Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

CYH and THC: Can’t we all just get along?

HedgeFundLIVE.com — Both I and the Duke Fuqua desk have spent some recent time blogging about HCA, the largest public hospital company that recently IPO’d after being taken private at the hands of large private equity shops Bain and KKR.  The HCA IPO was the largest from private equity ownership in history and brought some much needed attention to a sleepy hospital industry as well as to the health care sector.  Lately, however, the public hospitals have been lighting up the news reels.  Back in December, Community Health Systems (NYSE:CYH) made a takeover bid of $6 per share for Tenet Healthcare (NYSE:THC) and Tenet was very vocal about how disappointed they were with that offer.  If you’ve been paying attention to these stocks over the last couple days you would notice that CYH was down about 35% yesterday while THC fell around 15%.  Today the stocks rallied back.  So what’s going on?

Just in case THC’s initial rebuff of a CYH takeover was not overt enough, THC decided to sue CYH, accusing them of being an unfit acquirer.  This comes after the aforementioned public rejections and implementation of a poison-pill.  The gist of the suit is that Tenet believes CYH has been systematically defrauding Medicare by admitting patients for overnight stays that could normally be treated on an outpatient basis.  Overnight stays at a hospital are obviously more expensive and more profitable for the hospital rendering services, in the neighborhood of $3,300 according to Tenet.  THC estimates the fraud at about $70 million per year and thinks CYH’s ultimate liability could be in the $1 billion range.

Why the mean-spiritedness emanating from THC?  If you told me it had to do with girlfriends or wives of the two companies’ CEOs I would probably believe you, but it may have more to do with good old cash money.  The lawsuit will likely result in a government investigation into CYH’s admitting practices, and, perhaps, open the door to some new bidders for THC.  Maybe even a recently IPO’d hospital chain by the name of HCA…

COME JOIN OUR LIVE BROADCAST MON-FRI 8AM – 5PM at HEDGEFUNDLIVE.COM, PICK A CHANNEL AND GET CONNECTED.