Tenet Healthcare Corp. has raised its reserves to $407 million for potential payouts to resolve a False Claims Act lawsuit involving alleged kickbacks for maternity referrals by four hospitals it once owned, the company disclosed in an earnings release Monday.
The 71% increase from $238 million in February, along with hospital acquisition and divestiture costs, dented what otherwise was a strong financial and operating first quarter for Tenet.
Operating income in the first quarter rose to $347 million on revenue of $5.4 billion in the quarter compared with operating income of $290 million in the year-earlier quarter on revenue of $4.8 billion. Hospital admissions, emergency room visits and surgeries all rose in the quarter compared with a year ago.
The Dallas-based hospital chain said it adjusted its lawsuit reserve after the U.S. Justice Department and the Georgia attorney general's office rejected a $238 million settlement offer. In February Tenet widened the reserve to $238 million from $20 million.
The four Tenet hospitals—Atlanta Medical Center; North Fulton Hospital, Roswell, Ga.; Spalding Regional Hospital, Griffin, Ga.; and Hilton Head Hospital on Hilton Head Island, S.C.—contracted with clinics operated by Hispanic Medical Management for prenatal care provided predominantly to uninsured patients.
The government alleges that payments 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 sold three of the named hospitals—Atlanta Medical Center, North Fulton Hospital and Spalding Regional—to Marietta, Ga.-based WellStar Health System earlier this year, along with two other Atlanta-area hospitals.
Though Tenet now has divested its Atlanta holdings, the company was responsible for the lawsuit claims under the deal with WellStar.
Tenet, which owns 84 hospitals, posted a net loss of $59 million in the first quarter compared with net income of $47 million in the year-earlier quarter.