By Melissa Davis
4/2/2004 7:05 AM EST
The hospital closest to Los Angeles International Airport -- labeled California's
No. 1 terrorist target by government officials -- has already suffered a near-death
experience of its own.
Before Tenet (THC:NYSE) bought it, Daniel Freeman Marina Hospital enjoyed
celebrity status as the rehab center of choice for movie stars such as Melanie
Griffith and Robert Downey Jr. The hospital's plastic surgeons lifted decades
from superstar faces. Its emergency staff treated bloody victims hurt during
the riots that followed the beating of Rodney King.
These days, however, the hospital itself seems lifeless. The wards that once
housed movie stars have fallen silent, bare floors and empty filing cabinets
visible through dimly lit windows. The rest of the facility, forced to remain
open because of public outcry, treats just a few dozen patients in acute-care
units dominated by vacant hospital beds.
Ambulance sirens sound almost foreign in the warm Marina air.
Tenet has a long history of buying, and then closing, hospitals just like Marina.
In the past, the company has frequently eliminated its competition so it could
dominate the markets -- and raise the prices -- in the areas where it operates.
And it has executed its strategy right under the noses of government authorities
charged with protecting the public.
In Los Angeles, where Tenet owns nearly half the hospitals in one section of
town, community activists last year warned of serious risks.
"We are becoming increasingly concerned about the financial stability of
the corporation, possible violations of the asset sale agreement in the purchase
of area hospitals and the impact of any reduction of hospital services in our
community," the Los Angeles Community Health Councils wrote in a November
letter to the state attorney general -- who approved Tenet acquisitions -- and
to some other government agencies as well. "Our communities rely heavily
on access to these Tenet facilities."
The council urged government officials to host a meeting, with senior Tenet
executives present, to address its concerns before the end of the year.
"We got no response," marveled Laurie Sobel, a staff attorney at the
watchdog group Consumers Union, who signed off on the letter.
The attorney general's office says it did, in fact, intervene by preserving
cardiac services offered at Marina's sister hospital. But that victory would
soon look hollow. The following month, Tenet laid out plans to shed 19 Southern
California hospitals -- including both Daniel Freeman facilities -- in a desperate
attempt to regain profitability.
Sobel, for one, worries that Tenet will struggle to find takers for some of
the Los Angeles hospitals and wind up closing them instead. If so, entire neighborhoods
could be left scrambling for ready access to health care. And the government
may have little power to intervene.
"Tenet doesn't believe they can be touched," one L.A. physician noted.
"Their feeling about the government is: 'You can investigate us, interrogate
us, regulate us -- but you can't make us stay in business.'"
Tenet failed to respond to questions for this story. The company's stock, hammered
for more than a year over allegations of corporate fraud, slipped 14 cents Thursday
to $11.02.
Tenet wound up with Marina, together with sister hospital Daniel Freeman Memorial,
after a competing bid fell through three years ago.
Local doctors, worried about Tenet dominating the area, had sought to buy the
hospitals for themselves instead. But they unknowingly hired a con artist --
working for a firm with past ties to Tenet -- as a lead negotiator.
Jon Craig had racked up 15 criminal charges when he surfaced in Southern California
with a "plan" to save the Daniel Freeman hospitals in the spring of
2001. In his bio for MedSector, a start-up health care acquisition company,
Craig portrayed himself as a world-renowned man of finance who had negotiated
major transactions on at least three different continents.
But a documentary later aired by the Discovery Channel exposed Craig
as a charismatic crook who stole large sums from his wife, her foreign grandmother
and several other relatives. Craig ultimately pleaded guilty to three charges
of securities fraud -- and landed in a Utah jail -- just months after collecting
$5,000 checks from Marina doctors who pinned their hopes on his firm.
But Craig's background is simply the most troubling of the lot. MedSector CEO
Garth Hogan portrayed his first start-up, Medical Realty Corporation, as "the
leading medical real estate company in the state of California" in a cached
Web page that seems to be the only remnant of the corporation. He also pointed
to Tenet, MedSector's rival bidder, as one of his recent clients.
