Tenet Healthcare Corp. is like a gambler playing multiple hands of high-stakes blackjack-the company has a lot to pay attention to, and it has a lot of money on the table.
Two of Tenet's hands were in play last week: its 27-hospital divestiture plan and the criminal kickback trial of Tenet, its Alvarado Hospital Medical Center and two Tenet executives in U.S. District Court in San Diego.
Tenet said it is selling three Massachusetts hospitals to Nashville-based Vanguard Health Systems, with a closing expected by Dec. 31. Tenet estimated its after-tax proceeds from the sale at $167 million. Tenet has now sold or has deals in place to sell 18 of the 27 hospitals on a list of divestitures it announced in January. When its plans are completed, Tenet will own or operate 69 hospitals.
The hospitals being sold to Vanguard are 348-bed St. Vincent Hospital at Worcester (Mass.) Medical Center and two-campus, 420-bed MetroWest Medical Center, Framingham. Vanguard said it would pay $100.3 million for the property, plant and equipment, with some price adjustment to be made for the amount of working capital that is acquired.
Jay Harris, an investment banker with Cain Bros. in San Francisco, said Tenet's asset sales are proceeding a little slower than the company might like. In California, Harris said, Tenet is selling to smaller buyers led by physicians and entrepreneurs because the deep-pocketed, established buyers have shunned the sales.
Meanwhile, Tenet's lawyers accused U.S. Attorney Carol Lam's office in San Diego of withholding evidence that several witnesses made false statements in the kickback probe, which is partially a trial of the company's physician relocation policies. Federal authorities have revealed investigations of Tenet's use of physician relocation agreements and medical directorships across California and in El Paso, Texas, and New Orleans. Tenet filed a motion asking for a hearing to determine if Lam's office should be cited for prosecutorial misconduct. U.S. District Judge M. James Lorenz denied the motion and set jury selection for this week. The trial is expected to last up to four months.
The government's case involves about 100 physician relocation agreements, costing $15 million, that prosecutors allege were used to illegally gain referrals. Some accusations rest on five witnesses accused of giving false testimony, but the government's trial brief said it intends to call 116 other witnesses in the case. Lam declined to comment.
Two letters from Lam's office to the defense indicated that some false statements were made by Paul Ver Hoeve, a physician whose charges helped launch the case, and four members of the Mani family, some of whom received physician relocation agreements from Alvarado. The false statements included that Ver Hoeve knew defendant Mina Nazaryan, who was in charge of physician recruitment for Alvarado, much better than he had indicated and that the Mani family tried to keep one of its siblings out of the case by not mentioning his role.
Robert Salcido, a defense lawyer with Akin Gump Strauss Hauer & Field in Washington, said the letters were "a clear victory" that allows the defendants to question the credibility of witnesses. Salcido, a former U.S. Justice Department lawyer, said the government has a difficult case to prove because of the confusing legal guidance from the government for the past 15 years on physician relocation agreements.
The Manis are expected to testify that they agreed to pay kickbacks to Nazaryan in order to receive physician relocation agreements for themselves and others who would join their practice, according to court documents.
As those two hands play out publicly, Tenet also continues to grapple with the cards dealt to its hospital and financial operations. Maryann Hennessey, a healthcare analyst with Criterion Research Group, said Tenet seems to have reached the bottom of the deep valley it began tumbling into two years ago.
Like any company in a crisis mode, Tenet has to be concerned about losing good people, said Paul Frankenberg, president of Kraft Search Associates in Nashville. Frankenberg said Tenet needs to do a better job of communicating with its employees that the company will make it through the bad times. "That makes it harder to recruit and harder to retain," he said. "We've been able to pull good people out of Tenet."
"I actually think they're just on the threshold of a recovery," said Hennessey, who upgraded Tenet's stock and longer-term bonds to a "buy" rating last month. Tenet has improved its liquidity and its patient volumes have stabilized, she said.