Tenet’s Troubles Only Deepen
Tenet Healthcare Corp. had been struggling for more than two years to overcome financial, legal and image problems -- including allegations of unnecessary heart surgeries at a Redding hospital.
Then Hurricane Katrina hit.
The national hospital chain, which hasn’t reported a profit in nearly three years, had six hospitals in the region with $600 million in annual revenue. All of them, damaged by the high winds and water, were closed or taken over by local authorities to house rescue workers.
Analysts say the company, which moved its headquarters from Santa Barbara to Dallas last year, faces storm-related losses of at least $75 million. That doesn’t include costs such as payroll and relocation expenses for 5,500 displaced workers.
But the hardest blow to overcome may be the public relations hit that came with discovery of 45 bodies at the company’s Memorial Medical Center in New Orleans. Although they’re working hard to tell Tenet’s side of the story, saying hospital workers went far beyond the call of duty to save patients, executives acknowledge that the body-count headlines are the last thing the company needs.
“It’s not the kind of PR you want,” Tenet spokesman Harry Anderson said. “We haven’t caught many breaks in the last several years.”
Before the storm, Tenet -- which has 73 hospitals nationwide, most concentrated in California and the Southeast -- had nearly completed its goal of selling 27 hospitals in a downsizing aimed at restoring profitability. Analysts now say they aren’t sure how much longer that recovery will take.
The company’s “turnaround has stopped, for all intents and purposes,” said Sheryl R. Skolnick, an analyst with Fulcrum Global Partners. “In the best-case scenario, [Tenet] likely has at least another two years and probably at least three years before it will have stabilized operations at reasonable levels of profitability.”
Katrina also may have put the kibosh on another key part of the company’s turnaround plan: stanching the defection of doctors. Physician loyalty -- gauged by the number of patients that doctors admit -- has waned in the face of the company’s mounting legal and financial woes, many of which were self-inflicted.
Chief among those problems are allegations that surfaced almost three years ago that a Redding hospital performed hundreds of unneeded open-heart surgeries for profit. Tenet avoided trials by paying the government, patients and their survivors nearly $450 million. Federal authorities are investigating similar allegations at three Los Angeles hospitals operated until recently by Tenet.
Tenet was hit by more bad news in 2002 when it was accused of gaming the system for compensating hospitals for the care of the sickest patients. The allegations led to a racketeering suit by Florida’s attorney general.
The company’s stock, which traded at times above $50, dropped like a rock and never recovered after the tandem disclosures. Shares, which dropped again after the hurricane, rose 32 cents Friday to $11.66.
And for the last few months, the company has been under attack on another front. U.S. Attorney Carol Lam is wrapping up prosecution in San Diego of the company and administrators at Tenet’s Alvarado hospital, who are accused of bribing physicians to refer patients. Lam’s counterparts in several other cities have opened similar probes.
Analysts say the discovery of the bodies at Memorial threatens to further hurt Tenet’s reputation. Tenet said Friday that it was cooperating with a Louisiana attorney general’s investigation and had no indication that it would result in criminal charges.
The company said 21 of the corpses were those of Memorial patients, most very sick, who died naturally before the storm hit, during the storm or while waiting for evacuation. The 24 other deaths occurred in a long-term-care unit leased by another company on the hospital’s seventh floor, Tenet said. None of its patients drowned, and the hospital never ran out of food, water or medicine, the company said.
Tenet contends that it acted responsibly -- and physicians and nurses heroically -- in the face of horrible and unforeseeable conditions. Amid flooding that topped the first floor and sweltering heat, physicians and nurses cared for more than 200 patients and hundreds of relatives and area residents who had sought shelter at Memorial.
Three days after the storm hit, Tenet gave up on hope of a government rescue at Memorial and hired six helicopters. Doctors and nurses carried more than 100 of their sickest patients up several flights of stairs to get them to a helipad atop Memorial’s parking garage.
At Tenet’s Meadowcrest Medical Center in suburban New Orleans, conditions were so difficult for days after the storm knocked out power that physicians pumped themselves with fluids through intravenous drips so they could carry on treating stranded patients and visitors.
“This is another blow,” Tenet’s Anderson said. “But we’re actually walking a little taller because of the heroism at some of our hospitals.”
Analysts said news coverage of the corpses at Memorial could prompt more doctors to reduce admissions to Tenet hospitals.
“The last thing you want to be known as is the doctor at a Tenet hospital,” said Jeffrey C. Villwock, who manages Caymus Partners, an investment firm that advises a group of Tenet shareholders that has been highly critical of management.
“Tenet competes for these admissions from doctors,” he said. “There’s no way this can be conceived as good or even neutral. This is going to significantly impact cash flow.”
Analyst Evan Mann of research firm Gimme Credit said that in the short term Tenet had plenty of cash on hand to weather the storm’s aftermath and wait out whatever insurance settlements it eventually received. “Katrina [is] more of this year’s problem,” he said.
Longer term, Mann said, Tenet’s legal cloud is a bigger problem. The San Diego physician bribery trial has stymied Tenet’s efforts to negotiate a broad settlement of the government’s investigations. Such a settlement is considered crucial to getting physicians to boost admissions to Tenet hospitals.
If Tenet loses the trial, most legal and financial observers believe, it will be in a poor bargaining position, pushing the price tag of any deal with the government as high as $2 billion.
“They still need the global settlement to really implement the plan they’ve been advocating -- to get the admissions growth and get the physicians to return,” Mann said.
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Tenet Healthcare
Headquarters: Dallas
Chief Executive: Trevor Fetter
Employees: 79,220
Hospitals: 73
Patients: 683,474 admissions; 5.6 million outpatients (2004)
2004 revenue: $9.9 billion
2004 loss: $2.6 billion
Source: Tenet
Los Angeles Times
