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Tenet offers $238 million to settle Georgia kickback allegations

(Story was updated at 4:32 p.m. ET)

Tenet Healthcare Corp. has offered to pay $238 million to resolve a False Claims Act lawsuit involving alleged kickbacks for maternity referrals by four of its Georgia hospitals.

The Dallas-based hospital chain disclosed the preliminary settlement in its fourth-quarter and full-year financial results reported to the Securities and Exchange Commission Monday.

Tenet previously disclosed that it had entered into negotiations with the U.S. Justice Department and the Georgia attorney general's office to try to resolve the allegations, which stem from a whistle-blower lawsuit. The company said in its financial filing for the quarter ended Dec. 31 that it increased its reserve set-aside to cover the matter to $238 million from $20 million.

“We expect that the DOJ will make a counterproposal, and there can be no assurance that the ongoing discussions to resolve these matters will be successful,” Tenet said in the filing. “The terms of a final resolution may require us to pay significant fines and penalties and give rise to other costs or adverse consequences that materially exceed the reserve we have established.”

The four Tenet hospitals—Atlanta Medical Center; North Fulton Hospital, Roswell; Spalding Regional Hospital, Griffin; and Hilton Head Hospital on Hilton Head Island—contracted with a clinics operated by Hispanic Medical Management for prenatal care provided predominantly to uninsured patients. The government alleges that payments that Tenet made to Hispanic Medical Management for translation, marketing and help with Medicaid eligibility determinations amounted to illegal kickbacks for referrals and violated the False Claims Act.

The Justice Department is also conducting a criminal investigation of some former employees of the hospitals regarding the contracts at issue, Tenet has disclosed.

Tenet has a pending deal to sell Atlanta Medical Center, North Fulton Hospital, Spalding Regional and one other Atlanta-area hospital to Marietta, Ga.-based WellStar Health System. The transaction could close as early as this quarter, Tenet said in its earnings report.

Tenet said the $218 million increase in its litigation reserve swung the company's results to a $97 million net loss for the fourth quarter of 2015, compared with a $61 million net profit in the same quarter of 2014. The company reported a $140 million net loss for the full year, compared with a $12 million profit in 2014.

Net operating revenue, however, increased 12.4% to $5.4 billion in the fourth quarter compared with the last three months of 2014 and grew 12.3% to $20.1 billion for the full year.

During an earnings call with analysts today, Tenet CEO Trevor Fetter said the hospital chain planned to slow its pace of acquisitions and hospital construction projects during 2016 and into 2017.

In 2017, after major hospital expansions are finished this year in El Paso, Detroit, San Antonio and elsewhere, Tenet expects to see its capital expenditure budget fall by $150 million from the $850 million it plans to spend in 2016, Fetter said.

He stressed also that big acquisitions have given way to some hospital divestitures and a strategy to expand specialty services and ambulatory care in its major markets.

Fetter said Tenet has a number one or two market share position in 21 of the 30 major markets where it operates.

Atlanta was a market that Tenet wasn't satisfied with its market share position so it decided to divest rather than invest in more hospitals and facilities.

Fetter said Tenet should raise $575 million from the sale of those hospitals to WellStar. He said he expects that deal to be completed in the first quarter of this year.


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