St. Francis calls fraud allegations in federal suit 'demonstrably false'
Three weeks after a Tennessee health-care company filed a federal fraud and breach of contract suit against St. Francis Hospital, the Columbus company asked the court Friday to dismiss it.
Calling the allegations of fraud “demonstrably false,” St. Francis responded to the suit by CHSPSC LLC, a subsidiary of Brentwood, Tenn.-based Community Health Services.
CHSPSC attempted earlier this year to purchase St. Francis, which has been in a financial crisis for almost a year. CHSPSC claimed that “St. Francis’ deception included repeated misrepresentations and intentional omissions intended to induce CHSPSC into a deal and specifically into fronting St. Francis $5 million.”
“The lawsuit came as a surprise to St. Francis and the organization believes the claims are without merit and completely unfounded,” St. Francis said in a statement Friday. “The action today, calling for the dismissal of the suit, reflects that position.”
St. Francis officials were not available for comment on Friday.
Read: The accusations against St. Francis, in one timeline
CHSPSC claims St. Francis was under audit by the U.S. Department of Housing and Urban Development and the Office of Inspector General (a government agency that investigates fraud), and that the audit “implied the strong possibility that St. Francis engaged in fraudulent or otherwise illegal conduct, not simply an erroneous ‘accounting error.’”
St. Francis has a HUD-backed construction and debt-consolidation loan of more than $220 million that is serviced by Prudential, and the bonds are held by an unnamed third party, Bradley said. The hospital has not missed a debt payment on the HUD-secured loan, he said more than two weeks ago.
In the lawsuit, CHSPSC also claimed that the HUD audit “potentially posed a serious threat to the status of the hospital’s Medicare provider number and/or to any future Medicare payments to the hospital,” and that it would not have paid a $5 million deposit if it had known about the audit.
The St. Francis response to the suit in U.S. District Court, Middle District of Georgia claims that CHSPSC did not back away from the potential deal when it learned of the HUD audit.
“CHSPSC claims that, although it learned of alleged ‘legal’ and ‘regulatory’ problems during due diligence and nonetheless decided to move forward with the transaction, it was defrauded because it was not told about a Department of Housing and Urban Development Office of the Inspector General (“HUD-OIG”) audit regarding regulatory issues,” according to the St. Francis response. “This non-sequitur reveals CHSPSC’s claim of fraud for what it really is: an eleventh-hour negotiation ploy to drive down the acquisition price. Indeed, after CHSPSC claimed it was ‘shocked’ to learn of a HUD-OIG audit and report, it quickly followed up with a substantial dification of its original purchase proposal. St. Francis would not give in to these strong-arm tactics.”
St. Francis has been an acquisition target since late last year when word of its financial issues were made public. Last November, then-St. Francis President and CEO Robert Granger said the issue was caused by a nearly $30 million accounting error.
St. Francis has been in serious talks with three hospital companies about the possible purchase. Since January, St. Francis has had purchase discussions with Atlanta-based Piedmont Healthcare and CHSPSC, and it currently has a letter of intent to purchase from LifePoint Health System of Franklin, Tenn.
Unlike CHSPSC, Piedmont did not pay St. Francis during its exclusive negotiations, Bradley said. The board chairman would not disclose how much, if any, LifePoint has paid, citing a confidentiality agreement.
“St. Francis remains focused on what the future holds for healthcare in Columbus,” according to the statement. “As a trusted healthcare provider in the Columbus community for the last 65 years, St. Francis knows how to best serve the healthcare needs of the community. Discussions are ongoing with LifePoint Health regarding a potential partnership which would ensure the preservation of essential services in the Columbus community for the future.”
This story was originally published August 28, 2015 at 3:52 PM with the headline "St. Francis calls fraud allegations in federal suit 'demonstrably false'."