Ron Messenger, listed as Craig's fellow "managing director" at MedSector,
actually spent time as a top executive -- pursuing hospital acquisitions --
at Tenet predecessor National Medical Enterprises. Even a competing firm, seeking
to replace MedSector at the time, wound up with ties to Tenet as well.
And Tenet, as the only viable bidder left standing, got both hospitals for a
song.
A flashy brochure, printed just a few months after the acquisition, advertised
the Marina hospital as an "excellent" real estate investment. "Ideal
for high-rise, multifamily, office or mixed-use development," it suggested.
The company could have spewed obscenities and offended some people less. Tenet
had just broken a big promise in the wrong community. After swooping in to save
the hospital -- and assuming control of the only emergency room for miles --
Tenet seemed to be killing the facility instead.
Local strategist Julie Inouye went straight to work. Early in her career, before
landing roles in the Rocky and Free Willy sequels, Inouye had
trained under senior executives on the cutthroat business side of the entertainment
industry. She later used her corporate smarts to help win a multimillion-dollar
land dispute -- blocking a housing development on the Marina wetlands -- against
top Wall Street banks. But she now faced her toughest fight ever.
Tenet planned to shut the Marina hospital in a matter of weeks and accept final
bids on the building just four days later. The company portrayed Marina as an
underused facility that was bleeding incurably. But Save Our Marina Hospital,
a huge activist group founded by Inouye, soon diagnosed the wounds as self-inflicted.
"They moved lucrative units to another Tenet hospital," Inouye determined.
"They began to refuse contracts with private insurance companies like Blue
Cross and Blue Shield to show a loss on their books. They even revoked their
state Medi-Cal license."
For the record, state documents show that Marina's Medi-Cal revenue strangely
rocketed, tripling historic levels, shortly after Tenet took over. But revenue
across the board had plunged -- pushing Medi-Cal business into the red -- by
the third quarter of 2002, when the hospital was slated to close.
1954 Daniel Freeman Memorial opens as a Catholic hospital.
1980 Daniel Freeman expands by acquiring a second hospital
in Marina del Rey.
January 1997 Tenet becomes a dominant force in Southern
California by purchasing OrNda in its second-largest acquisition ever.
1997 The Daniel Freeman hospitals post losses that
begin to grow significantly following Medicare cuts in the late 1990s.
Early 2001 Both Daniel Freeman Hospitals go up for
sale.
Spring 2001 Local doctors try, but fail, to purchase
the Daniel Freeman hospitals in an effort to block a Tenet monopoly in the area.
December 2001 After paying $55 million for both Daniel
Freeman hospitals, Tenet controls more than 40% of the hospital beds in southwest
Los Angeles.
2002 Tenet begins directing lucrative cardiac business
away from Daniel Freeman Memorial to its nearby Centinela Hospital Medical Center
in Inglewood. Daniel Freeman, once a far busier cardiac hospital than Centinela,
performs 93% fewer catherizations than Centinela that year.
May 2002 Tenet announces plans to close the Marina
hospital and seeks bidders for the valuable property.
Fall 2002 Occupancy at the Marina hospital plummets
to half the rate posted when Tenet first took over.
Year-end 2002 Tenet's stock has tanked following a
raid of its Redding Medical Center -- later fined for performing unnecessary
heart surgeries -- and exposure of the company's aggressive pricing strategy.
April 2003 After months of public outcry, a scandalized
Tenet agrees to keep the Marina hospital open.
December 2003 Tenet starts cutting additional heart
programs at Daniel Freeman Memorial. Since acquiring the facility in 2001, the
company has yet to file a single state-mandated utilization report summarizing
care provided at the hospital.
January 2004 Tenet announces plans to shed 19 California
hospitals -- including both Freeman facilities -- in an attempt to pare underperforming
assets and return to profitability. Nearly half of the hospitals are former
OrNda facilities.
