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Tenet Begins Review of Cardiology Programs at California Hospital
Monday November 4, 10:05 am ET

SANTA BARBARA, Calif. -- Tenet Healthcare Corp. Monday announced the formation of a team to review its cardiology programs at a company-owned hospital in California in the wake of federal investigation of two physicians at the facility.

Tenet said a team that includes experts from the company's law, compliance, quality management, and other departments, arrived at the Redding Medical Center in Redding, Calif., and have started a review of the cardiology and related programs to insure that company standards and policies are being followed.

Tenet also hired the national medical audit practice of Mercer Consulting Group, an independent medical utilization expert, to assist in reviewing treatments performed by the two doctors at Redding. Mercer in turn will hire independent cardiologists to review patient records and internal documents regarding the cases. Mercer also will be responsible for the review of any future cases these two physicians intend to perform at the hospital.

Last week Tenet shares tumbled in the wake of a federal probe involving two physicians who practice at Redding Medical Center. Federal authorities raided the facility, examining whether the men performed unnecessary procedures, including open-heart surgeries and angioplasties. Neither of the physicians has been charged, and Tenet isn't under investigation, said Laura Swartz, a prosecutor in the U.S. attorney's office in Sacramento, Calif.

The government investigation comes at a difficult time for the company, whose stock was downgraded by a UBS Warburg analyst based on his review of Tenet's Medicare so-called outlier payments. The payments are made to hospitals by Medicare to compensate them for unusual cases that involve very expensive care. Tenet has said that 23% of its Medicare payments during fiscal 2003 will be in the form of outlier payments, significantly higher than the percentage for other hospital operators.

Tenet said its high outlier payments reflect the success of its strategy to attract more patients to its specialized cardiology, neurology and orthopedic services, which are more profitable than less-complicated services. Tenet also said a high percentage of its hospitals are in urban areas, and six are academic medical centers, which attract more patients with serious illnesses that trigger the outlier payments.

Some health plans in California say Tenet and other hospital operators have raised their list prices sharply this year, which could contribute to Tenet's high outlier payments. Tenet has more hospitals in California than any other investor-owned chain. The complicated formula that determines Medicare outlier payments is calculated partly on these list prices, even though these prices are rarely paid by patients or insurance firms.

The U.S. Department of Health and Human Services's Office of the Inspector General has said it plans to conduct a review of outlier payments next year.

Separately, Tenet said misinformation and false rumors about the company continue to circulate. The company said it will attempt to issue clarifications and denials, as appropriate, on a timely basis.

Tenet said it believes that many of the rumors and misinformation are attributable to "legal adversaries, critics with their own agendas and those who stand to benefit if Tenet's stock declines, and therefore should be viewed in that light."

Tenet said suggestions that there have been irregularities in its submission of MediCal claims from its Daniel Freeman Marina Hospital in Los Angeles are false.

The company acquired the facility last Dec. 17, and government regulations require a waiting period of at least 90 days before a new owner may submit MediCal claims. The fact that the hospital waited 90 days before submitting MediCal claims may have led to the incorrect speculation, Tenet said.

Tenet also clarified a prescheduled grant of company stock options to board members under the board's standard compensation policy.

On the last Thursday of each October, the company's non-employee directors automatically receive a stock option grant according to a pre-established formula. Based on the formula, each nonemployee director received a grant of options to purchase 18,000 shares of the company's stock at an exercise price of $28.75, which was the closing price of the company's stock on Oct. 31.

-Thomas Gryta; Dow Jones Newswires; 201-938-5400