Alvarado Parent Has a Long Recovery Ahead

By Penni Crabtree, The San Diego Union-Tribune

May 18–With the resolution of criminal charges at Alvarado Hospital Medical Center, parent company Tenet Healthcare is a step closer to a cure for its ailing reputation.

Wall Street analysts said yesterday that resolution of the Alvarado case, which includes the sale or closure of the hospital, clears the way for a larger, “global” settlement of numerous federal and state claims that could cost the nation’s second-largest for-profit hospital chain as much as $2 billion.

Among the most punishing outstanding issues are allegations that Dallas-based Tenet reaped as much as $1.6 billion by exploiting a loophole in Medicare’s outlier program, which reimburses hospitals for treating the sickest patients whose care exceeds the agency’s standard rates.

“The most important piece of the puzzle is still to come,” said Darren Lehrich, an analyst with Deutsche Bank. “The Alvarado settlement is important in that it brings closure, but a global settlement will really put all of Tenet’s issues with the government behind them.”

Tenet, which operates 69 hospitals in 13 states, has been writing a lot of checks lately to try to repair its tattered reputation, or at least to resolve costly litigation and move forward.

–In January, Tenet agreed to settle shareholder class-action lawsuits for a total of $215 million. In that case, Tenet’s former officers and directors allegedly made false or misleading statements about the company’s receipt of Medicare outlier payments.

–Last year, Tenet earmarked $30 million to settle class-action lawsuits filed in several states that allege the company gouged uninsured patients, billing them at undiscounted gross charge rates.

–In 2004, Tenet agreed to pay $395 million to settle patient lawsuits alleging that doctors at its Redding Medical Center performed unnecessary heart surgery on more than 750 patients to reap millions in Medicare reimbursements.

–It also paid $54 million to resolve a government investigation in Redding and, as in the Alvarado case, Tenet was forced to sell the facility to avoid its being excluded from Medicare.

The Tenet Shareholder Committee, a group long critical of Tenet management, said yesterday that it will take more than check-writing to restore patient, physician and investor confidence in the company.

“In our view, Tenet’s response to all the recent scandals boils down to a claim that they did nothing wrong and they are working hard to fix it,” said Robert Potts, spokesman for the group. “In just the last four years, there have been nine separate settlements with the federal government, all at shareholder expense.

“No executives were held responsible and the company admitted no wrongdoing,” said Potts, who said the group represents about 80 investors with small holdings in Tenet. “Isn’t that a prescription for more of the same in the future?”

It’s not the first time Tenet has made the government’s bad boy list. The company began life as National Medical Enterprises, but changed its name in 1995 to Tenet to distance itself from a scandal involving its psychiatric hospitals.

National Medical’s psychiatric-services subsidiary was accused of paying millions in kickbacks to doctors in exchange for referrals. It also allegedly kept psychiatric patients longer than necessary, and sometimes against their wishes, to collect more from Medicare and other insurers.

Tenet paid $375 million in fines to the government in that case.

Seven years later, the more far-reaching series of federal and state probes began that landed the company in its current legal mess.

“Historically, Tenet has been known to have a very aggressive culture, and I think that culture was a breeding ground for misbehavior,” Lehrich said. “Others got caught up in that game, but in no organization was it as widespread and egregious as Tenet.”

Today, Lehrich said Tenet is a humbler company that has taken steps to woo back physicians and patients under the leadership of chief executive Trevor Fetter.

Robert Mains of Ryan Beck & Co. said some physicians are snubbing Tenet because of its tainted reputation, and because, in some markets, the company hasn’t invested enough money in upgrading its hospital facilities.

“An interesting thing that a lot of people in health care have learned in the last few years is that doctors are very image-conscious,” Mains said. “The fact that Tenet hasn’t been able to put this all behind them is evident in that doctors are reluctant to send patients to their hospitals.

“To get the referring doctors and the patients they most want to get back into their hospitals, all these headlines have to go,” Mains said.

Tenet must strike a delicate balance between spending capital to improve its hospitals and trying to conserve cash to pay for a global settlement, Mains said. And it faces other challenges, such as debt and a persistently high level of uninsured patients.

“Aside from the legal difficulties, they are swimming upstream against a tough set of problems,” Mains said. “The key question is when they get everything behind them. How long does it take to pick up all the pieces, and how many of the pieces will still be there to pick up?”

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THC,