February 2004 Los Angeles doctors, led by a busy cardiac
group under possible investigation, reportedly hatch plans to buy five Tenet-owned
hospitals. Tenet, meanwhile, fails to acknowledge a bid submitted by community
activists for the Marina hospital they helped save.
March 2004 Tenet says buyers have expressed interest
in all 27 of its hospitals up for sale, including underperformers in California,
but has yet to announce any sales. It expects to collect just $600 million --
much of it in tax benefits -- by trimming its asset base by nearly one-third.
After operating Marina in the black for just one quarter, Inouye said, Tenet
had a losing hospital on its hands.
"The loss suddenly increased from $3 million to $13 million," she
said. "And this was Tenet. This was a multibillion-dollar company that
knew how to make money."
By the time local activists won their fight in early 2003, securing Tenet's
promise to keep Marina open "indefinitely," the hospital looked to
some eyes like a clear victim of neglect.
Over the course of nearly two years, state records show, Tenet invested just
$50,000 in the Marina hospital. It went entire quarters without spending a dime
on hospital upgrades. In contrast, the cash-strapped nuns who ran Marina previously
allotted $400,000 for improvements during the hospital's final year under Catholic
ownership.
"Tenet bought the Daniel Freeman Marina Hospital intending to sell it for
land value," Inouye explained simply. "They never put their name up
anywhere on the hospital -- only a banner for a short time."
Tenet finally shelled out some real money to repair Marina's damaged roof late
last year. But the company had already pulled a knife on Marina's sister hospital
in nearby Inglewood. It was slashing the popular cardiac program at Daniel Freeman
Memorial and sending the lucrative business to another Tenet-owned hospital
just a few blocks away.
It pulled the plug on Memorial's thriving congestive heart failure clinic altogether.
"It was very successful at keeping people out of the hospital," one
physician said of the clinic. "And preventive medicine is not what Tenet's
in the game for."
Tenet also laid out plans to shut Memorial's cardiac rehab program -- shown
to have lower death rates among heart attack victims -- along with a unique
fitness center utilized by hundreds of area residents. But an outraged public
managed to save the latter program.
"People in wheelchairs and walkers use this fitness center," Elaine
Modieste said in a December press release issued by the Community Health Councils.
"It's not like going to the Y. ... This is the only place I can get care
like this."
Days after the health council published its release, urging the state attorney
general to intervene, Tenet dropped plans to close the fitness center and agreed
to accommodate cardiac rehab patients at its booming hospital down the road.
For years, Tenet has been pumping huge sums of money into nearby Centinela Hospital
Medical Center in Inglewood. State records show the company regularly spending
millions -- sometimes in a single quarter -- on improvements at the facility.
But some insiders claim that Tenet's generosity doesn't end there. At least
one local doctor claims that Tenet rewards Centinela's busiest physicians --
through paid directorships and lucrative relocation agreements -- as well.
"If you dig a little deeper, you'll see that these are little more than
kickbacks," he said. "And the expectation of those doctors is: 'You
better be doing a hell of a lot of procedures.'"
The doctor went on to say that a hospital administrator blew him off when he
raised concerns about the favored physicians.
"I asked, 'Why are you crowning these guys kings? Their utilization is
off the wall,'" the doctor stated. "And I was told: 'That's how Tenet
likes to do things.'"
Tenet has already paid a record-breaking fine to settle allegations that the
company profited from unnecessary surgeries, carried out by its busiest doctors,
at Redding Medical Center in Northern California. It has also seen its Alvarado
Hospital Medical Center in San Diego indicted for allegedly negotiating more
than 100 doctor kickbacks since 1992. The hospital has pleaded innocent to the
charges and is headed for trial in October.
