HCA Holdings Inc. will pay $215 million to shareholders to settle a class action that was pending in a Tennessee federal court. The suit alleged that the health care company didn’t tell investors about performing unnecessary but profitable heart procedures before its initial $4.3 billion initial public offering. Pursuant to the settlement the suing shareholders agreed to drop their claims against HCA, its officers and directors, the underwriters and a majority shareholder at the time of the offering. All of this was disclosed in a filing with the U.S. Securities and Exchange Commission (SEC).
The class action, which was certified in September 2014, claims that HCA, its directors, its controlling shareholder and the investment bank underwriters of its 2011 IPO failed to tell investors that the company was pursuing an internal investigation of unnecessary cardiac procedures after a whistleblower had complained.
The company also agreed to settle two derivative state court cases relating to the IPO. Between the shareholder case and the two derivative cases, HCA will be facing $120 million in legal costs, according to the filing. The preliminary settlements still need to be approved by HCA’s board of directors, sent out to the shareholder class and be approved by state and federal courts. Other nonmonetary terms still need to be fully settled and the final documentation needs to be executed before the settlements can go through.
The suit claims that HCA’s own investigation showed heart procedures were “routinely” being performed on patients who had no significant heart disease. Those factors were concealed from investors and ultimately led to HCA’s resulting 60 percent decline in growth targets, which was only revealed after investments had been made in the public offering. The shares were originally offered at $30 each in March 2011, and decreased to $18.81 apeice by that October.
The announcement of the settlement came just days after the U.S. Department of Justice announced that HCA would pay almost $16 million to settle allegations of False Claims Act violations. That was part of a larger settlement in which 450 hospitals agreed to pay a total of $250 million to end a long-running investigation into billing of Medicare for unnecessary cardiac implants. According to its website, HCA owns 165 hospitals and 115 surgical centers across the U.S. and the United Kingdom.
Lead Plaintiff New England Teamsters & Trucking Industry Pension Fund is represented by Debra J. Wyman, Darren J. Robbins, James I. Jaconette, Kevin A. Lavelle, Robert K. Lu, Robert R. Henssler Jr. and Scott H. Saham of Robbins Geller Rudman & Dowd LLP, and Douglas S. Johnston Jr., Scott P. Tift, Timothy L. Miles and Jerry E. Martin of Barrett Johnston Martin & Garrison LLC. The case is in the U.S. District Court for the Middle District of Tennessee.