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The Story Part I
Rise
and Fall
(1999
to Oct 2002) .......... (Oct 2002 to Jun
2003)
This corporate web site addresses the issues of
corporate health care within a broad framework. A
web page describing this broad context should be
considered as an introduction to each page on the
web site. If you have not yet read it then
CLICK
HERE
to open it in another tab or web page.
This page describes the persistence of NME's culture and
tells the story of the new scandal which erupted in
2002
Tenet Healthcare has been the central player in two massive fraud related and standard of care scandals. An overview of both of its scandals and links to all the Tenet pages for both scandals can be found on the main Tenet Healthcare web page.
The story of Tenet Healthcare's second scandal is told on two web pages. Several other pages explore specific issues.
Part I traces the story from the aftermath of the fraud settlement in 1994 through to Tenet's dramatic fall from grace when the scandal broke in October 2002. It documents the myriad fraud and other investigations that had commenced by the middle of 2003. The page documents what happened, explores the social dynamics underlying what happened, and describes Tenet's early response.
This page is Part I
Part II picks up the story in June 2003 after the principles responsible have been forced out. It summarizes the multiple fraud and other settlements and then looks at the business consequences of Tenet's past business strategy. It describes its struggle to survive and to settle the fraud allegations. It looks at its position and its prospects after the fraud actions were resolved.
Click Here to go to Part II
This page examines the second major scandal involving National Medical Enterprises (NME), a re-branded company now called Tenet Healthcare. The first NME scandal (5)in the early 1990's involved criminal Medicare fraud and the misuse of vulnerable citizens in psychiatry, substance abuse, and probably in rehabilitation. Concerns were expressed about its general hospitals in the USA and internationally but these were either not investigated or not confirmed.
Its past conduct is mirrored in the 2002
Tenet Healthcare scandal involving allegations of Medicare fraud and
the misuse of patients undergoing major surgery and invasive
procedures. Its arrogance, inherent dishonesty and its inability to
grasp the nature of health care is exposed again. This web page
examines Tenet/NME's second coming.
The page describes the persistence of NME's culture following its
1994 fraud settlement, and then its sudden collapse as its conduct
was exposed in October 2002.
I then show why this was predictable and that
it was predicted, before going back to examine the company's progress
through the years 1994 to 1999 when it was restrained by compliance
and integrity agreements. It explores the new business policies,
which so closely resembled its earlier policies and were commenced as
soon as the integrity agreement expired in 1999, and its response
when the consequences of these business policies were exposed.
To go directly to a list of the major issues and actions on this page
CLICK
HERE
Contents
Introduction :: Persistence of a Market First Culture
New Business Policies in 1999 and their Consequences
Tenet's response to the scandal
2002
When this is all done, we will see that the issue is NOT isolated to a single hospital, NOT isolated to a couple of physicians, and that it IS DIRECTLY related to a philosophy of Wall Street Medicine rather than a focus on quality health care. Tenet figured out how to game the system, and according to the FBI affidavit, it put patients' lives at risk.
--------------------------------
Just because something may not be illegal, - - - - - - it is, nevertheless, improper, unethical, unjustifiable and unacceptable conduct for a hospital company which purports to be socially responsible.
--------------------------------
The recurring problems at Tenet have been engendered by a corporate culture that prioritizes illusory profits over patient care and a Board which has, heretofore, abdicated its responsibility and condoned this misordering of priorities. The non-management members of the Board must, now, make management accountable. From a letter to Tenet's board calling for a total change of management - written by a shareholder, Dr Pearce in December 2002
The extent of the recent scandal engulfing
Tenet Healthcare (the re-branded National Medical Enterprises) has
been obscured by the larger but much less disturbing exposure of
accounting fraud at HealthSouth.
In HealthSouth's rehabilitation and day surgery services the patients
were healthy and the treatment low risk. The consequences for
citizens were largely financial and this received much more public
attention.
Tenets recent scandal involved invasive cardiac procedures, heart
surgery and major orthopaedic procedures. These are high risk
procedures with major complication and death rates. Failures in care
and over-servicing have far more serious consequences for the lives
of the citizens involved. The financial consequences are accompanied
by death and disability.
In examining HealthSouth I reviewed the
social
and psychological processes at work
in the health care marketplace and how they generate dysfunctional
and criminal conduct. In HealthSouth's case the role
of the founder and leader in
developing a dysfunctional culture was particularly well illustrated.
I have described a similar leader generated situation in
Sun
Healthcare and in other
companies.
