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The Associated Press April 11, 2011, 2:21PM ET

Tenet, Community health fight gets nasty

Community Health Systems says claims from its rival that it bilked Medicare out of millions are irresponsible, as a burgeoning legal battle between two hospital operators dragged down shares for the entire sector.

Community is defending its billing practices after Tenet Healthcare filed a federal lawsuit accusing it of squeezing more money out of Medicare by admitting patients to hospitals instead of just keeping them for observation.

The charges come after Community launched a hostile, $3 billion bid for Tenet. Tenet says it uncovered the overbilling while researching the offer, which it has rejected.

Shares fell in the sector Monday afternoon, led by Tenet, with investors fearing that the standoff will lead to a broader investigation of the industry.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

INDIANAPOLIS (AP) -- Tenet Healthcare Corp. has charged rival hospital operator Community Health Systems Inc. with systematically overbilling Medicare in a federal lawsuit, and the burgeoning legal fight sent shares of both companies plummeting in Monday morning trading.

Tenet claims that Community is squeezing more money out of Medicare by admitting patients to its hospitals instead of just keeping them for observation. It said in a complaint filed Monday that it estimates improper Medicare billings of between $280 million and $377 million between 2006 and 2009.

The charge comes amid a hostile takeover bid of Tenet by Community Health.

"(Community) artificially increases inpatient admissions for the purpose of receiving substantially higher and unwarranted payments from Medicare and other sources," Tenet said in the complaint.

Community officials were not immediately available for comment.

Community, based in Franklin, Tenn., is pursuing a hostile, $3 billion bid for Tenet, and Dallas-based Tenet said it uncovered the overbilling while researching the offer. Tenet has already called the offer inadequate.

Tenet said in a statement explaining the litigation that Community's use of observation status for patients is less than half the national average for U.S. hospitals, and it found "no legitimate explanation for the difference." It said Community receives, on average, in excess of $3,300 more per admitted patient, compared to one that is just observed and not admitted.

Shares of Community sank 33 percent, or $13.52, to $26.78 in morning trading. Tenet shares fell nearly 14 percent, or $1.05, to $6.50, the largest drop of any company in the Standard & Poor's 500 index.

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