Tenet Chief to Resign as Chairman Amid Probes
Hospital chain Tenet Healthcare Corp. said Tuesday that Jeffrey C. Barbakow would resign as chairman and director in a move that might clear the way for Tenet to reach financial settlements in more than half a dozen government probes of the company’s past practices.
Barbakow will remain chief executive of the nation’s second-biggest for-profit hospital chain.
But the company’s board plans to hire a chairman who isn’t a Tenet executive and name outside directors to replace three other longtime directors who also are preparing to resign.
Since last fall, Tenet has been under fire as federal investigators have examined the hospital chain for allegedly collecting excessive Medicare payments for treating the sickest patients, a practice that analysts said helped fuel the company’s profit growth in recent years.
In another probe, the government is exploring whether doctors at a Northern California Tenet facility performed unnecessary heart surgeries; another investigation, at a San Diego hospital, concerns allegations that it violated laws in recruiting physicians.
Tenet, headquartered in Santa Barbara, is California’s largest hospital operator, with 40 facilities in the state. It has denied breaking Medicare rules.
“My decision to step down as chairman, as well as the decision of the three other dedicated individuals to retire from the board, is simply the right thing to do for the company,” Barbakow, 59, said.
Barbakow had offered to step down as chairman and CEO in November after the government probes began.
Some analysts hailed the move to create a 10-person board at Tenet without any management representation as a positive step.
“Having a more independent board and bringing in new directors with the respect of the management community is very good. This creates an oversight agency more in line with the needs of shareholders and gets management egos out of the process,” said Clifford Hewitt, health-care analyst with Legg Mason Wood Walker Inc. in Baltimore.
“This won’t help in the near term with all the investigations, but it will help in settlement negotiations.”
According to one Tenet shareholder group, if the allegations against the company are proved, Tenet could face legal liabilities of up to $6 billion.
Hewitt, however, said he expects Tenet to face “manageable fines and settlement costs” of under $500 million.
Gary Cripe, general counsel for the shareholder group, which holds a fraction of Tenet stock, said the chief executive’s announcement did not go far enough.
“Barbakow has one foot out the door. We’d like to see him all the way out of the house,” Cripe said. “We don’t understand why he remains CEO. There needs to be a total housecleaning at Tenet.”
Tenet said its three longest-serving outside directors -- Bernice B. Bratter, Lester B. Korn and Maurice J. DeWald -- would leave the board as soon as their replacements are named.
The three headed Tenet’s audit, compensation and nominating committees and were picked to resign only because they had served the longest, Tenet said.
Bratter, 63, a licensed marriage and family therapist, has been on Tenet’s board since 1990. DeWald, 61, a former partner with KPMG in Los Angeles, joined the board in 1991. Korn, 65, chairman and CEO of Los Angeles-based Korn Tuttle Capital Group, became a Tenet board member in 1993.
Tenet said it plans to eliminate staggered board terms so all board members will be elected annually. The company also will establish minimum Tenet stock ownership rules for management.
Tenet, which operates 114 hospitals in 16 states, has hired New York executive search firm Spencer Stuart to find candidates for its board.
Tenet expects to name a chairman after a shareholder meeting that will be held by Oct. 8, said Tenet spokesman Harry Anderson.
Barbakow, a former Merrill Lynch investment banker, was brought in a decade ago to restore the company, then called National Medical Enterprises, after a scandal involving its psychiatric hospitals.
Barbakow was credited for turning around the nearly bankrupt company and was named CEO in 1993.
On Tuesday, Tenet’s shares fell 11 cents to $15.17 on the New York Stock Exchange. Tenet’s stock price has fallen 71% since October.