Richard
Eamer, the eccentric founder of
National Medical Enterprises filled this leadership role in the
1980's. He played a critical part in developing a culture which made
the misuse of patients in order to defraud Medicare appear
legitimate.
Successful cultures hold the successful meaning systems of their
members. They do not die with their founder. They are infective,
inherited and highly resistant as long as these meaning systems work
for those who adopt them. In the market context they are very
successful. Tenet/NME illustrates this well.
By the early 1990's
NME's successful systems had spread
(5)
through the psychiatric, substance abuse and rehabilitation
communities. Other's poached its highly trained executives and
learned from them. All were eager to learn the recipes for success
and money making strategies were passed around without regard for the
social and personal consequences. Multiple corporate for profit
psychiatric chains reached fraud settlements.
The inheritance of the aggressive market
based patterns of understanding developed by Eamer
can be traced through the nursing home company Hillhaven, once owned
by NME and chaired by Eamer. Hillhaven
trained the founders
of
Horizon and Sun
Healthcare, - all three were
disturbing groups. A published
interview with Andrew Turner,
Sun's founder is particularly revealing.
Hillhaven was purchased by the corporate disaster Vencor,
which emerged from bankruptcy as Kindred Healthcare. Horizon was
dismembered and absorbed by HealthSouth
and Integrated
Health Services (IHS) Like Sun
Healthcare and Vencor, IHS entered bankruptcy and then re- emerged.
All these companies have been at the centre of a nation wide outcry
about understaffing, poor care, neglect, and fraud in nursing
homes.
National Medical's fraud was dramatically
exposed in 1991 when it became so confidant that it started
kidnapping insured teenagers. It pleaded guilty to criminal conduct
in 1994 and paid about $1 billion in fraud and patient care related
settlements during the mid 1990's. The company's negotiated survival
was subject to a restrictive integrity agreement and an ethics
program. I described what happened in National Medical, and its
culture in a paper I gave in 1996. A version of this paper is on the
web site. (CLICK
HERE) I will provide links
to it frequently on these pages and you can reduce reloading by
opening it in a separate window. I will put the paragraph
numbers in
green next to the link to help.
In spite of the $1 billion punishment, the enforcement of integrity
and ethics agreements, ongoing oversight, and the loss of its
discredited leaders, NME's underlying patterns of thought survived in
Tenet Healthcare. They resurfaced as soon as the restrictive
integrity and ethics requirements were lifted and gave rise to the
2002 scandal.
If we look behind the mirage created by Tenet's marketing and
accepted by the share market in the years after its 1994 guilty plea,
the persistence of NME's patterns of thought are readily
identified.
I will not describe NME's culture in detail again here but will
provide direct links to similar conduct described on my earlier
pages. The similarities and continuity are clear.
These criticisms, the criticisms of critics
like Dr Pearce and the comments of analysts and academics might
suggest that Tenet is somehow unique. This is far from the truth.
Tenet is certainly more aggressive, more committed to the market
model, and if it is possible more blind to its own failings. It has
rebounded more aggressively from what it considers unfair
restrictions placed on it. Very similar patterns of thinking can be
identified in Columbia/HCA, HealthSouth and most of the health and
aged care chains.
NME was certainly one of the earliest advocates of market place
thinking in health care. Its spokesman and co-founder John Bedrosian
took part in public debates in the 1980's arguing with doctors like
Professor Relman that health care was a commodity like any other, and
citizens would be best served by trading health services in the
marketplace. The traditional medical model which put patients first
and shielded care from market forces was obsolete. The consequences
of this are now obvious.
Shortell (dean of the School of Public Health at UC Berkeley) said he believed that Tenet had done nothing illegal and was following blueprints similar to other for-profit hospital chains.
"Historically the nature of investor-owned, for-profit hospital systems is they tend to locate in parts of the country with good socio-demographics. Then, they tend to push to the limit in terms of what insurers and Medicare will pay," he said. Tenet raises prices more quickly than competitors :: Union asks state to look at charges San Francisco Chronicle November 20, 2002
In addition to illustrating the persistence
of dysfunctional cultures in the marketplace Tenet's second coming
also illustrates the role of money oriented institutional investors
in supporting this culture in the face of dreadful conduct. It only
turns against management when profits are falling.
Because of the life threatening consequences
and the involvement of doctors in this latest fraud I will look much
more closely at the impact of the health care marketplace and its
culture on the medical profession. Tenet is an excellent example of
this. I have not done so elsewhere. I have devoted a series
of web pages to analysing Tenet and
NME's relationship with doctors and the way in which they were
associated with dysfunction.
