Tenet Says Its Redding Hospital May Be Barred From Medicare

Tenet Healthcare Corp. said Thursday that its Redding Medical Center faced an exclusion from Medicare and other federal health programs, which would result in the loss of nearly half of the hospital’s net patient revenue.

Redding Medical, where two doctors have been accused of performing unnecessary heart surgeries, could become the first hospital not convicted of a crime to be barred from the Medicare and Medicaid programs.

In a letter to Tenet on Wednesday, the government said that from 1999 through 2002, Redding doctors billed Medicare for surgeries that were “medically unnecessary and failed to meet professional recognized standards of care.”

Santa Barbara-based Tenet has 35 days to show why Redding should not be excluded from federal health insurance programs.

“This is a particularly egregious case,” said Judy Holtz, spokeswoman for the Office of the Inspector General of the Department of Health and Human Services, which oversees Medicare. “Our priority is to look out for patients and see that taxpayer money isn’t wasted,” she told Bloomberg News.

Tenet, the nation’s second-largest hospital chain, said it would provide evidence to show that an exclusion is unwarranted. The company said there was never any deliberate action to defraud the government.

The move by Health and Human Services came a month after Tenet agreed to pay $54 million to settle Justice Department allegations that two cardiac doctors at the Redding hospital billed Medicare and Medicaid for unnecessary heart surgeries and other procedures. The settlement ended the government’s civil and criminal probes in the matter involving Tenet and Redding Medical but did not rule out future administrative actions by Health and Human Services or prosecution of individuals.

Tenet provided few details about the government’s latest action, and a Health and Human Services spokesman also declined to discuss the case. Analysts said they were surprised by this latest turn.

David H. Shove of Prudential Equity Group said in a research note that the government might have found “additional malfeasance” not addressed in the settlement agreement. He nonetheless expected Redding to reach an agreement with the government to continue its participation in Medicare.

Sheryl Skolnick of Fulcrum Global Partners said she expected Tenet to find a buyer for Redding. Tenet has taken steps to improve oversight at the 238-bed hospital, she said, but that might not be enough to ensure continued Medicare payments to the facility.

“We really don’t know what [the government] wants from the company,” she said. “If Tenet has to show it did nothing wrong, that could be a difficult case to make.”

The government rarely moves to bar hospitals from receiving Medicare payments. An HCA Inc. hospital that was already closed was excluded from Medicare three years ago as part of a guilty plea by the company on criminal fraud charges.

Redding, like many hospitals, derives a significant portion of its revenue from the federal health programs. During the first half of this year, Medicare and Medicaid accounted for 47.7% of Redding’s net patient revenue of $62.7 million, according to the Office of Statewide Health Planning and Development.

Tenet is the subject of other legal actions. It faces a federal investigation into the company’s practice of boosting profit with special payments that Medicare makes for the sickest patients. In July, a federal grand jury indicted a Tenet hospital in San Diego on charges of paying illegal kickbacks to doctors. And the Securities and Exchange Commission has launched a formal investigation and subpoenaed Medicare billing records and other documents at Tenet dating to 1997.

The government’s investigation at Redding became public in October when federal agents raided the hospital. An FBI affidavit accused two physicians -- Dr. Chae Hyun Moon, formerly director of cardiology, and Dr. Fidel Realyvasquez, former chief of cardiac surgery -- of performing unnecessary surgeries and catheterizations on patients. No charges have been filed against either doctor.

Tenet is in the process of shedding 14 of its 144 hospitals as part of a restructuring in the wake of government probes that have affected its finances.

Tenet shares closed Thursday at $15.98, down 17 cents, on the New York Stock Exchange. Since the investigations were launched a year ago, Tenet shares have lost two-thirds of their value.