Right now, Tenet Healthcare Corp. seems like an old car at a service station-there are so many mechanics looking under the hood that they're bound to find something wrong. A little more than a year after the Santa Barbara, Calif., company's problems burst into view, the investigations keep piling up.
The California Department of Health Services said last week that it would conduct extensive audits of the Medicaid billings of all Tenet-owned hospitals in the state. The department said the discovery of more than $3 million in overpayments to Tenet's Redding (Calif.) Medical Center triggered the broader probe.
The federal raid of Redding in October 2002 helped initiate the furor that has battered Tenet's stock price and led to a series of drastic changes, including a revamped executive team led by Chief Executive Officer Trevor Fetter and the planned sale or closure of 14 hospitals. So far, Tenet has sold six of those hospitals and closed two.
The company has agreed to sell four facilities to Triad Hospitals, Plano, Texas. The Federal Trade Commission said last week that it will not open a full-blown investigation of the deal. Triad has said it expects to close the $134 million acquisition Dec. 1. Closing the deal would give Triad 53 hospitals and pare Tenet's portfolio to 102 hospitals, down from 113 a year ago.
Tenet also revealed details last week of a $50 million dispute with Blue Cross of California-the first specific evidence of Tenet's problems with California insurers that it disclosed last month (Oct. 27, p. 8). In a securities filing, Tenet said the insurer, a unit of investor-owned WellPoint Health Networks, Thousand Oaks, Calif., terminated its contract with Tenet's Doctors Medical Center of Modesto (Calif.), effective Nov. 30.
In a letter released by Tenet, Blue Cross accused the hospital of providing medically unnecessary coronary bypass procedures and failing to use "appropriate quality assurance, peer review and utilization management procedures."
The Senate Finance Committee has asked Blue Cross to turn over its findings for the committee's investigation of Tenet. The committee's chairman, Sen. Charles Grassley (R-Iowa), asked HHS' inspector general's office to investigate the Modesto hospital in a letter last week.
Tenet said the hospital "has a very stringent cardiac review program" that follows protocols established by the American College of Cardiology and the American Heart Association. Tenet spokesman Steven Campanini said the company takes the questions about quality seriously, but at the same time is looking at the insurer's motivations. "They failed to pay us," Campanini said, adding, "The timing is suspect."
Disputes with insurers in California were one of several factors that Tenet cited last month for its plans to take a $200 million to $225 million charge related to bad debt when it reports third-quarter results this week.
The multiple waves of investigation that are pounding Tenet are no surprise, said Robert Salcido, a former trial lawyer in the Justice Department's civil fraud unit and now a healthcare fraud lawyer with Akin Gump Strauss Hauer & Feld in Washington.
"It's consistent with what happened with respect to the drug industry and to (Nashville-based) HCA," Salcido said. "First, there are several federal investigations, usually triggered by a whistleblower lawsuit. Then, there are federal settlements and then the states and others start looking into it."
Once a fraud situation starts generating news coverage, Salcido added, more whistleblowers emerge and federal and state prosecutors follow the leads.
In the California investigation of Redding, routine annual audits of the hospital's billings under Medi-Cal, as the state's Medicaid program is known, had found $8.9 million in overpayments in the two years ended May 31, 2001, the department said. More extensive audits revealed additional overpayments, the department said.
Tenet already has repaid the $8.9 million originally in question, but the company said in a securities filing that it disputes the new findings and plans to appeal once it has seen the full report of the most recent audit. Tenet has 60 days to pay the disputed amount and file its appeal, the department said.
Tenet previously had disclosed that Florida's Medicaid Fraud Control Unit is investigating the contracts between Tenet's Florida hospitals and physicians and other providers. Salcido said he is not familiar with this investigation, but he noted that Florida has a state False Claims Act that, like the federal version, entices whistleblowers to come forward with the incentive of earning a share of the recovery.
The U.S. attorney's office in Los Angeles and HHS' inspector general's office are probing Tenet's relocation agreements and other arrangements with physicians. Prosecutors in Los Angeles widened their investigation last month, with subpoenas having been served on eight hospitals so far.
In a third filing last week, Tenet said that it would not renew its lease on Suburban Medical Center, Paramount, Calif., when it expires Oct. 31, 2004. The company doesn't want to invest money in a facility that it doesn't own, Campanini said.
In other court-related news, Tenet is appealing a $253 million judgment awarded by California's 2nd District Court of Appeals to a founder of Tenet's predecessor company, National Medical Enterprises (NME), in a breach-of-contract case.
Tenet said it would ask the appeals court to reconsider its ruling and if that request fails, would appeal to the California Supreme Court. NME co-founder John Bedrosian sued NME for breach of contract after the hospital company fired him as executive vice president in September 1993. The termination followed a federal investigation of NME's psychiatric unit that led to a then-record $379 million fraud settlement.
At issue is the amount of damages, as previous court rulings have established his contract was breached.
The most recent ruling regarded whether damages should include gains in Tenet's stock up to its October 2002 high and whether Bedrosian is entitled to more shares of stock because of Tenet's 3-for-2 stock split in June 2002. In both cases, the appeals court sided with Bedrosian.