Tenet Healthcare Corp., already reeling from questions about its Medicare reimbursements, faced more unpleasant news last week, with surprise visits from the Joint Commission on the Accreditation of Healthcare Organizations and the re-emergence of a thorn in management's side.
Last week, the JCAHO completed several more in a series of unannounced inspections at Tenet-owned hospitals in South Florida and St. Louis, both Tenet and the JCAHO confirmed, totaling eight hospitals surveyed to date.
Also, Tenet management's nemesis, M. Lee Pearce, M.D., of Fort Lauderdale, Fla., who heads the self-appointed Tenet Shareholders Committee, called for a new management team. In 2000, Pearce led an unsuccessful attempt to overthrow Jeffrey Barbakow, Tenet's chairman and chief executive officer, and his management team. That time, Pearce was rebuffed when major institutional shareholders such as the pension fund of the American Federation of State, County and Municipal Employees, which owns more than 2 million Tenet shares, backed Barbakow.
But the landscape has changed-and Tenet's shares have declined from $52.50 to $17 this year. Though AFSCME is not backing Pearce, it is seeking management change and concedes many of Pearce's points.
David Miller, senior strategic analyst for the government employees union, said the pension fund "has serious concerns about truthfulness of this management team," accusing executives of engaging in insider trading before negative news was made public in a Securities and Exchange Commission complaint. "And while we share many of the concerns Dr. Pearce has raised, we do not see Dr. Pearce himself as the agent of change," Miller said.
Pearce is a wealthy entrepreneur who has founded and operated hospitals and banks in South Florida. In a nine-page letter, Pearce asked Tenet board members to replace Barbakow and other senior managers, appoint an independent special committee to review healthcare quality and examine past practices, appoint a physician as chief compliance officer and add five new independent board directors.
Pearce said that two years ago, high Tenet stock prices placated board members and institutional investors. "Now, however, investors have lost $15 billion in 45 days, and the FBI is alleging that patients are dying needlessly," Pearce wrote. He chided Barbakow for his statements that he didn't know about Tenet's high outlier payments. "If he truly didn't know, then such incompetence should neither be embraced nor rewarded," according to Pearce's letter.
Tenet spokesman Harry Anderson said "much of Pearce's rhetoric seems to be rehashed from 2000. But our board will give careful consideration to his key points." Anderson declined to respond to the specific allegations and actions outlined by Pearce, such as his calling for Barbakow's resignation.
Last week, Tenet also announced that its board authorized the purchase of up to 30 million shares of Tenet stock in the coming year. Anderson said the action was unrelated to Pearce's letter.
The JCAHO surprise surveys were planned in mid-November, weeks after the news of Tenet's troubles broke. Sources said more than 15 Tenet hospitals will be surveyed in the coming weeks. JCAHO spokeswoman Cathy Barry-Ipema said the Joint Commission hasn't told Tenet the total number of hospitals yet to be surveyed and would not disclose which hospitals would be reviewed, or when the inspections will end. Barry-Ipema said she expected the JCAHO would issue findings next year.
Anderson said the company is conducting its own hospital reviews and expected the JCAHO inspections.