Tenet’s Stock Hammered on News of Probe

Federal authorities are investigating whether two doctors at a Tenet Healthcare Corp. hospital in Northern California performed numerous unnecessary heart procedures on Medicare patients since late 1998.

In an affidavit made public Thursday, FBI Agent Michael Skeen said the two doctors, who practice at Redding Medical Center, performed an unusually heavy volume of heart catheterizations and other coronary procedures, of which as many as half -- based on the opinions of other doctors -- may have been unnecessary.

The affidavit said 167 of the patients later died, but did not attribute their deaths to the two doctors.

The 57-page document stated that Dr. Chae Hyun Moon and Dr. Fidel Realyvasquez Jr. billed Medicare for millions of dollars. Authorities said the investigation involves possible health-care fraud and making false billings. No charges have been filed against either man. Neither doctor could be reached for comment, but Realyvasquez’s attorney said the case is simply a disagreement between doctors and insurers over what constitutes proper medical care.

News of the investigation, which included a Wednesday raid at the 238-bed hospital, was another setback for Tenet, the nation’s second-largest hospital company.

Tenet had been a star on Wall Street since early 2000, but since Monday, when an analyst questioned the hospital chain’s Medicare reimbursements, its stock has been under severe duress. Thursday’s disclosure of the raid and investigation created a full-blown crisis of confidence with investors.

After falling about 20% in the prior three days, Tenet shares lost an additional 26% on Thursday, down $10.22 to $28.75, and it triggered a broader sell-off on Wall Street.

Before the afternoon ended, trading in Tenet was halted momentarily and the company, at the behest of New York Stock Exchange officials, issued a second news release, which denied rumors spreading on the trading floor that federal agents had raided Tenet’s corporate headquarters in Santa Barbara.

“This is the last thing the company needed,” said Sheryl Skolnick, a managing director at Fulcrum Global Partners in New York, which provides research on health-care companies to investors. “It’s so sad, I can’t tell you.”

Tenet executives, saying they learned Thursday of the Redding hospital probe, stressed that decisions on medical procedures are those of the attending physicians and that Tenet would conduct its own probe of the allegations.

“This is an investigation of doctors, not the hospital or Tenet,” said Harry Anderson, a Tenet spokesman. He said the company had no prior indication that there was anything out of the ordinary occurring at Redding Medical Center.

In the FBI affidavit, another cardiologist at the hospital that he took his suspicions about the two doctors to the hospital’s chief executive and chief financial officer last spring.

The affidavit said the cardiologist believed that both hospital administrators were aware of what was going on and looked the other way “because Moon and Realyvasquez produce tremendous revenue for the hospital.”

Redding Medical Center, which Tenet has owned for more than 30 years, is one of the its more-profitable hospitals. It generated a net profit margin of 38% -- and pretax net income of $94 million -- in the year ended June 30, according to unaudited reports filed with the state.

The FBI affidavit stated that the two doctors derived enormous income compared with other physicians, noting that Realyvasquez ranked as the top Medicare biller in a list of 50 physicians of a similar specialty in the Northern California region.

Moon was ranked No. 2 among doctors of a similar specialty.

Realyvasquez is alleged to have billed Medicare Part B nearly $3.6 million, for which he was paid $767,600, between July 1, 2001, and June 30, 2002. Moon billed more than $3.9 million and was paid $1.6 million during the same period.

In one instance cited in the affidavit, a woman evaluated by a cardiologist in August was found to be in “relatively good health and not suffering from any coronary artery disease.”

She went to Moon for a second opinion, and she received a heart catheterization that same day, according to the affidavit. Moon further told the mother that she needed immediate bypass surgery, which she subsequently received at Redding Medical Center, the affidavit stated.

Realyvasquez’s attorney, Malcolm Segal, said his client has done nothing illegal or wrong. He said it wasn’t unusual that some doctors may find problems in patients that other doctors don’t, depending on what tests were performed.

“Our view of the circumstances is that the doctor has long taken the position that his patients are entitled to the best diagnostic tools available in order to obtain a favorable outcome,” Segal said. “He has enormous respect in the medical community, and while insurance carriers may want to take the position that the tests could be performed less expensively, the doctor wants to make sure that his patients obtain the best result.”

Anderson, the Tenet spokesman, said “more and more doctors are being aggressive about treating the beginnings of heart problems,” in large part because of new technologies.

He said Tenet would hire outside cardiologists to examine records of procedures performed by the two doctors to decide whether they were medically unjustified.

Tenet, which operates 113 acute-care hospitals nationwide, including 40 in California, has openly pursued a strategy of treating sicker patients and increasing the volume of high-acuity specialties, such as cancer and cardiology.

The company has said that has been a big reason for its strong earnings growth; Tenet’s earnings have surged more than 25% in each of the last eight quarters.