Interestingly, both Centinela and Daniel Freeman Memorial -- now under government
scrutiny for their own physician contracts -- employ CEOs who held top positions
at Alvarado when some of the alleged kickbacks took place. Genevieve Clavreul,
a hospital consultant with long ties to Tenet, claims that even corporate-level
executives have engaged in such practices.
Before signing on as a consultant for Tenet in the early '90s, Clavreul made
a name for herself by negotiating a major settlement between AIDS researchers
in France and the U.S. Tenet then hired Clavreul to help lure two world-renowned
AIDS doctors from France to its teaching hospital at the University of Southern
California. But the deal started to unravel, Clavreul says, when current Vice
Chairman Barry Schochet got involved.
"From the beginning, I told Schochet that I did not want the physicians
to get kickbacks," Clavreul said. "And he kept saying they should.
... They always offer them."
Despite her track record, Clavreul suddenly found herself stripped of the power
to negotiate two simple physician contracts. The AIDS project ultimately fell
through, she said, and Tenet refused to pay her. A frustrated Clavreul then
took her complaints to Christi Sulzbach, who resigned last year as the company's
lead counsel. While meeting with Sulzbach, Clavreul says she threatened to take
her labor case to state authorities and mentioned the doctor kickbacks as well.
"Of all the group, she was the smartest," Clavreul said. "Within
24 hours, I got my check."
Sulzbach could not be located for comment. But the federal government has already
singled out Tenet's USC hospital -- together with Centinela and Daniel Freeman
Memorial -- for a fresh round of questioning. The company said in October that
federal authorities are primarily interested in "certain cardiac physician
arrangements, coronary procedures and billing practices" at the three Los
Angeles hospitals.
One Centinela practice, in particular, has publicly boasted about its booming
cardiac business.
During a public hearing in late 2001, held as Tenet negotiated to buy the two
Daniel Freeman hospitals, cardiologist Philip Frankel stressed the prominence
of both himself and his partners. He held himself up not only as a board member
of Centinela but also as a leader -- and former chief of staff -- at one of
the Daniel Freeman hospitals Tenet hoped to buy. He then showcased his entire
practice as a powerful group that endorsed the Tenet deal.
"When Tenet acquired Centinela Hospital, my group and I were asked to come
over to enhance the program," Frankel explained. "Before that, it
was a very small cardiology department doing very few cases. ... Centinela has
completely revitalized the cardiology department."
State records confirm that Centinela's cardiac business has, in fact, rocketed.
Five years ago, the hospital performed just 75 bypasses and 550 catherization
procedures. Those numbers had jumped to 179 and 1,802, respectively, the year
Frankel offered his testimony. Catherization numbers have since continued to
climb.
Back in 2001, Frankel pointed to his own group as the driver behind that new
business.
"My group and I have been responsible for the majority of the cardiac cases
being done at both" Centinela and Daniel Freeman Memorial, he explained.
Two weeks ago, the Los Angeles Business Journal reported that federal
prosecutors had launched an official probe of the high-profile cardiac practice.
But the group, known as Apex Cardiology Consultants, could be aiming still higher.
A local physician last month pointed to the Apex cardiologists as the "lead
investors" hoping to buy Centinela, both Freeman hospitals and two other
Tenet-owned facilities.
Another physician, who practices primarily at Daniel Freeman Memorial, isn't
necessarily counting on conditions to improve.
"Change brings opportunity," he admitted. "But it depends on
who comes in and purchases the hospitals."
If the buyer takes the same view as Tenet, he added, things will remain the
same.
The Marina hospital, at least, has attracted an alternative bidder. The same
group that saved Marina -- and now operates as We CAHRE, short for Community
Action for Healthcare Reform and Education -- is trying to acquire the facility
and transform it into a nonprofit resource for the community. But We CAHRE's
leader is still waiting for Tenet to even acknowledge the bid. In the meantime,
she marvels at all that has transpired.
"Hospitals are supposed to save people," Inouye stated. "Instead,
we've got people saving hospitals. Tenet has a way of turning everything upside-down."