In Re Tenet Healthcare Corporation Securities Litigation 16-CV-02848

Case 3:16-cv-02848-C Document 43 Filed 04/11/17 Page 1 of 71 PageID 429 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION § § § § § IN RE TENET HEALTHCARE § CIVIL ACTION NO. CORPORATION SECURITIES § 3:16-CV-2848-SRC LITIGATION. § § § CONSOLIDATED AMENDED § COMPLAINT-CLASS ACTION § § DEMAND FOR JURY TRIAL § ____________________________________ § CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS Lead Plaintiffs David Burns, Steven Krems, Allan Ramirez and Sameh Yamany (“Lead Plaintiffs”), individually and on behalf of all other persons similarly situated, by their undersigned attorneys, for their Consolidated Amended Complaint against Tenet Healthcare Corporation (“Tenet” or the “Company”), Trevor Fetter (“Fetter”), Daniel J. Cancelmi (“Cancelmi”) and Biggs C. Porter (“Porter”) (Fetter, Cancelmi and Porter are referred to as the “Individual Defendants”), allege the following based upon personal knowledge as to Lead Plaintiffs and their own acts, and upon information and belief as to all other matters, based upon, inter alia, the independent investigation conducted by and through their attorneys, which included, among other things, a review of the Defendants’ public documents, United States Securities and Exchange Commission (“SEC”) filings, wire and press releases published by, and regarding, Tenet, conference calls and announcements made by Defendants, economic analysis of Tenet’s stock price movement and pricing volume data, analysts’ reports and advisories about the Company, the Non-Prosecution Agreement dated September 30, 2016 (the “Non-Prosecution Case 3:16-cv-02848-C Document 43 Filed 04/11/17 Page 2 of 71 PageID 430 Agreement” or “NPA”) (annexed hereto as Exhibit A and incorporated by reference herein), and information readily obtainable on the internet. Lead Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION 1. This is a federal securities class action on behalf of persons or entities who purchased or otherwise acquired Tenet common stock between February 28, 2012 and August 1, 2016, both dates inclusive (the “Class Period”), seeking to pursue remedies under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).1 2. During the Class Period, Tenet, one of the largest for-profit hospital chains in the United States, violated the securities laws by perpetrating a decade-long kickback scheme extending into 2013, as the Company has now admitted,2 unbeknownst to investors. Tenet paid kickbacks to Hispanic Medical Management, Inc. d/b/a Clinica de la Mama (“Clinica”) in exchange for thousands of illicit referrals for over a decade to fraudulently recover nearly $150 million from the Medicare and Medicaid health programs. In so doing, Tenet systematically violated its internal policies on compliance. These violations were egregious given that Tenet 1 Excluded from the Class are: Defendants, all current and former officers, directors and senior executives of Tenet, members of the immediate family of any excluded person, any entity in which any excluded person has more than a 5% ownership interest, or which any excluded person controls, and the legal representatives, heirs, successors, or assigns of any such excluded person. 2 Tenet Healthsystem Medical, Inc. (“Tenet HealthSystem”), a subsidiary of Tenet that directly owns Tenet’s hospitals in the Southeastern United States, pursuant to authority granted by Tenet, entered into an NPA in the case of United States of America v. Atlanta Medical Center, Inc. and North Fulton Medical Center, Inc., Case No. 16-cr-350, Dkt. No. 16-3, attached hereto and incorporated herein. Pursuant to the NPA, Tenet Healthsystem admitted that it conspired to violate the Anti-Kickback statute, and that it is responsible for the acts of its officers, directors, employees and agents. Dkt. 16-3. Tenet and Tenet HealthSystem also agreed that the statement of facts, as set forth in Exhibit A of Dkt. No. 16-3, are true and accurate. 2 Case 3:16-cv-02848-C Document 43 Filed 04/11/17 Page 3 of 71 PageID 431 had previously engaged in a kickback scheme, for which the Company had reached a billion dollar settlement with the United States government in 2006. Defendants’ scheme put Tenet’s ability to recover reimbursements for Medicare and Medicaid, a huge source of revenue for the Company, at risk. Moreover, the Company concealed the existence of the extensive government investigation for, at least, nine months from its own investors. 