Tenet’s Top Legal Counsel Resigns

Tenet Healthcare Corp.’s top legal counsel resigned Friday amid escalating criticism from the chairman of a Senate panel investigating the company.

Christi Sulzbach, a 20-year veteran of the hospital company, had until recently served as both general counsel and chief compliance officer for Tenet. That dual role triggered concerns that Sulzbach had an inherent conflict: defending the company against charges of wrongdoing while ensuring that Tenet followed federal rules.

“While we have made progress in recovering from our many challenges, I believe that I have become a focal point for some Tenet critics,” Sulzbach, 48, said in a statement. “Thus I realize it is in the best interest of the company for me to leave at this time.”

The chairman of the Senate Finance Committee, which is investigating Tenet, had raised concerns this month about Sulzbach’s role.

“It doesn’t take a pig farmer from Iowa to smell the stench of conflict in that arrangement,” Sen. Charles E. Grassley (R-Iowa) said in a Sept. 8 letter to Trevor Fetter, Tenet’s acting chief executive at the time.

Fetter was named chief executive a week later. Two analysts who follow the company saw Fetter’s hand behind Sulzbach’s departure.

The resignation is “perhaps one of the first signs that Fetter has the decisiveness and wherewithal to clean house,” said Andreas Dirnagl of investment firm Harris Nesbitt Gerard in New York.

Sheryl Skolnick, managing director of Fulcrum Global Partners in New York, said Sulzbach’s resignation was “an absolutely necessary step if the company is going to change the perception of its culture.”

Sulzbach and Fetter were not available for comment.

Tenet spokesman Harry Anderson noted Friday that the company had recently separated the duties of general counsel and chief compliance officer to avoid potential conflicts. In addition, Tenet has appointed four independent board members, including Chairman Edward Kangas, who have no administrative role in the company.

“The governance changes we have made are real and serious,” Anderson said. “Many issues that Grassley raised are past issues and don’t reflect the changes we have put in place in the past year.”

Since Tenet’s Medicare reimbursements came under scrutiny last fall, the company’s business practices have been under investigation by the Justice Department, the Securities and Exchange Commission and the Department of Health and Human Services.

Grassley joined the criticisms of Tenet this month. He has accused the company of systematically defrauding the government through its abuse of the Medicare system. The lawmaker has demanded reams of e-mails, letters and other documents involving Tenet executives, including Sulzbach and former Chairman and Chief Executive Jeffrey Barbakow, who resigned under fire in May.

The company has been given until Oct. 15 to turn over the documents to the Senate Finance Committee.

In his Sept. 8 letter, Grassley noted that the Justice Department had accused Tenet of manipulating Medicare bills to boost revenue and falsely certifying that it was in compliance with Medicare rules.

On Thursday, Grassley fired off a new letter -- this time to Kangas. In the letter, Grassley complained about Fetter’s promotion to chief executive Sept. 16, saying he was too closely tied to Barbakow.

Grassley also asked Kangas whether he shared “my concerns about the appearance of conflict and lack of significant change in the corporate culture.”

Less than 24 hours later, Tenet announced that Sulzbach would step down Nov. 1.

Tenet, based in Santa Barbara, is the nation’s second-largest hospital operator. Last month, the company agreed to pay $54 million to settle allegations that doctors at Redding Medical Center performed unnecessary heart procedures.

In addition, Tenet’s Alvarado Hospital in San Diego and two of its administrators there have been indicted by a grand jury in connection with an alleged scheme in which doctors were paid kickbacks to steer patients to Alvarado. The hospital and the administrators have pleaded not guilty.

Tenet shares fell 18 cents to $14.64 on the New York Stock Exchange on Friday.