Tenet’s Woes Making Deals a Harder Sell

Wednesday night was damage control time for hospital chain Tenet Healthcare Corp. in the southern Louisiana bedroom community of Slidell.

A team of Tenet executives came there to try to salvage its $130-million deal to buy Slidell Memorial Hospital. A packed room full of hospital board members and citizens quizzed Tenet officials about a federal investigation of the company’s Medicare billing, an FBI raid at a Tenet facility and the company’s plummeting stock price.

By night’s end, Slidell’s hospital board voted 8 to 1 to keep the deal alive. But because of the hospital’s complex ownership, the board also agreed with a suggestion by Louisiana’s attorney general to put the sale before voters in a referendum next year.

“Two or three weeks ago ... it would have passed,” said Salvatore A. Caruso, a former Slidell mayor. “Now ... I’m not sure. It’s going to be tough. Not impossible, but tough.”

Tenet, the nation’s second-largest hospital chain, has doubled in size since the mid-’90s, and acquisitions have been a key part of its strategy. But analysts say the company’s recent troubles will make it tougher to pursue deals.

Until recently, Santa Barbara-based Tenet was one of the stars of health care. But that was before word surfaced about a federal audit of Tenet’s sizable Medicare billings, as well as the FBI raid in Redding, Calif., where two doctors are being investigated for allegedly performing unnecessary heart operations. The Securities and Exchange Commission also has begun an informal inquiry into the company.

Tenet’s biggest rival, Nashville-based HCA Inc., was hampered in its efforts to buy hospitals after it became embroiled in a Medicare scandal in 1997. Although most analysts do not think that Tenet’s problems are of HCA’s magnitude, they say Tenet faces a significant challenge.

“I don’t think Tenet can buy any hospital right now. That growth strategy is dead for them for a while,” said Uwe Reinhardt, a Princeton University professor and expert on health-care economics.

Tenet spokesman Harry Anderson disagreed, saying the chain was about to close a deal on a hospital in Philadelphia.

In Slidell, a community of 26,000, Tenet’s recent problems led to some pointed questions on Wednesday about everything from the company’s ability to maintain an adequate number of nurses, to its ability to make badly needed capital improvements at the hospital.

In one exchange, Slidell hospital board member Janie McKenzie asked Tenet officials: “How low do y’all go in terms of nursing” staff?

Tenet’s executive vice president for operations, Reynold Jennings, said staff levels are determined by each hospital’s nursing manager, who makes decisions based on the number of patients being treated and how sick they are.

That wasn’t enough for McKenzie. “You have to start with a complete staff, unless you have practices that we’re not aware of,” she said. “Please give us a little more practical answer.”

“We do bottom-up managing,” said Jennings, adding that Tenet “errs on the side of quality care.”

Slidell Memorial Hospital, a 182-bed, nonprofit facility, has been losing patients to newer medical clinics. A recent tax referendum that would have generated enough money to help the hospital make some renovations failed, forcing it to find a buyer.

At another point during the meeting, Caruso, the former mayor, asked about possible staff reductions if Tenet took over the hospital. “I can’t see a massive, or even an isolated, reduction in force,” answered Dr. Stephen L. Newman, Tenet’s senior vice president of operations for the Gulf Coast.

Whether these answers will mollify people remains to be seen.

Tenet is “going to have to sell it” to the voters, Slidell hospital Chairman Al Hamauei said Thursday. “They are going to have to ... make promises that they are going to have to keep.”

There also are some concerns about Tenet’s pending $35-million acquisition of the USC/Norris Comprehensive Cancer Center and Hospital in Los Angeles, a 60-bed facility with a national reputation for being on the cutting edge of cancer research. Tenet has managed the Norris center for four years.

Still, some community leaders are concerned that if Tenet buys the Norris facility, poorer residents nearby might receive less treatment.

“We would like to see some assurances that ... the surrounding community will still be able to receive care there,” said Lark Galloway-Gilliam, director of Community Health Councils, a nonprofit advocacy group that tries to boost access to quality health care for the uninsured.

Tenet’s Anderson said her concerns were unwarranted and that the Norris facility would remain open to all patients.

White reported from Los Angeles; Brian Moore contributed to this story from Slidell, La.