HMOs follow US in probing Tenet contracts-analysts

Reuters, 11.29.02, 1:12 PM ET

CHICAGO, Nov 29 (Reuters) - U.S. health insurers are likely scrutinizing their deals with Tenet Healthcare Corp. (nyse: THC - news - people) in the aftermath of federal inquiries into a pricing scandal at the second-largest hospital company, industry watchers said Friday.

Tenet, which holds lucrative contracts with private insurers, especially in California, is under investigation by the U.S. Department of Health and Human Services and the Securities and Exchange Commission for excessive charges to the government for Medicare patients.

Health plans auditing their own dealings with Tenet likely include Health Net Inc. (nyse: HNT - news - people) and PacifiCare Health Systems Inc. (nasdaq: HNT - news - people), analysts said. Health Net contracts with 40 Tenet hospitals in California.

"If Medicare is auditing, it would be a prudent thing for HMOs and employers to do the same thing to get a handle on these questions," said David Miller, a spokesman for the American Federation of State, County and Municipal Employees, a union that represents about 3 percent of Tenet's 106,000 employees.

The union has asked CALPERS, the California pension system for public employees and the nation's third-biggest buyer of employee health benefits after the federal government and General Motors Inc., to investigate.

"Now the ultimate payers (employers) are beginning to examine this, and that presumably puts pressure on the rates" Tenet can charge, said Sheryl Skolnick, an analyst at Fulcrum Global Partners.

STOP LOSS

U.S. regulators are dissecting Tenet's lion's share of so-called "outlier" payments -- or charges to Medicare for unusually expensive patient cases.

These are called "stop-loss" charges in nongovernment cases, and are billed to health management organizations.

In response to the scrutiny, Tenet is likely to reduce its charges to HMOs like Health Net based on "gross" or retail costs -- in effect the sticker price of any cost at a hospital, industry sources said.

However, Tenet executives have told investors just the opposite: that they will continue to charge insurers based on gross charges, which escalate once stop-loss payments come into effect.

"The company has been saying, 'No, no we don't think we'll have to do that,'" Skolnick said.

A spokesman for Tenet was not available for comment.

HMOs are wrestling with soaring health costs -- rising by double digits for the past several years. Hospital costs recently passed prescription drug spending as the fasting rising segment of these costs, further heaping pressure on talks between the two players.

"We are looking at a number of ways to lower the rate of hospital cost inflation, which has been the primary driver in the rapidly rising health care premium," said David Olson, a Health Net spokesman.

Josh Raskin, a Lehman Brothers analyst, said recently he has spoken with several health plans about whether they are worried they had been overcharged by Tenet.

Raskin said the sentiment among the plans was that it is "something for them to monitor."