Community Health Systems has escalated its effort to acquire Tenet Healthcare, converting its $3.3bn bid to an all-cash offer a week after being sued by the hospital operator for wrongfully billing insurers for unnecessary patient stays.

CHS made an initial bid for Tenet last December, offering $6 a share, including $5 cash. That offer was rebuffed and Tenet has since taken aggressive steps to thwart an acquisition.

The latest move came last week, when Tenet filed a lawsuit claiming that CHS made between $280m and $377m through improperly admitting Medicare patients between 2006 and 2007. Tenet estimated that CHS could face damages of more than $1bn for the alleged practices, sending the company’s share price down by more than 35 per cent in one day.

Late last Friday, CHS revealed in a regulatory filing that it had received a subpoena from the US Department of Health and Human Services inspector general in Chicago requesting documents relating to an investigation of possible improper claims submitted to Medicare and Medicaid. The company had previously disclosed a similar request from authorities in Texas.

CHS has denied any wrongdoing.

According to Tenet, the allegations were a sign that CHS’s stock price was “artificially inflated”.

Tenet’s claims come nearly five years after it was embroiled in its own Medicare billing scandal. In 2006, the company paid the US $900m to settle charges of illegal billing practices after the Department of Justice alleged its hospitals were billing Medicare excessively.

On Monday, CHS lamented Tenet’s “value destroying defensive tactics” and said it was ready to move forward with revised transaction terms.

“Converting our offer to all cash underscores our commitment to completing this transaction and renders Tenet’s irresponsible and inaccurate lawsuit irrelevant to our offer,” said Wayne Smith, chief executive of CHS, in a statement. “We are confident that our business practices are appropriate and we will respond in detail to Tenet’s claims in due course.”

Tenet said that it would review the new offer.

Tenet shares closed down 2.55 per cent at $6.49. Shares of CHS fell 4.39 per cent to $30.50.

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