Tenet to Settle Investor Suits Over Billing
Tenet Healthcare Corp. said Thursday that it had agreed to pay $215 million to settle a swarm of shareholder lawsuits triggered by a 2002 Medicare billing scandal.
Former Chief Executive Jeffrey C. Barbakow and former Chief Operating Officer Thomas B. Mackey together would pay $1.5 million of the settlement cost out of their own pockets.
Investors applauded the news, sending Tenet stock up 1.5% to $7.64 on Thursday, but the nation’s second-largest hospital chain still faces challenges.
Although the company abandoned the Medicare billing scheme that gave rise to the suits, a federal investigation into the matter continues. Also, a jury in San Diego is weighing kickback charges against the company, and Tenet’s five New Orleans-area hospitals -- including two that are closed indefinitely -- are recovering from hurricane damage.
Disclosure of the Medicare billing scheme in 2002 was accompanied by news that authorities were investigating whether physicians at a Redding hospital then owned by Tenet had performed unnecessary heart surgeries.
The scandals threw Tenet into a financial tailspin. Since the scandals broke, the company’s stock has dropped by more than 85% and it has reported losses for 11 quarters in a row.
To resolve the disputed surgeries in Redding, the company and the physicians involved made a series of deals to pay patients and the government more than $500 million.
The company also has sold 27 hospitals as part of a turnaround plan, leaving it with 69 facilities, including 18 in California. And several top executives, including Barbakow and Mackey, resigned under pressure.
The settlement announced Thursday would end a class-action lawsuit in U.S. District Court in Los Angeles that consolidated a series of suits filed in late 2002 by shareholders, who accused the company of misleading investors about Medicare revenues. It also would resolve related litigation in state court in Santa Barbara. Both courts must approve the deal.
“This settlement is another significant step forward in our turnaround,” Peter Urbanowicz, Tenet’s general counsel, said in a statement. After insurance, the net cost to the company would be $140 million, Tenet officials said.
Although the settlement clears up a significant chunk of Tenet’s legal problems, the shareholder suits were not the biggest problem facing the company, analysts said.
The company remains embroiled in government investigations over several matters.
“What shareholders would like is that all the unknown liabilities would be known, and that may not happen for a while,” Stephens Inc. analyst Nancy Weaver said. “Clearly this is important, but we still have some more pieces to fall into place.”
Analysts said shareholders were anxious for Tenet to negotiate a broad settlement of all the outstanding government probes, and have estimated that the price could run as high as $2 billion.
But Tenet has said that its efforts to make such a deal have been hampered by the long-running prosecution of the company and administrators of its Alvarado Hospital Medical Center in San Diego.
Prosecutors led by U.S. Atty. Carol Lam have charged that Alvarado bribed doctors to refer patients. If convicted, Tenet would face fines, and the San Diego hospital could be expelled from Medicaid and Medicare programs.
The case first went to trial in the fall of 2004, but the judge declared a mistrial in February after jurors deadlocked.
A second trial began in May and went to the jury in November, but deliberations were interrupted after 17 days when U.S. District Judge M. James Lorenz dismissed a juror who had been overheard discussing the case on a commuter train. The jury began deliberations anew with an alternate juror.
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Timeline
* Oct. 31, 2002: The FBI says it is investigating whether two doctors at a Tenet Healthcare Corp. hospital in Redding performed unnecessary heart procedures on Medicare patients.
* Jan. 28, 2003: Chae Hyun Moon, the head of the cardiology department at Tenet’s Redding Medical Center, says he is suspending his practice because he is losing his malpractice insurance.
* May 27, 2003: Tenet Chief Executive Jeffrey C. Barbakow resigns amid government investigations into the Redding surgeries and company billing practices.
* Aug. 6, 2003: Tenet agrees to pay $54 million to settle government allegations of unnecessary heart surgeries at Redding Medical Center.
* Aug. 15, 2003: Attorneys for 366 former patients at the Redding hospital sue the company and eight doctors.
* April 16, 2004: Tenet agrees to sell Redding Medical Center to Hospital Partners of America Inc.
* Dec. 21, 2004: Tenet says it will pay $395 million to compensate patients treated at Redding Medical Center.
* Nov. 15, 2005: Tenet and doctors agree to pay an additional $38 million, tying the case’s loose ends and ending the possibility of federal criminal charges.
* Thursday: Tenet announces it will pay $215 million to settle civil suits brought by investors alleging that the hospital chain misstated Medicare revenues.
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Source: Times research
Los Angeles Times
