News in brief - Dec. 5, 2005

Shareholders slap HCA with lawsuits - Tenet, doctors settle cardiac claims - Cleveland Clinic loses tax-exempt case - Blues launches small business plan

Shareholders slap HCA with lawsuits

Hospital giant HCA is facing at least two lawsuits stemming from a profit warning its leaders gave over the summer, which caused the company's stock price to plummet nearly 9% in one day.

The Western Pennsylvania Electrical Employees Pension Fund filed a lawsuit on Nov. 8 in U.S. District Court in Nashville, Tenn., alleging that HCA and its top executives committed securities fraud. It seeks class-action status on behalf of others "similarly situated."

A second lawsuit brought by shareholders was filed in the same court two days later. It accused Nashville-based HCA and its leaders of breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment.

HCA spokesman Jeff Prescott said the company was aware of the lawsuits but hadn't had an opportunity to "dig deeply into them." He declined to comment on the specific allegations.

In each case, the plaintiffs were upset the company issued rosy profit forecasts for much of the year before changing course in the summer.

After the profit warning, HCA's stock price took a one-day nosedive of nearly $5 per share to $50.05. Soon thereafter, the lawsuits note, the Securities and Exchange Commission and the Justice Dept. opened formal investigations into insider trading at the hospital chain. One insider the SEC is looking at is U.S. Senate Majority Leader Bill Frist, MD (R, Tenn.), son of HCA's founder. Dr. Frist has denied trading based on insider information.

Tenet, doctors settle cardiac claims

Tenet Healthcare Corp. and four physicians accused of performing scores of unnecessary cardiac procedures to boost profits at a California hospital have reached an agreement with federal prosecutors to resolve the allegations without any criminal charges being filed.

Under the settlement, the four physicians agreed to pay a total of $32.5 million to victims of the procedures and to government insurance programs, U.S. Attorney McGregor W. Scott announced Nov. 15. Two of the physicians -- heart surgeon Fidel Realyvasquez, MD, and cardiologist Chae Hyun Moon, MD -- also agreed to never again perform cardiac procedures on Medicare, Medi-Cal TRICARE patients.

The physicians and their lawyers categorize their decision to settle as one driven by a desire to end the investigations, and they continue to deny wrongdoing. Much of the settlement money is coming from the physicians' insurer, which could decide to appeal the settlement.

Tenet, which owned the Redding Medical Center while the procedures were performed there, agreed to pay an additional $5.5 million to resolve outstanding "issues." In August 2003, the Dallas-based hospital chain agreed to pay $54 million to settle federal and state claims stemming from the investigation.

Tenet sold the hospital in July 2004. A few months later, the company established a $395 million settlement fund to resolve civil lawsuits brought by more than 750 former patients and their relatives.

Cleveland Clinic loses tax-exempt case

An outpatient clinic and surgery center run by the Cleveland Clinic is not entitled to the same tax exemption enjoyed by its owner, a tax commissioner ruled.

Even though the Beachwood Family Health and Surgery Center is affiliated with a tax-exempt hospital and may funnel patients there, there is "minimal, if any," charity care on site at the clinic, Ohio Tax Commissioner William Wilkins wrote in an Oct. 20 final determination.

The decision could force the Cleveland Clinic to pay $2.7 million in taxes, penalties and interest, said the Beachwood school district, which stands to net about 65% of the assessment.

The Cleveland Clinic, which plans to appeal the decision, strongly defended its position that the Beachwood facility is an integral part of a broader charitable system.

The dispute has arisen at a time when hospital tax exemptions are increasingly under scrutiny, with scores of lawsuits challenging if the institutions fulfill their charitable missions and regulators closely examining hospital operations and relationships.

Blues launches small business plan

Blue Cross and Blue Shield of Kansas City is launching a product it says will help small businesses provide employee medical coverage.

Community Blue, a comprehensive health plan designed for companies who don't currently offer health insurance, is set to launch Jan. 1, 2006, and is similar to other high-deductible Blue Cross and Blue Shield products.

Blue Cross and Blue Shield of Kansas City President Tom Bowser said Community Blue will not seek pay cuts from hospitals and doctors to support the program.

In order to qualify, businesses must have fewer than 100 employees, with 75% of them earning less than $30,000 per year. The employee must also work at least 30 hours per week. U.S. Census figures puts Kansas City's uninsured population at 270,000 people, 60% of whom are employed.