Tenet was probably the company, which more than any other pioneered the financially successful market model in medicine. It played a major part in legitimising the marketplace culture in the sector. By argument, by example and by populating the sector with its trained and committed managers it infected the entire US health system and became its flag bearer. US companies entered other countries and took their infectious beliefs and practices with them creating a global problem. Widespread acceptance and admiration of its culture would have reinforced the belief system. Tenet's cultural view of the world needs to be seen within the context of other irrational belief systems that have succeeded. It was consequently naive to believe that scandal and regulatory effort would have any permanent impact on this very successful culture.
In resolving the NME scandal in 1994 common
sense became the victim of a legal process involving
negotiations (5.17)
between NME's lawyers and the justice
department. NME, which exploited the weaknesses of individuals in
situations which were not life threatening was forced to abandon care
in these areas.
NME was restricted to owning general hospitals where the risks to
patients were greater. These provide care for the seriously ill and
for those undergoing high risk procedures. These patients carry a
much greater risk of complications and death when care is
compromised. The consequences of similar conduct for patients in
these hospitals would be much greater.
If the recent allegations, which Tenet
settled for large sums in 2006, but nevertheless denied have
substance as seems certain then seriously ill at risk patients in
Tenet Healthcare's hospitals were subjected to these risks less than
10 years after its 1994 settlement and its promises to a new
integrity. There are allegations that significant numbers of failures
in care have occurred, although as always Tenet denies this.
Although Eamer and two other founders resigned, NME was not forced to
radically change the management responsible for what happened in the
first scandal.
He (Mr. Barbakow) was a friend of Richard K. Eamer, the flamboyant co-founder of National Medical Enterprises, who asked him to join the board in 1990 and to be his successor in 1993. Mr. Barbakow has said that - - - he was not fully aware of the extent of problems at the company until he became chief executive.
Inquiries Raise Questions About Tenet's Strategy New York Times November 11, 2002
The market should have been warned in 2000 by
Tenet's publicly stated policies, which were clearly dysfunctional,
and by a rapid turn around in Tenet's profits during 2001 and 2002.
The market welcomed them. In the health care marketplace both are
clear pointers to a loss of insight and potential dysfunction. A
medical shareholder, Dr Pearce drew the attention of the market to
what was happening and mounted a shareholder challenge. Institutional
investors crushed him.
Instead Tenet once again became the darling of the marketplace as it
had been in 1991
(3).
Evidence of price gouging, lack of integrity in honouring its
commitments, and also smaller fraud settlements were simply ignored -
the latter because they were not large enough to impact on profits.
The issues did not come to a head until there was a major crisis, one
that threatened investors profits.
The bond-rating firm Standard & Poor's, noting that the total (fraud) settlements Tuesday are small compared with Tenet's cash flow, said there is no effect on the ratings or outlook for Tenet's bonds.
Shares of Tenet rose $1.84 to $76.54 on the New York Stock Exchange. The stock has gained 30% this year.
Tenet's $55.8-Million Payment Settles Claims LA Times June 19, 2002
"Overall, it's another strong quarter from this premier hospital company," said David Shove, analyst at Prudential Securities. "A combination of excellent admission growth and favorable pricing drove the top-line revenue performance."
Tenet Earnings Surge, Raises Outlook Reuters October 2, 2002
Tenet's proud recovery fell apart in October 2002. A market analyst and an insurer who was subcontracted to make Medicare payments for government both noted independently that Tenet's rejuvenated profits resulted from a massive growth in "outlier payments" when compared with competitors. These are extra payments made to hospitals for the care of high risk patients and for complex procedures. At the same time the FBI raided one of Tenet's most profitable hospitals accusing its doctors of carrying out large numbers of unnecessary heart procedures and surgical operations. These are the sort of procedures that attract outlier payments. Authorities simultaneously commenced an investigation into Tenet's merger practices.
Despite its past, the new Tenet seemed to be the kinder, gentler for-profit hospital conglomerate, even as it aggressively built its empire of 113 hospitals. The only nagging public relations problems were local objections to hospital mergers and a lawsuit filed against Tenet by some Hispanic activists in Orange County, Calif., charging the company with price gouging low-income and uninsured patients.
Investors, meanwhile, loved the company for its aggressive strategy of building strong local market share, consolidating services and using that leverage to force higher prices for its services from health plans.
