No Love Lost Between Tenet, Philly
By Melissa Davis
Senior Writer

12/29/2003 07:02 AM EST

The City of Brotherly Love is brimming with quite the opposite emotion regarding Tenet (THC:NYSE - commentary - research) these days.

Five years after welcoming Tenet as the city's first for-profit hospital operator, Philadelphia leaders are fighting mad at the controversial health care chain. In a formal resolution, they have accused Tenet of violating agreements with their city -- and the Hippocratic oath that guides the entire medical profession -- by "hypocritically turn [ing] its back on providing essential health care services" to Philadelphia citizens. Council members passed the resolution just a day after Tenet announced plans last week to close its Medical College of Pennsylvania, a 153-year-old landmark and the only hospital still serving the economically troubled northeastern corridor of the city.

City leaders are hoping to thwart Tenet's attempts to close the college's Level 1 trauma center, which began as the nation's first medical school for women, early next year. Tenet has described the decision to close MCP as a difficult but necessary one because the hospital is losing more than $5 million a month. It plans to stop accepting new patients in less than two months.

Far away from the outcry in Philadelphia, Wall Street has been celebrating the move.

"Net-net, we view Tenet's decision to close MCP Hospital as an incremental positive in Tenet's financial health," wrote Prudential analyst David Shove, who nevertheless continues to recommend selling Tenet shares. But "we think Tenet's path to recovery continues to be fraught with distractions and risk."

Tenet's stock, which originally surged on news of MCP's closure, shed a dime to hit $15.46 on Christmas Eve.

New Crusade

Some in Philadelphia hope to see Tenet's stock -- already hammered from last year's record highs -- go even lower.

During its first real meeting on Tuesday, the new Save MCP Coalition was reportedly told by the mayor's office to "dump Tenet stock." The meeting, covered by at least four local television stations, featured a throng of high-profile leaders from the Philadelphia community. Some big names outside the city have jumped into the fight against Tenet as well.

"There are so many people who are fighting for ... MCP, from the governor on down," said Ginny Holzworth, a veteran MCP intensive care nurse who is leading the new MCP Coalition. "They all say the same thing: 'We will win.'"

By now, City Councilman Michael Nutter has angrily resigned from his post on MCP's board and joined with fellow council members in authorizing a full-scale investigation of the hospital's activities. Meanwhile, Feudi Pandola -- the former controller of another local Tenet-owned hospital -- is calling for city officials to expand their probe to include every Tenet facility in the city. Pandola points out that Tenet's Philadelphia hospitals grew revenue by 176% to 202% in a single year after they joined the corporate chain.

"Increases of this magnitude are unheard of anywhere in health care -- ever," he said.

Pandola is concerned that Tenet may have boosted volumes by performing unnecessary surgeries on Philadelphia citizens. The company has already paid a record-breaking fine to settle allegations that it employed that very strategy at one of its hospitals in California, though Tenet neither admitted to nor denied those claims.

"Preserve the physical patient medical records at MCP, and at all Tenet facilities in Philadelphia," Pandola urged in a Tuesday email to local leaders. "This could be a matter of great concern to the health and welfare of the citizens in Pennsylvania."

Pandola pointed to the "unsettling nature of the similarities of the revenue trends" seen at Tenet's California and Philadelphia hospitals as the reason for his concern. Meanwhile, California citizens are already rushing to Philadelphia's aid. A powerful Los Angeles group -- which successfully defeated Tenet's plans to close the company's Daniel Freeman Marina Hospital last year -- is now organizing crusaders in Pennsylvania.

Julie Inouye, a physician's wife who formed the Save Our Marina Hospital Coalition back when Tenet was still a Wall Street darling, has offered Philadelphia a blueprint to follow in building its case against the for-profit chain. In the meantime, she is already cheering on the protesters from the MCP Coalition's new Web site.

Closing Time

Inouye's group began gathering information about Tenet -- and passing it along to federal authorities -- months before the company's aggressive practices were ever exposed to Wall Street. The coalition's ability to keep the Marina hospital open, following a state injunction and heated community hearings, later ranked as the top local story of last year.

 

Inouye believes that Tenet's business model actually relies on the calculated closure of important community hospitals.

"I think the good guys are going to win," she told TheStreet.com this week. "It's just a matter of timing -- and how many people are going to die in the interim."

At least one industry expert has already lost all faith in Tenet's ability to operate a hospital chain. Fulcrum analyst Sheryl Skolnick believes that Tenet will eventually be forced to exit the hospital business entirely. In the meantime, she is steering her clients clear of Tenet's shares.

"As our analysis shows, in five of seven cases, the terminal value [of the company] is substantially below the current stock price and is higher than the current price in only the most aggressively optimistic case," she wrote last week, when the stock was an even lower $14.75. "Our target price is $9.40, based on what could still be an optimistic assessment of equity value upon breakup of the company."

Clearly, Skolnick has little hope that Tenet can simply recover and move on.

"We think that the likely outcome of this saga will be that the assets will have to be sold to others who would not carry Tenet's burdens," she wrote. "It is our view that the facilities cannot be turned around so long as Tenet owns them."