2nd Tenet Trial Ends in a Hung Jury

For the second time, the prosecution of Tenet Healthcare Corp. and a former executive, accused of bribing physicians to refer patients to the company’s San Diego hospital, ended in a hung jury.

U.S. District Judge M. James Lorenz declared a mistrial Tuesday after jurors notified him that they were hopelessly deadlocked after 4 1/2 months of deliberation.

A unit of Dallas-based Tenet, its 311-bed Alvarado Hospital Medical Center and former CEO Barry Weinbaum were charged with violating criminal anti-kickback laws by funneling more than $10 million to physicians to boost admissions.

Investors were relieved by the outcome; Tenet shares jumped 61 cents, or 8.4%, closing at $7.90. But Tuesday’s outcome may not be the last chapter in the case even though Tenet, the nation’s second-largest hospital operator, said it was anxious to move on.

“Because there is no reason to believe any other jury would produce a different result, we earnestly hope that the prosecutors will decide not to retry this case a third time,” said Peter Urbanowicz, Tenet’s general counsel. “It’s time for all of us now to devote our full energies to resolving broader issues.”

But U.S. Atty. Carol C. Lam -- who personally participated in the second trial -- gave no hint that she was ready to drop the charges.

“The government continues to believe that it is important to address violations of the Medicare anti-kickback statute,” Lam’s office said in a statement. “We regret that the jury was unable to reach a verdict in this trial, and we will report back to the court with respect to our intentions regarding the case.”

Judge Lorenz scheduled a status hearing for April 17.

It would be a mistake to look at the mistrial as good news for the company, said CRT Capital analyst Sheryl Skolnick.

“The stock ran up at the close because people think this is a positive, and I think that’s premature,” she said. “It’s not a positive. It’s very frustrating.”

For the hospital industry, Tuesday’s ruling served up another round of confusion.

“It leaves us all in a state of limbo,” said David Kalifon, a physician and healthcare lawyer in Los Angeles who had been following the case.

The industry had been focused on the retrial because it involved the use of physician relocation agreements. Federal law allows hospitals to pay certain relocation expenses to recruit physicians with needed specialties but forbids hospitals to pay physicians to refer patients.

Tenet and its lawyers maintain that Alvarado’s relocation payments complied with the laws and were similar to those used by many hospitals.

But the government argued that the scope and intent of Alvarado’s relocation deals were anything but ordinary and legal. Alvarado, prosecutors charged, used more than 100 agreements over a decade to pass more than $10 million in bribes to physician groups already in the community to entice them to admit patients to the hospital.

The first trial, which lasted four months and ended in February 2005, also resulted in a hung jury, reportedly split 9 to 3 in favor of conviction.

Tenet rested the first time around without presenting testimony, but the company put on a full defense in the second trial, which included seven months of testimony. One source said the second jury was evenly split on a verdict, but that could not be confirmed Tuesday.

Kalifon said jurors might have had trouble sorting out the tangle of laws governing hospital payments to physicians, especially in a criminal trial, in which the level of proof required is beyond a reasonable doubt. In civil cases, jurors may be swayed by a preponderance of the evidence, a lower threshold.

The only clean result in the case would be an acquittal, analyst Skolnick said. Even if Lam decides to drop her prosecution, the jury sent a mixed signal to physicians considering using Tenet’s hospitals.

“There’s still people on that jury that think the company was guilty,” Skolnick said.

If the case is retried on the same charges, Tenet and Alvarado face fines and Weinbaum faces up to 10 years in prison. In addition, Alvarado’s participation in the Medicare program would be jeopardized, which probably would force Tenet to sell the hospital.

For Tenet, which operates 69 hospitals, including 18 in California, the stakes go well beyond San Diego. After three years of losses, the company remains mired in several government investigations of its business practices. Tenet executives have said that the Alvarado prosecution has hampered efforts to reach a broad settlement with the U.S. Justice Department.

The company’s clouded legal future is one reason many once-loyal physicians have begun admitting their patients to competing facilities. Those defections have contributed to declining patient admissions, which in turn is producing lower revenue.

Without a clear victory in the Alvarado case, it is hard to see why many physicians would switch their admission preferences back to Tenet hospitals, Skolnick said.

A mistrial “is not a clean and positive catalyst for the turnaround to take place with respect to patient volume,” she said. “And without patient volume, there is no turnaround.”