Jury Is Key to Tenet’s Future

A lot will be on the line for the nation’s second-largest hospital chain when jurors in San Diego begin considering, as soon as Tuesday, whether Tenet Healthcare Corp.’s Alvarado Hospital bribed doctors to bring in patients.

It is the second jury that has been asked to convict the hospital, former Chief Executive Barry Weinbaum and a Tenet subsidiary of violating a federal anti-kickback law. The first trial, in which lawyers for the defendants were so confident that they rested without presenting testimony, ended with a mistrial in February after the jury was unable to agree.

Both sides strove to improve their chances the second time around. Carol Lam, U.S. attorney for the San Diego region, joined the courtroom prosecution team herself.

And the defendants mounted a case in the second trial, which has lasted six months. Tenet -- which is struggling financially, battered by Hurricane Katrina and bedeviled by government investigations -- contends that although mistakes may have been made, Alvarado did nothing wrong.

Lam’s dogged pursuit of criminal convictions has alarmed some non-Tenet hospital administrators because government complaints over financial relationships with doctors are rare. And generally the cases filed as civil suits are settled long before trial.

“It is very rare that a hospital CEO is indicted,” said Stanley Otake, a Southern California healthcare consultant and a former hospital chief executive. “So this is clearly getting the eyes and ears of the hospital CEOs throughout the United States.”

Tenet and Alvarado face fines if convicted and Weinbaum faces prison.

But the stakes go well beyond San Diego for Dallas-based Tenet, which operates 73 hospitals across the country, including 22 in California. A conviction could put the company in a poor bargaining position in its efforts to settle federal investigations of other business and hospital practices.

“What’s unusual here is you have a major corporate player that felt so strongly about the issue that they took it to trial,” said Robert Salcido, a healthcare defense lawyer with the Washington office of Akin, Gump, Strauss, Hauer & Feld. “That just doesn’t happen.”

At issue in the Alvarado case are physician relocation agreements. Federal laws permit hospitals to pay certain relocation expenses to recruit physicians with needed specialties to the community. But they forbid hospitals to pay physicians to refer patients.

Defense lawyers argued that Alvarado’s relocation deals were aboveboard, complied with the law and were similar to those used by many hospitals.

But prosecutors portrayed the scope and intent of Alvarado’s relocation deals as anything but ordinary and legal. Alvarado, they said, used more than 100 agreements over a decade to funnel more than $10 million in bribes to physician groups already in the community in an effort to boost referrals.

Consultant Otake said the size of Alvarado’s recruitment effort, as alleged, defied conventional wisdom about the supply of physicians in San Diego. If anything, he said, there were more than enough physicians in the area. Doctors there “can use more patients,” he said. “Their practices are not at capacity.”

Although the Alvarado case has taken on a high profile within the industry, the alleged recruitment scheme -- as described by prosecutors -- is anything but typical, said Laura Frick Laemmle, a healthcare fraud defense lawyer with Patton Boggs in Washington.

“Tenet has attempted to make a big deal about this, saying this puts recruitment deals in peril throughout the country,” said Laemmle, a former trial lawyer in the Justice Department’s civil fraud section.

“I’m not sure that it does,” she said, “because what the government is alleging here is not that Tenet had recruitment deals but that they were sham recruitment deals.”

The trial’s outcome is important to Tenet for several reasons. One likely consequence of a conviction would be exclusion of Alvarado from the federal Medicare program. That could force Tenet to sell Alvarado at a loss. That is what happened to Tenet’s Redding hospital two years ago after Tenet paid $54 million to settle a government investigation of allegations that surgeons there were performing unnecessary open-heart surgeries to boost business.

A loss in the Alvarado case also could further hamper the company’s efforts to settle other government investigations. Chief Executive Trevor Fetter portrayed a broad settlement as key to his plan to return the company to profitability after three years in the red -- a goal that has been further endangered by hurricane damage to Tenet hospitals in the New Orleans area.

Analysts and lawyers have said they expect the government, if it agrees to a global settlement, to extract a heavy price -- perhaps as much as $2 billion in fines.

But “the government does not want to put providers out of business,” said SG Cowen & Co. analyst Kemp Dolliver. “They don’t want to see Tenet go bankrupt and put [its 73] hospitals across the country at some kind of risk of closing.”