During the hospital industry's rollicking 1990s merger mania and the spectacular boom and bust of the biggest player of the era, Columbia/HCA Healthcare Corp., Tenet Healthcare Corp. seemed to glide above the fray on a breeze as warm and gentle as those coming off the Pacific most days in Tenet's headquarters town of Santa Barbara, Calif.
That in itself was surprising, given that Tenet was born from the ashes of the National Medical Enterprises scandal of the early '90s. Jeffrey Barbakow, chairman and chief executive officer of Tenet, was brought in to the precursor company NME, which pleaded guilty to eight criminal counts and paid a half-billion dollars to settle charges and lawsuits against it.
Despite its past, the new Tenet seemed to be the kinder, gentler for-profit hospital conglomerate, even as it aggressively built its empire of 113 hospitals. The only nagging public relations problems were local objections to hospital mergers and a lawsuit filed against Tenet by some Hispanic activists in Orange County, Calif., charging the company with price gouging low-income and uninsured patients.
Investors, meanwhile, loved the company for its aggressive strategy of building strong local market share, consolidating services and using that leverage to force higher prices for its services from health plans.
What a difference a week or so makes. Unlike the slow decline of Columbia/HCA's fortunes, Tenet's share price plummeted overnight, taking with it the share prices of other healthcare companies. The fall came on the heels of a trifecta of probes: HHS' inspector general's office said it is auditing Tenet's billing in light of the company receiving a disproportionate amount of Medicare outlier payments for higher-cost procedures. Federal agents raided Redding (Calif.) Medical Center, a Tenet facility with one of the nation's highest rates of outlier payments, looking for records to prove that two of Redding's physicians performed unnecessary cardiac procedures. And the Federal Trade Commission issued a subpoena for information about the merger of two Tenet-owned hospitals in Poplar Bluff, Mo., as part of a larger inquiry into whether mergers are a force in driving up hospital prices.
Coming on the heels of the Columbia/HCA case, the experiences of some large nursing home companies and the train wreck at HealthSouth Corp., no wonder investors are skittish.
There are many more questions than answers in this affair. How, for example, could Barbakow say that Tenet's pricing strategy "is inconsistent with the position and posture that I want Tenet to have in the industry" and that he was unaware of the intensive effort to win higher outlier payments? Given that the company has openly said it has been placing a strong emphasis on increasing its high-acuity services and has prided itself on its market domination, it just doesn't ring true.
Also, shouldn't we now start questioning whether any for-profit healthcare company that pursues such an aggressive path toward maximizing profits is a good thing for patients, payers and the healthcare system as a whole? It's not the for-profit status that bothers me; it's the public ownership. Healthcare isn't just any other business, and the need to satisfy investors with earnings growth each quarter drives some executives to do things they might not do otherwise.
Everyone is watching the Bush administration to see how tough it is going to be on corporate wrongdoing. Tenet may provide a test of its resolve in the healthcare arena, or the case may drift away. Either way, communities that want good care and lower prices may take more notice the next time Tenet blows into town looking for a hospital deal.