Tenet Hospital Indicted Over Doctor Payments

A federal grand jury accused a San Diego hospital and its owner Thursday of paying millions of dollars in illegal kickbacks to induce doctors to refer patients to the hospital.

Alvarado Hospital Medical Center and Tenet Health System Hospitals Inc., a unit of Tenet Healthcare Corp., were charged in a 17-count indictment with violations of federal laws carrying maximum fines of $425,000. The indictment claims Alvarado and Tenet paid more than $10 million to recruit doctors to the San Diego area and that much of it was bribe money to get the doctors to send patients to Alvarado.

Santa Barbara-based Tenet Healthcare, which said this week that it expected the indictment, issued a statement defending the way it recruits physicians.

“We believe this very broad indictment mistakenly attacks a well-established, lawful and common means by which U.S. hospitals attract needed physicians to their communities,” Trevor Fetter, Tenet’s president and acting chief executive, said.

The indictment came more than a month after the grand jury indicted Alvarado Hospital’s chief executive, Barry Weinbaum, on eight counts of breaking anti-kickback laws. Weinbaum, 49, has pleaded not guilty.

Tenet Healthcare wasn’t named in either indictment. Tenet Health System Hospitals is one of many subsidiaries that operate 114 hospitals the parent corporation owns nationwide. There are 40 Tenet hospitals in California.

Tenet has been reeling from numerous government probes into a wide array of its practices. Analysts said the latest indictment could make matters much worse.

“The fact that the grand jury found enough cause for a criminal indictment is very serious,” said Sheryl Skolnick, a health-care analyst with Fulcrum Global Partners. She added, “Who wants to be admitted to a hospital chain that has been indicted?”

The indictment was the latest in a widening probe by federal prosecutors of Tenet’s doctor recruitment practices. This week, the U.S. attorney’s office in Los Angeles subpoenaed Tenet for information about physician recruitment practices at all of its hospitals, and for specific recruitment records at seven of its Southern California hospitals.

A key part of the probe involves complex contracts known as physician recruitment agreements that are signed by some doctors when they join or set up a new practice.

The contracts are regularly used by hospitals to help build specialty departments or to attract doctors to remote locales or areas where the cost of living is high. The contracts typically include income guarantees for up to three years as well as promises of money for moving costs and even for office supplies.

Although aggressive recruiting is common in sports and many business sectors, experts say that in the health care industry, offering rich incentives to doctors can easily run afoul of federal and state laws that prohibit the use of inducements to get doctors to refer patients to certain hospitals.

Physicians are obligated by law to be their patients’ unfettered advocates and to ensure that they get the best care. Agreements -- written, spoken or unspoken -- that give doctors any type of incentive to funnel patients to one hospital are illegal, because that hospital might not be the best for the patients.

Such agreements are illegal even if incentive payments are made to a third party, such as the person who recruited the physician who signed the agreement. That is one of the allegations in the Alvarado Hospital case.

The indictment charging Weinbaum says that physician Paul Ver Hoeve claims that he received nearly $700,000 in kickbacks from Alvarado Hospital after he recruited four doctors to join his medical practice in the San Diego area.

Health-care lawyers and other experts say it isn’t uncommon for hospitals to push the legal limit. “There are hospitals out there all the time that are giving inducements for referrals,” said Jim Owens, a health-care attorney with Paul Hastings Janofsky & Walker in Los Angeles. “Some are done sloppily, others are more savvy,” such as putting a doctor on payroll as a “medical director” at an a exorbitant six-figure fee but requiring no real work.

“Hospitals are facing pressure to make a bottom line,” he said.

Jack Lewin, chief executive of California Medical Assn., said: “Some hospitals have taken to various recruiting practices, some of which frankly are illegal. You have hospitals trying to capture patients by buying off the doctors.”But doctors say that many physicians would be reluctant or unable to relocate without income guarantees, or money to help pay the cost of moving or starting up a new medical practice.

“It was a good thing for me,” said one doctor who recently moved her Southern California practice to Napa Valley, where rents and costs are high; she asked not to be identified. “It would’ve been very, very hard to do this without some help with the start-up costs.”

The indictment handed up Thursday could have a chilling effect on the industry. “Recruitment will be drying up,” said Jeremy Miller, a Century City attorney who often consults on recruitment agreements. “It will hurt communities that need specialists, like pediatricians. Physicians will say, ‘I can’t afford to move or sign any agreement that might lead me into trouble.’ ”

Tenet has said that less than 2.5% of its 41,000 doctors nationwide -- or about 1,000 physicians -- have relocation agreements in place. The company has been among the most aggressive in establishing and expanding specialty departments, such as cancer and heart centers, which are successful only if fully staffed with highly trained doctors.

Tenet shares fell 28 cents to $11.85 on the New York Stock Exchange.