Tenet Healthcare To Sell 11 Hospitals To Help Cover Cost Of Settlement

Main Category: Health Insurance / Medical Insurance
Article Date: 04 Jul 2006 - 17:00 PDT

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Tenet Healthcare on Thursday said it will sell 11 hospitals to raise money for a $900 million settlement with the Department of Justice announced earlier this week and to improve the hospital network's efficiency, the Miami Herald reports (Dorschner, Miami Herald, 6/30). The settlement covers a DOJ investigation into inflated outliers -- payments hospitals receive from Medicare for treating the sickest patients -- that were first questioned in October 2002. The settlement also resolves a DOJ civil suit that accused Tenet of improper Medicare coding, as well as allegations from U.S. attorneys of improper physician recruitment in El Paso, Texas; Los Angeles; Memphis, Tenn.; New Orleans; St. Louis; and San Francisco. Tenet will pay $725 million over four years and also will waive its claim on $175 million in past Medicare payments (Kaiser Daily Health Policy Report, 6/29). Among the hospitals for sale are four of Tenet's five New Orleans-area hospitals and three of its five Philadelphia-area hospitals (Appleby, USA Today, 6/30). Tenet also plans to sell three Florida hospitals (Miami Herald, 6/30). San Diego-based Alvarado Hospital, where Tenet previously settled charges of improper physician kickbacks, has been on the market since May (Yi, Los Angeles Times, 6/30). Tenet said it expects to find buyers for the hospitals despite some financial problems at the facilities (Goldstein, Philadelphia Inquirer, 6/30). Tenet CEO Trevor Fetter told analysts that the company will immediately pay $470 million to the government. The company then will pay a total of $275 million plus interest in 12 quarterly payments from November 2007 to August 2010. Company officials said spending for new technology at some of Tenet's remaining 57 hospitals will rise by nearly $800 million this year. The higher spending is "aimed at attracting doctors back to Tenet hospitals," which have had difficulty remaining competitive in recent years because of the company's legal problems, USA Today reports. A Securities and Exchange Commission inquiry into Tenet's Medicare billing practices is still unresolved.

Reaction
Premila Peters, a bond analyst at KDP Investment Advisors, said, "The market is going to focus on their operations, their turnaround: Can they execute?" Peters added, "They need to increase their earnings, no question." Tenet said that with the hospital sales, earnings for continuing operations will range between a $75 million loss and a $25 million gain for fiscal year 2006 (USA Today, 6/30). Sheryl Skolnick, an analyst for CRT Capital Group, said, "It is not going to be easy from here," but she noted that as recently as 2003 "some people thought this company may not survive" (Los Angeles Times, 6/30). The Inquirer reports that some observers "question whether the government should be collecting huge fines from hospital firms like Tenet that were playing by the government's rules." Mark Gallant, a former federal prosecutor who currently represents hospitals, said, "It seems disingenuous to now treat people who operated under the system [the government] created as though they were committing fraud" (Philadelphia Inquirer, 6/10).

Broadcast Coverage
APM's "Marketplace" on Thursday reported on the Tenet settlement. The segment includes comments from Kemp Dolliver, an analyst with Cowen and Company, and Frank Morgan, an analyst with Jeffries (Palmer, "Marketplace," APM, 6/29). The complete transcript and audio of the segment in RealPlayer are available online.

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