Tenet Settles Kickback Charges

Tenet Healthcare Corp. agreed Wednesday to pay $21 million to settle charges that its executives at a San Diego hospital paid illegal kickbacks to area doctors in a bid to boost patient admissions.

The country’s second-largest hospital chain also agreed to sell or close the 311-bed Alvarado Hospital Medical Center, which had its federal endorsement threatened over the allegations.

The long-running criminal case was one of several government inquiries into Tenet’s business practices in recent years, but its resolution Wednesday could lead to a broad settlement of disputes with several federal agencies, company officials said. Those include allegations that Tenet overbilled patients in Medicare, the federally funded healthcare program for seniors and some disabled people.

“We are optimistic that with the resolution of the Alvarado case, we can reach agreement soon with the federal government,” said Steven Campanini, a spokesman for the Dallas-based company.

Campanini declined to go into further detail and federal officials interviewed Wednesday said they were unaware of any broad settlement talks.

“These are different cases and different types of cases,” Justice Department spokesman Charles Miller said.

The agreement brings to an end one of Tenet’s most highly publicized legal troubles, and investors welcomed the news. The company’s shares surged more than 8%, to $8.03, on a day that saw broad sell-offs in the market.

Tenet admitted no wrongdoing in the case, which went to trial twice. Both times the jury deadlocked, most recently in April. Prosecutors were considering a third trial, but Tenet’s settlement with the U.S. attorney’s office Wednesday means the charges in the Alvarado case will be dismissed.

In the settlement, Tenet acknowledged that Alvarado made “excessive payments” to some doctors.

From 1992 to 2002, the hospital paid more than $10 million to entice doctors to practice nearby in East San Diego County. Such relocation incentives are a common industry practice. The money is meant to help defray physicians’ relocation costs.

In Alvarado’s case, however, much of the money never went to relocation costs. Some funds meant to improve facilities in clinics where the physicians were going to work were never spent on building improvements and instead went to the doctors.

The federal government alleged that the payments were illegal kickbacks, and in 2003 a federal grand jury indicted the hospital, its chief executive at the time, Barry Weinbaum, and Tenet HealthSystem Hospitals Inc., a subsidiary of Tenet and Alvarado’s owner.

In a related case, Mina Nazaryan, Alvarado’s executive in charge of physician recruitment, pleaded guilty last year to conspiracy charges and is awaiting sentencing.

The charges led to a threat by the federal government that it might bar Alvarado from treating Medicare patients or those in any other federally funded programs. That would most likely shutter the hospital, which last year lost almost $5 million, according to state records.

Tenet continues to face other legal hurdles. In 2002, the Centers for Medicare and Medicaid Services, which oversees the federal healthcare plans for seniors and the poor, accused the company of overbilling. The probe is continuing. Campanini said Tenet’s past pricing policies were aggressive but not illegal. The company, which operates 69 hospitals, including 18 in California, has since changed its pricing policies, he said.

Tenet also is being investigated by the Securities and Exchange Commission and the Internal Revenue Service over possible irregularities in its financial disclosures.

In San Diego, Tenet will have to find a buyer for Alvarado by February or close its doors. Campanini, the Tenet spokesman, said Wednesday that the company had talked to potential buyers.

“There have been some discussions, but it is at a very early stage,” he said. “I am not able to handicap the possibility of saving the hospital, but we are focused on a successful sale.”

Alvarado has operated for more than three decades and employs more than 1,000 people.