Tenet to Alter Billing

Times Staff Writer

Tenet Healthcare Corp., responding to criticism that its hospitals reaped excessive Medicare payments, said Monday that the company was voluntarily reducing the amount it charges the government insurance program by almost $700 million a year.

The nation’s No. 2 hospital chain took the action in anticipation of regulatory changes from Medicare officials, who recently launched an audit of Tenet’s billing practices in connection with its unusually large reimbursements for complicated cases. Santa Barbara-based Tenet has acknowledged that it aggressively raised hospital charges that led to inflated payments from Medicare, which in turn sharply boosted the company’s earnings in the last two years.

Tenet, which operates 114 hospitals nationwide, including 40 in California, said last month that it was freezing hospital charges until at least the spring.


In changing the way Tenet charges Medicare for certain procedures, company President Trevor Fetter said, the hospital operator wanted to “step forward and adopt what we anticipate may become central components” of Medicare’s revised policy on so-called outlier payments. These payments are made to hospitals on top of regular fixed reimbursements and are intended to help medical centers cover expensive cases.

Tom Scully, administrator of the federal Centers for Medicare and Medicaid Services, has accused Tenet of gaming the government’s insurance system for the elderly. But in an interview Monday, Scully said he was “pleasantly surprised” by Tenet’s action, saying that it took a “pretty honorable step.”

Scully said, however, that the federal audit would continue and that it would be up to the Justice Department and the inspector general for the Medicare program to determine whether Tenet did anything illegal. Tenet has maintained that it did not break any Medicare rules.

Questions about Tenet’s outsized Medicare payments surfaced in October, helping to trigger a sell-off of the company’s stock, intense scrutiny from numerous parties and a management shake-up that brought in Fetter to help restore the hospital firm’s credibility. Last week, Tenet said the Justice Department issued a subpoena demanding information on certain Medicare payments from the company and 19 of its hospitals, including 14 in California.

Wall Street analysts generally agreed that Tenet had made a smart move in announcing changes in its Medicare billing practices before the federal government forced its own restrictions. “This can be the best of all worlds,” said Sheryl Skolnick, an analyst at Fulcrum Global Partners. “They can appear to cooperate, with new leadership responding in a proactive way.”

Analysts said Tenet’s step in lopping off nearly $700 million in Medicare revenue was the worst-case scenario but still would keep the company on track to meet its previously restated projections of $2.38 a share for the fiscal year ending May 31.


In fact, Scully estimated Monday that Tenet may have inappropriately received about $500 million annually in outlier payments. Scully said he believed that nationwide, hospital chains overbilled about $1.5 billion in Medicare outliers.

Scully added that as many as 150 other hospitals still could be taking advantage of the Medicare outlier program. But several analysts said they didn’t think Tenet’s action would force other chains to take similar voluntary steps to reduce Medicare outlier reimbursements. These special payments accounted for as much as 25% of Tenet’s total Medicare revenue last year; the average for major hospital chains has been estimated to be in the 5%-to-6% range.

Tenet’s voluntary reduction could mean more outlier money in the pool for other hospitals.

Shares of Tenet fell 10 cents Monday to $16.68 on the New York Stock Exchange.