information with respect to Tenet’s businesses,
operations, future financial condition and future prospects. As a result of the dissemination of
the aforementioned false and misleading reports, releases and public statements, the market price
of Tenet securities was artificially inflated throughout the Class Period. In ignorance of the
adverse facts concerning Tenet’s business and financial condition which were concealed by
Defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Tenet
securities at artificially inflated prices and relied upon the price of the securities, the integrity of
the market for the securities and/or upon statements disseminated by Defendants, and were
damaged thereby.
87.
During the Class Period, Tenet securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and
misleading statements described herein, which the Defendants made, issued or caused to be
34
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of Tenet securities at prices artificially inflated by Defendants’ wrongful conduct. Had Plaintiff
and the other members of the Class known the truth, they would not have purchased or otherwise
acquired said securities, or would not have purchased or otherwise acquired them at the inflated
prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class,
the true value of Tenet securities was substantially lower than the prices paid by Plaintiff and the
other members of the Class. The market price of Tenet securities declined sharply upon public
disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
88.
By reason of the conduct alleged herein, Defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder.
89.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company’s securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
public.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against the Individual Defendants)
90.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
91.
During the Class Period, the Individual Defendants participated in the operation
and management of Tenet, and conducted and participated, directly and indirectly, in the conduct
35
of Tenet’s business affairs. Because of their senior positions, they knew the adverse non-public
information about Tenet’s misstatement of income and expenses and false financial statements.
92.
As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to Tenet’s
financial condition and results of operations, and to correct promptly any public statements
issued by Tenet which had become materially false or misleading.
93.
Because of their positions of control and authority as senior officers, the
Individual Defendants were able to, and did, control the contents of the various reports, press
releases and public filings which Tenet disseminated in the marketplace during the Class Period
concerning Tenet’s results of operations.
Throughout the Class Period, the Individual
Defendants exercised their power and authority to cause Tenet to engage in the wrongful acts
complained of herein. The Individual Defendants therefore, were “controlling persons” of Tenet
within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in
the unlawful conduct alleged which artificially inflated the market price of Tenet securities.
94.
Each of the Individual Defendants, therefore, acted as a controlling person of
Tenet. By reason of their senior management positions and/or being directors of Tenet, each of
the Individual Defendants had the power to direct the actions of, and exercised the same to cause,
Tenet to engage in the unlawful acts and conduct complained of herein. Each of the Individual
Defendants exercised control over the general operations of Tenet and possessed the power to
control the specific activities which comprise the primary violations about which Plaintiff and
the other members of the Class complain.
95.
By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by Tenet.
36
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
Determining that the instant action may be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B.
Requiring Defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C.
Awarding Plaintiff and the other members of the Class prejudgment and post-
judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and
D.
Awarding such other and further relief as this Court may deem just and proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: October 10, 2016
Respectfully submitted,
/s/ Willie C. Briscoe
WILLIE C. BRISCOE
State Bar No. 24001788
THE BRISCOE LAW FIRM, PLLC
8150 N. Central Expressway, Suite 1575
Dallas, TX 75206
Telephone: 214/239-4568
281/254-7789 (fax)
[email protected]
POMERANTZ LLP
Jeremy A. Lieberman
J. Alexander Hood II
Marc C. Gorrie
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
37
Email: [email protected]
[email protected]
[email protected]
POMERANTZ LLP
Patrick V. Dahlstrom
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
Email: [email protected]
BRONSTEIN, GEWIRTZ
& GROSSMAN, LLC
Peretz Bronstein
60 East 42nd Street, Suite 4600
New York, NY 10165
Telephone: (212) 697-6484
Facsimile (212) 697-7296
Email: [email protected]
Attorneys for Plaintiff
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