April 4, 2006

Judge declares mistrial in case against Tenet

By Kim Dixon

CHICAGO (Reuters) - Tenet Healthcare Corp. said on Tuesday
a federal judge in San Diego had declared a second mistrial in
a criminal lawsuit by the government against it involving
alleged kickbacks to doctors after the jury was unable to reach
a verdict.

U.S. District Judge James Lorenz declared the mistrial, the
second time that a jury deadlocked in trying to reach a verdict
in the case against the troubled hospital chain.

Tenet, the second biggest U.S. hospital company, said it
hopes prosecutors will decide not to try the case a third time.
Its shares, which had been halted before the news, rose 61
cents, or 8.4 percent, to $7.90 after trading resumed.

The deadlock is a positive step for the Dallas-based
company, but a pending federal investigation over Medicare
overbilling and the debt struggles of the hospital industry
continues to cloud its prospects, according to analysts.

"It's a good thing," Nancy Weaver, an analyst with Stephens
Inc. said of the mistrial. "I think it would be unusual for the
government to go after them a third time."

But, she added, "It doesn't dramatically change the
fundamentals. They are still burning through cash."

The San Diego case involves doctor relocation agreements at
Alvarado Hospital Medical Center in San Diego. Under federal
law, hospitals can motivate doctors to move to federally
underserved areas with incentive payments. Tenet says it
continues to use the deals and believes its contracts are

The company has several other such doctor relocation probes
in six states against it, though this case is the most
significant, according to analyst Jason Gurda of Bear Stearns.

Tenet has been battling government and private lawsuits for
several years, including a federal probe into inflated Medicare
payments and a U.S. Securities and Exchange Commission

The company is in settlement talks with the U.S. Department
of Justice on the Medicare dispute, which involves claims that
Tenet overcharged Medicare for especially complex medical

Tenet has said the two probes are unrelated.

"We've tried to separate the two issues. We have others
issues with the Department of Justice regarding Medicare,"
Tenet general counsel Peter Urbanowicz said.

Tenet has been in settlement discussions with the federal
government for about two years. When asked about the sticking
points, Urbanowicz would only say that any deal has to be fair
to Tenet.

"It has to be something that the company can do. We are
trying to reach some common ground," Urbanowicz. "I wouldn't
say they (the talks) are deadlocked."

Bear Stearns has modeled payment for a settlement of $1.2
billion in the first half of 2006.

Tenet suffers more than most of its peers from tepid volume
and bad debt problems plaguing the industry.