Tenet investigation widens
DOJ asks the embattled hospital chain for information on certain Medicare payments.
January 3, 2003: 2:41 PM EST
SANTA BARBARA, Calif. (Reuters) - Investigations into embattled hospital chain Tenet Healthcare Corp. broadened this week, but investors shrugged off news Friday that the Department of Justice (DOJ) demanded information on certain Medicare payments for the sickest patients."It's not really a surprise. It's just a signal that the DOJ wants to build a case," SunTrust Robinson Humphrey analyst Darren Lehrich said the day after the second-largest U.S. for-profit hospital chain reported a DOJ subpoena seeking documents from Tenet and 19 of its hospitals.
Shares of Tenet (THC: down $0.38 to $16.59, Research, Estimates) have fallen 66 percent since late October, when UBS Warburg analyst Kenneth Weakley raised questions in a research note about whether Tenet could sustain growth of its so-called outlier charges to the Medicare health plan for the elderly.
Lehrich said he expects "several more quarters of negative headlines" centering around Tenet as several regulatory agencies continue investigating the hospital operator.
"I don't think this is going to resolve itself in 2003 necessarily, but I don't believe this is going to be a five-year-long investigation like what we saw with HCA Inc. (HCA: down $0.35 to $42.35, Research, Estimates)," said Lehrich, who does not own Tenet shares.
HCA, the No. 1 U.S. hospital operator, completed criminal and civil settlements last month totaling $1.7 billion.
Lehrich's firm, SunTrust Robinson Humphrey, has conducted investment banking business with Tenet in the past 12 months and he has an "equal weight" rating compared with other publicly traded hospital operators.
Lehrich said 2003 could be a difficult year for hospital operators because of the Tenet investigations, a more challenging environment for Medicare payments and signs that the cycle of rising hospital fees is starting to decelerate going into 2004.At issue are Tenet's past volume of outlier charges to Medicare. These payments to Tenet, which exceeded $750 million for the fiscal year ended in May, are made to help hospitals defray high costs for unusually ill patients.
Tenet Healthcare, which through its subsidiaries owns and operates 114 hospitals in 16 states, has maintained that it did not break the law regarding the Medicare outlier payments, which are now the subject of a federal audit.
"Given the scrutiny and controversy regarding outlier payments, it is not surprising that the Justice Department is interested in reviewing the matter," Tenet's chief corporate officer and general counsel Christi Sulzbach said.
Tenet, which lost over $15 billion of market capitalization since the end of October, said 15 of the 19 hospitals that received requests are located in California, with the rest in Texas, Pennsylvania and Louisiana. Tenet said it will cooperate with the DOJ requests.
Tenet has suffered a host of problems during the last three months of 2002 in addition to outlier payments.
These include a federal search of offices at a San Diego hospital about physician recruiting data, allegations that two doctors at a northern California hospital performed unnecessary heart surgeries, the resignation of two top executives, a dissident shareholder seeking new management at Tenet, and union accusations that it exposed patients to higher risks of injury and death from dangerously low staffing levels.
The company warned on Dec. 3 that its fiscal 2003 and 2004 profits would fall short of estimates as Medicare cuts payments to high-cost hospitals.
Tenet's bonds maturing in 2011 with a 6.375 percent coupon traded at 90.25 cents on the dollar at midday Friday to yield 7.921 percent, down from 91 cents with a 7.763 percent yield on Jan. 2, according to the NASD's Trace fixed income service.
The Centers for Medicare & Medicaid Services, which administers the Medicare program, said it would "clamp down on hospitals for overcharging for complex cases."