Does Every Hospital Commit Medicare Fraud? (Tenet, Community)

That was the question in my mind when Tenet Healthcare (NYSE:THC) sued Community Health Systems (NYSE:CYH) for illegally overbilling Medicare.

Estimates put the effect of Medicare fraud at 3% to 9% of the total $431B in Medicare costs, implying that it's a systematic problem within the US healthcare system. Popular methods range from billing for services not rendered to upcoding procedures to more expensive ones. Many kinds of Medicare fraud is difficult to identify and hence quantify. It's even possible for hospitals to unintentionally commit Medicare fraud.

So does this mean every hospital is potentially contributing to Medicare fraud? For hospital managers, is it possible to build a solid defense against fraud accusations if the problem itself is so hard to gauge? 


For those keeping an eye on the Tenet/Community issue:

• This legal battle proceeds within the context that since December 2010, Community has been adamant about acquiring Tenet with a hostile takeover bid. This latest clash is seen as a way for Tenet to fight back.
• Last Friday, 5 days after the lawsuit, the US Dept. of Health and Human Services, which manages Medicare, requested documents from all of Community's hospitals. 

It seems that the Tenet lawsuit has cast a cloud of suspicion and fear over the entire for-profit hospital sector. Stocks for all major operators are down for the previous week, including not only THC and CYH, but also HMA and the recently IPOed HCA.