Robbins Geller Achieves Unprecedented Corporate Governance Reforms in Community Health Systems

January 19, 2017

The settlement is the largest shareholder derivative recovery in the Sixth Circuit.

On January 17, 2017, the Honorable Kevin H. Sharp of the Middle District of Tennessee approved a settlement in In re Community Health Systems, Inc. Shareholder Derivative Litigation. The settlement provides for unprecedented corporate governance reforms as well as a $60 million cash payment to Community Health, and is the largest shareholder derivative recovery ever in Tennessee and the Sixth Circuit. The case resolves claims that the company’s directors and officers breached their fiduciary duties by causing Community Health to develop and implement admissions criteria that systematically steered patients into unnecessary inpatient admissions, in contravention of Medicare and Medicaid regulations, when they should have been treated as outpatients. Due to these actions, the company was forced to settle claims brought by the United States Department of Health and Human Services (“HHS”) for $98 million.

The governance reforms obtained as part of the settlement include two shareholder-nominated directors, the creation of a Healthcare Law Compliance Coordinator with specified qualifications and duties, a requirement that the Board’s Compensation Committee be comprised solely of independent directors, the implementation of a compensation clawback that will automatically recover compensation improperly paid to the company’s CEO or CFO in the event of a restatement, the establishment of an insider trading controls committee, and the adoption of a political expenditure disclosure policy.

“This is an exceptional result,” commented Robbins Geller partner Benny C. Goodman III. “The substantial cash payment and landmark corporate governance reforms are a huge step forward for Community Health and its shareholders and will help the company avoid future Medicare compliance missteps like those that led to the HHS settlement and this shareholder derivative action.”

Robbins Geller attorneys Darren J. Robbins, Benny C. Goodman III, Travis E. Downs IIIErik W. Luedeke and Juan Carlos Sanchez obtained this settlement on behalf of shareholders.

In re Community Health Sys., Inc. S'holder Derivative Litigit., No. 3:11-cv-00489, Order Approving Derivative Settlement and Order of Dismissal With Prejudice (M.D. Tenn. Jan. 17, 2017).

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