THC, CYH and Shooting the Messenger

There’s a topic I’ve addressed previously on this blog on multiple occasions which is close to my heart and keeps popping up.  Since I use a pseudonym to write my blog, this concept is very important to me:  it’s not WHO is saying something, it’s WHAT is being said that counts.   I’m seeing this point pop up again as people continue to digest the allegations that Tenet Healthcare ($THC) has made against their would-be acquirer, Community Health ($CYH).  I love the writing style of Bloomberg’s Jonathan Weill, but I think he’s guilty of this common sin in his piece today.  First, the good:

“Imagine Snooki calling one of her “Jersey Shore” cast mates a trashy boozer, or Alex Rodriguez bemoaning the rampant use of steroids in baseball, or Bernard Madoff calling one of his old rivals a Ponzi schemer.

Now you have a rough idea of what it’s like for Tenet Healthcare Corp. to be accusing Community Health Systems Inc. of overbilling the government’s Medicare program by hundreds of millions of dollars, as Tenet did this week in a lawsuit aimed at sabotaging Community Health’s unsolicited takeover attempt.”

Anytime you can compare a healthcare company to Snooki, A-rod, and Madoff in the same sentence, you’re off to an interesting start. But wait – there’s more!

“…what makes this lawsuit comical is Tenet’s own history of ripping off the government, as well as its own shareholders.

Here’s a company that paid more than $900 million as part of a 2006 settlement with the Justice Department, after the government accused Tenet of fraudulently overbilling the nation’s Medicare and Medicaid programs. (The settlement was structured so there would be no formal finding that Tenet had engaged in illegal behavior.)

Tenet paid a $10 million fine to the Securities and Exchange Commission in 2007 to settle accounting fraud claims. That was about a year after the company agreed to a $216.5 million class-action settlement with Tenet investors.

Hurricane Horror

This also is the company that ran Memorial Medical Center in New Orleans during Hurricane Katrina, where the bodies of 45 patients were discovered after the storm hit in August 2005. Some doctors later acknowledged they had injected patients with drugs to hasten their deaths…”

Look – we all get the point – Tenet Healthcare is like a jailhouse informant.  They’ve acted in incredibly scummy ways in the past, and done things that are probably worse than what they are accusing CYH of doing.

BUT SO WHAT?!?!!

The question remains, not “How big a piece of crap is THC?”  but “Are THC’s allegations accurate?”

Weill notes:

“And yet Tenet, the third-largest publicly traded U.S. hospital operator, has the audacity to accuse the second-largest chain of running a crooked outfit. Talk about gall. Perhaps Tenet could argue that it takes one to know one.”

Indeed – who is better positioned to recognize fraud then guys who know how to do it themselves?  Gall has nothing to do with it.  We all KNOW that Tenet has motive – they do not want to be bought by CYH.  That doesn’t meant that they’re lying!

Thus far, I’ve seen ample commentators echo Weill’s sentiments that Tenet’s actions “smack of a board and management team that will try anything to stay in power,” and yet, I’ve seen no one refute Tenet’s accusations!   Tenet has motive to try to scuttle the deal.  That makes it even easier for us to be suspicious of their claims – and still, there has been no clear response from anyone – CYH included.

I have traded CYH from both the long and the short side this week. At this moment, I have no position.  I have no positions in THC – this piece is not about how to trade THC and CYH, or any attempt to “influence” their price.  I’m simply pointing out, again, that people seem to be using the “shoot the messenger” defense to dismiss Tenet’s claims without actually addressing the claims.

-KD

postscript: CYH has reportedly been saying that THC’s allegations are based on a metric that is not widely used, and that they stand behind their doctors, who make the patient care decisions. Management does not drive patient care decisions.

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