3. After paying nearly $1 billion in 2006 to the government to resolve liability arising under the False Claims Act (“FCA”), Defendants continued to violate federal and state Medicare and Medicaid laws, and the federal Anti-Kickback statute, but failed to disclose these violations to investors. Between February 28, 2012 and February 2014, Tenet, through its most senior officers, including Defendants Fetter, Porter and Cancelmi, made materially false and misleading statements regarding the current state of Tenet’s compliance program and internal controls regarding arrangements with referral sources, and failed to disclose the existence of investigations into the Company’s practices triggered by subpoenas from Federal agencies. Tenet told investors that its compliance program was designed to meet or exceed the standards of federal and state laws, and that Tenet “systematically” reviewed a “substantial” number of arrangements and transactions with referral sources to determine whether they were in compliance with internal policies and procedures and the federal Anti-Kickback statute. Tenet, in fact, touted that its compliance program was so effective that the Company’s unwillingness to engage with risky referral sources put it at a competitive disadvantage. All of these statements were a facade because Tenet was in fact doing the opposite—systemically violating the federal Anti-Kickback statute by obtaining thousands of illegal referrals. 4. By its own admission, Tenet participated in this lucrative kickback scheme for over a decade. During that time, according to the NPA, the Company submitted thousands of false and fraudulent claims to the Medicare and Medicaid health programs, and reaped close to 3 Case 3:16-cv-02848-C Document 43 Filed 04/11/17 Page 4 of 71 PageID 432 $150 million from the government in violation of the federal Anti-Kickback statute and the FCA. In addition, as early as December 2009, Tenet was on notice of the scale of this vast conspiracy to violate the Anti-Kickback statute and the FCA because a whistleblower filed a sealed qui tam complaint against the Company for knowingly entering into sham contracts with Clinica in exchange for patient referrals.3 5. Tenet knew that a knowing violation of the Anti-Kickback statute or the FCA, especially after paying nearly $1 billion in 2006 to the government to resolve liability arising under the FCA, could subject the Company to serious civil and criminal liability, putting it at risk of losing all access to reimbursement from or payment by the Medicare and Medicaid health programs. This was a material source of revenue for Tenet, as it accounted for approximately 30% of the Company’s annual revenue. 6. In May 2012, the Office of the Inspector General for the United States Department of Health and Human Services (“OIG-HHS”) issued a comprehensive subpoena demanding that Tenet produce documents from January 2004 through May 2012 regarding the relationship between Clinica and Tenet’s hospitals in the Southeast Region. Tenet knowingly withheld the existence of this subpoena from investors until February 26, 2013 (roughly nine months) even though it was reasonably possible that the Company faced severe civil and criminal liability that would materially impact its business and operations. Moreover, once Tenet disclosed the existence of the subpoena, Tenet failed to disclose the magnitude of the investigations from federal agencies. 7. Throughout the Class Period, Tenet misled investors to believe that its books and records accurately reflected the Company’s financial condition and results. Defendants violated 3 On July 31, 2013, the United States District Court for the Middle District of Georgia granted the State of Georgia’s motion to lift the seal. Until then, the details of the qui tam action remained hidden from investors and the public at large. 4 Case 3:16-cv-02848-C Document 43 Filed 04/11/17 Page 5 of 71 PageID 433 Generally Accepted Accounting Principles (“GAAP”) by failing to, at least, disclose an estimate of the amount of possible loss or range of loss in Tenet’s financial statements, and deprived investors of the material fact that should the loss occur, Tenet would, at a minimum, pay hundreds of millions of dollars as a direct result of violating the Anti-Kickback Statute and the FCA. Once the government issued a subpoena to Tenet related to the illegal kickback scheme, Tenet recklessly violated GAAP because it failed to disclose that there was a at least a reasonable possibility that the Company would have to pay between, at least, $72 million (the profits it received from the kickback scheme) and, at least, $438 million (three times the revenue received from the illegal scheme). 8. Based on the Defendants’ participation in this decade-long kickback scheme, Tenet’s financial statements and public disclosures concerning the Company’s operations, the adequacy of its internal controls over

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