HCA Holdings 2011 Annual Report Download - page 57

Government Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by various governmental agencies. Further,
under the federal FCA, private parties have the right to bring qui tam, or “whistleblower,” suits against
companies that submit false claims for payments to, or improperly retain overpayments from, the government.
Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual
facilities have received, and from time to time, other facilities may receive, government inquiries from, and may
be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these
or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse
effect on our financial position, results of operations and liquidity.
The DOJ has contacted the Company in connection with its nationwide review of whether, in certain cases,
hospital charges to the federal government relating to implantable cardio-defibrillators (“ICDs”) met the CMS
criteria. In connection with this nationwide review, the DOJ has indicated that it will be reviewing certain ICD
billing and medical records at 95 HCA hospitals; the review covers the period from October 2003 to the present.
The review could potentially give rise to claims against the Company under the federal FCA or other statutes,
regulations or laws. At this time, we cannot predict what effect, if any, this review or any resulting claims could
have on the Company.
New Hampshire Hospital Litigation
In 2006, the Foundation for Seacoast Health (the “Foundation”) filed suit against HCA in state court in New
Hampshire. The Foundation alleged that both the 2006 recapitalization transaction and a prior 1999 intra-
corporate transaction violated a 1983 agreement that placed certain restrictions on transfers of the Portsmouth
Regional Hospital. In May 2007, the trial court ruled against the Foundation on all its claims. On appeal, the New
Hampshire Supreme Court affirmed the ruling on the 2006 recapitalization, but remanded to the trial court the
claims based on the 1999 intra-corporate transaction. The trial court ruled in December 2009 that the 1999 intra-
corporate transaction breached the transfer restriction provisions of the 1983 agreement. In September of 2011,
the trial court issued its remedies phase decision and held that the only remedy to which the Foundation was
entitled was rescission of the intra-corporate transfer that breached the transfer restriction (the Company has
complied with the Court’s order, and it is not expected that such compliance will have any material effect on our
operations or financial position). The Court awarded the Foundation, under the terms of the Asset Purchase
Agreement, a “fraction” of its attorney fees. The Foundation appealed the remedy phase ruling, and the Company
cross-appealed the liability determination. On October 31, 2011, the New Hampshire Supreme Court, on its own,
raised the question whether the appeal needed to await the trial court’s further ruling on attorney fees. On
November 21, 2011, after the parties briefed the issue, the New Hampshire Supreme Court dismissed the appeal
as premature and remanded the case to the trial court. In February 2012, the trial court certified the case for a
possible interlocutory appeal without addressing the attorney fees issue.
Securities Class Action Litigation
On October 28, 2011, a shareholder action, Schuh v. HCA Holdings, Inc. et al., was filed in the United
States District Court for the Middle District of Tennessee seeking monetary relief. The case seeks to include as a
class all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration
Statement and Prospectus issued in connection with the March 9, 2011 initial public offering. The lawsuit asserts
a claim under Section 11 of the Securities Act of 1933 against the Company, certain members of the board of
directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act
of 1933 against the same members of the board of directors. The action alleges deficiencies in the Company’s
disclosures in the Registration Statement relating to: (1) accounting for its 2006 recapitalization and 2010
reorganization; (2) the Company’s failure to maintain effective internal controls relating to its accounting for
such transactions; and (3) the Company’s revenue growth rate. Subsequently, two additional class action
complaints, Kishtah v. HCA Holdings, Inc. et al. and Daniels v. HCA Holdings, Inc. et al., setting forth
substantially similar claims against substantially the same defendants in addition to Ernst & Young, LLP were
filed in the same federal court on November 16, 2011 and December 12, 2011, respectively. All three of the cases
have been consolidated, and the parties have agreed to initial scheduling matters.
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