Tenet to Settle Charges Over Cardiac Care

Tenet Healthcare Corp., California’s largest hospital chain, agreed Wednesday to pay $54 million to settle government allegations that two doctors at its hospital in Northern California performed numerous unnecessary heart surgeries.

As part of its settlement with the U.S. Justice Department, Santa Barbara-based Tenet said it would put in place new procedures for doctors and staff who work at Redding Medical Center. Tenet also agreed to cooperate with the government’s investigations of individuals involved in the alleged fraud at the 238-bed facility.

Justice Department officials described the settlement amount as the largest recovered from a hospital in a case involving allegations of unnecessary surgeries, procedures, tests or other medical services. That $54-million payment equals about 7%, or about three weeks, of Tenet’s 2002 profit.

“This is a double win,” said U.S. Atty. McGregor Scott in Sacramento. “We protect the taxpayer, and we protect the future patients of Redding Medical Center.”

Trevor Fetter, Tenet’s president and chief executive, said in a statement that the company “made a strategic business decision to negotiate a reasonable settlement in a spirit of cooperation in order to put this matter behind us.”

The settlement was received favorably on Wall Street, which has whacked three-fourths of Tenet’s value since the Redding investigation and a cascade of other problems engulfed the company last fall.

“It’s certainly a positive. It lifts one of many clouds covering this company,” said Frank Morgan, health-care analyst with Jefferies & Co. in New York.

Tenet, the nation’s second-largest hospital chain, with 114 hospitals, is facing a federal investigation into the company’s practice of boosting profit with special payments that Medicare makes for the sickest patients.

Last month, a federal grand jury indicted a Tenet hospital in San Diego on charges of paying illegal kickbacks to doctors. Also last month, the Securities and Exchange Commission launched a formal investigation and subpoenaed Medicare billing records and other documents at Tenet dating to 1997.

Once word of a settlement in the Redding case leaked Wednesday morning, trading of Tenet stock was halted on the New York Stock Exchange. But in after-hours trading, once the agreement was known, the stock rose $1.60 a share to $14.65.

Tenet made the deal with the government without admitting any wrongdoing and denying charges that the company knowingly submitted false claims to Medicare.

The company said the settlement ended all civil and criminal investigations by the federal and state governments that involved Tenet, the Tenet subsidiary that owns Redding Medical Center and the hospital itself.

Tenet, Redding Medical Center and two cardiac doctors, one of whom is still practicing in Redding, face about 100 lawsuits filed by individuals who claimed they or their relatives were victims of needless cardiac procedures.

Scott said the settlement covered unnecessary heart procedures allegedly performed at Redding from 1997 to 2002 and billed to government health insurance programs such as Medicare and Medicaid.

Analysts noted that private insurers may now sue for recovery.

“It opens the door for the private health plans to go in and get their pound of flesh,” said Andreas J. Dirnagl, an analyst at Harris Nesbitt Gerard, a securities firm in New York, who has an “underperform” rating on the stock. “Potentially you will have a similar-size settlement in the private area.”

The government’s investigation at Redding surfaced in October when about 40 federal agents raided the hospital. An FBI affidavit accused Dr. Chae Hyun Moon, formerly the hospital’s director of cardiology, and Dr. Fidel Realyvasquez, the ex-chief of cardiac surgery, of performing invasive and unnecessary catheterizations and open-heart surgeries on healthy patients.

No federal charges have been filed against either doctor.

Moon suspended his practice after his medical malpractice insurance expired. The California Medical Board in June accused him of insurance fraud, gross negligence, dishonest or corrupt acts and incompetence, a board official said.

John W. Reese Jr., one of Moon’s attorneys, said he hadn’t had time to review the Tenet settlement.

Realyvasquez, whose malpractice insurance is active, still treats patients at his office, the Cardiac Thoracic and Vascular Surgery Medical Group, in Redding, according to his Sacramento lawyer, Malcolm Segal.

“He is busily engaged in caring for his patients. He is continuing to provide medical services,” said Segal, who added that the government’s willingness to turn a criminal case into a civil settlement “is indicative of the fact that there was no basis for allegations of criminality.”

In the 1990s, with the two doctors at the helm, Redding Medical Center embarked on an ambitious plan to build a top-flight heart institute. In 1995, a five-story medical wing rose up in the center of town, intensifying a rivalry with Redding’s other hospital, Mercy Medical Center.

Redding, a town of about 90,000, had the highest rate of bypass surgeries in California in 2000, according to a report from the California Healthcare Foundation, a fact some attributed to the large number of retirees there and others to the practices of doctors in town.

Betty Cook, a plaintiff in a suit against Moon, who performed heart surgery on her husband, shouted when she heard that Tenet would pay $54 million.

“I hope Dr. Moon gets it too,” she said. “I hope those doctors get what they deserve.”

Matthew Jacobs, another attorney representing Moon, said his client would vigorously defend himself. “He wants to practice again,” Jacobs said. “He wants to clear his name.”