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Barbakow Quits as Tenet’s CEO

Times Staff Writer

Jeffrey C. Barbakow, Tenet Healthcare Corp.'s chief executive for the last decade, resigned Tuesday from the Santa Barbara-based company, which has been hard hit by government investigations of its hospitals.

Trevor Fetter, Tenet’s 43-year-old president, assumed Barbakow’s duties. Tenet said it was looking for a permanent replacement, and Fetter is regarded as a strong candidate for the CEO job.

Barbakow’s departure wasn’t a complete surprise. Tenet has been on a downward spiral since last fall, when a federal investigation was launched into the company’s practice of boosting profit with special payments that Medicare makes for the sickest patients.

At about that time, Barbakow forced out his chief financial and chief operating officers, brought Fetter on as president and announced what would be the beginnings of a major overhaul of the company’s operations.

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Tenet’s stock has lost about two-thirds of its value since October as problems have widened for the nation’s second-largest for-profit hospital chain.

Federal officials are looking into whether two doctors at a Tenet hospital in Redding performed unnecessary heart surgeries. There is a second investigation of doctor recruitment practices at its hospital in San Diego.

Barbakow, 59, the highest-paid executive of a publicly traded company last year, had offered to resign last fall, shortly after Tenet’s troubles surfaced, but the board asked that he remain. Last month, Barbakow said he would step down as chairman in July, and the company announced a totally independent board of directors.

With new directors at the table, the board met Friday and decided to accept Barbakow’s earlier offer, a Tenet spokesman said. Barbakow tendered his resignation Monday, the spokesman said.

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“It is the right time for Tenet to have new top leadership with a demonstrated ability to address issues facing the company and restore the confidence of our investors,” said Edward A. Kangas, a new Tenet director and former chairman of Deloitte Touche Tohmatsu.

Barbakow, a former Hollywood executive and investment banker who helped rescue Tenet in the early 1990s from a scandal over its psychiatric hospitals, declined interview requests. In a message to employees Tuesday, he said, “Stepping down as chief executive officer of Tenet is one of the toughest things I have faced. I know that the new management will do what is necessary to restore Tenet to its rightful position of leadership in the health-care industry.”

Fetter, a former chief financial officer at Tenet who rejoined the company last fall, is seen as a hands-on executive who has both the trust of shareholders and company insiders.

In an interview, Fetter said he expects the CEO search to last about three months.

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“Definitely, I want the job. I rejoined this company because I care deeply about it,” he said. “I’ve devoted 24/7 for the past seven months to making some changes here.”

In recent months, the company has stopped billing Medicare for the controversial fees known as outlier payments. Tenet also has put a freeze on hospital charges, agreed to give uninsured patients the same discounted rates as insurers and made a deal with two unions aimed at improving the labor climate at some of its hospitals. The company operates 114 hospitals nationwide, including 40 in California.

Tenet’s stock hasn’t recovered from its sharp decline last fall. On Tuesday, news of Barbakow’s resignation boosted the company’s stock by 59 cents, or 3.8%, to $16.14 a share in heavy trading on the New York Stock Exchange.

“The timing was surprising, with the initial reaction being, ‘Uh-oh, what don’t we know here?’ ” said Sheryl Skolnick, an analyst at Fulcrum Global Partners in New York. “But the likelihood is that you’ve got a couple of new independent board members and the company is making some major changes.”

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Dissident shareholders who have been calling for Barbakow to resign hailed the news.

“Barbakow had to go. I congratulate the board for finally realizing that,” said M. Lee Pearce, a Florida physician and leader of the Tenet Shareholder Committee.

Others said Tenet’s troubles remain formidable. “Tenet has multiple problems that are structural and systemic,” said Chuck Idelson, spokesman for the California Nurses Assn., which has been trying to organize at Tenet’s hospitals.

Last year, Barbakow made more than $116 million, including the sale and exercise of stock and options that reaped him about $111 million. Forbes magazine said that made him the highest-paid executive.

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Under his resignation agreement, Barbakow will receive for three or more years a retirement and benefit package that includes his salary average for the last 60 months. During that time, his perks will include an office and secretary, probably in Montecito, Calif., where he lives, a Tenet spokesman said. His pension benefits will begin at 62.

After taking the helm at Tenet in June 1993, Barbakow helped the company, then known as National Medical Enterprises, recover from the brink of bankruptcy and to settle fraud charges in its psychiatric hospital division.

Barbakow then led a major expansion of the hospital chain, pushed tough negotiations with health insurers to raise payments and tightened bill collections.

Before joining Tenet, Barbakow was a top investment banker at Merrill Lynch & Co. in Los Angeles who developed an expertise in investing in films. He was tapped in 1988 by billionaire Kirk Kerkorian to run movie studio MGM/UA.

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Times staff writer Ronald D. White contributed to this report.


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