What a difference a week or so makes. Unlike the slow decline of Columbia/HCA's fortunes, Tenet's share price plummeted overnight, - - - - - .
Another for-profit under scrutiny raises questions about publicly traded chains Modern Healthcare November 18, 2002
Within 3 weeks Tenet's share prices had
dropped 70% from $50 to $14. This collapse was compounded by the
company's delay in disclosure and repeated denials -
so
reminiscent of its 1991 responses.
(5.17)
Barbakow did not seem to realize what was happening.
It seems likely that as in 1991 Tenet's executives had no idea that
they were doing anything wrong and were surprised at the negative
response and anger. They had simply made business decisions and were
blind to the human consequences and the views of others. As in the
1990's scandal their success was proof of their policy's legitimacy.
As in 1991 they had embraced their own marketing and the
image they had
promoted
(5.4) rather than the reality for
patients and for the health system. They simply looked past
what they were actually doing. Without insight the company responded
slowly to the negative views in the community. With unexpected
rapidity an avalanche of allegations, subpoenas, hospital raids,
investigations and court proceedings followed.
We are looking at complex inter-related issues and a complex business policy with many facets. Breaking it up into sections should not hide the fact that everything that happened was a coordinated whole.
Insight:- It is critically important to understand that Tenet has never accepted and does not accept that there are problems in a market in health care. It has never accepted the validity of the professional and community model of medicine - one based on values and norms. It has believed and argued publicly since the early 1980s that these are obsolete and that a mechanism (the market) is required. The argument is that the market is self correcting and so not vulnerable to social and personality factors. Tenet has been enormously successful in this marketplace and has been a driving force in the changes that have occurred.
The practices it has adopted are standard business strategies and it is likely that they were advised by large Wall Street financiers like Citigroup. None of these financial groups see health as different to any other business. Tenet executives have plenty of marketplace peers to reinforce their beliefs.
They have been unable to accept themselves as criminals and following their 1994 experience continued in denial. They very probably regretted their decision to plead guilty. They believed that they were victims of the system and the press. They undoubtedly planned what they would do once the restrictions imposed on them were lifted.
During the second more recent scandal Tenet negotiated very aggressively,while claiming to cooperate. They denied all the allegations making no more than an acknowledgement of excessive zeal and some unsociable practices. They bitterly contested lawsuits, which if they had lost would have resulted in a guilty plea and they were not prepared to go there again.
After 5 years Tenet reached a global settlement agreement with government (2006) and then with the Securities and Exchange Commission (2007). Over this 5 year period it negotiated and paid multiple large and small settlements - all without admissions of wrongdoing - totaling in the region of US $2 billion.
It would be a grave error to believe that Tenet realizes that it is a criminal organisation, recognizes the enormity of what it has done, or understands the problems in the marketplace model of health care. It acknowledges that it has made mistakes but undoubtedly once again feels that the response has been excessive and that it is a victim. Without full insight there is no prospect of reform.
The likelihood is that Tenet will endure the restrictions placed on it for the next 5 years but will be planning business strategies for when these are lifted. There are still a core of hardened Tenet/NME trained staff. We can expect a resurgence of aggressive market practices in 6-7 years with renewed praise from Wall Street, another round of community complaints and whistle blowing, and more regulatory inaction.
The business community is already rallying around to support Tenet and to give it a new business image. Tenet lost $5.9 billion dollars in the four years since 2003. Edward Kangas who has been chairman of Tenet's board for 3 of those years was selected as one of 10 outstanding directors for 2007 by the Outstanding Directors Exchange.
The Tenet Shareholders Committee describes what it calls "Citigroup's Strange Love Affair with Tenet". Citigroup has found money for Tenet and has reported positively on Tenet's prospects.
Pacman activity:- As was shown by Ramsay and Healthscope in Australia the best way to survive in a competitive marketplace is to escape competition. This allows you to set your fees as high as you wish and do pretty well whatever you want. One way of accomplishing this is to gain negotiating power because of your size and the other is to monopolise or dominate the marketplace in the regions where you operate. Tenet did both.
Tenet must have devised a very plausible long term business plan while it was negotiating its 1994 settlement because at the same time it negotiated large post settlement loans. In spite of the criminal plea the market remembered the directors as very successful businessmen. Immediately after the 1994 settlement financiers lent Tenet vast sums of money, perhaps partly secured by the hospitals it was forced to sell, and by its international empire which it sold in 1995 and 1996.
It went on a buying spree buying up large hospital competitors including American Medical International (AMI) and soon after OrNda Healthcare. OrNda was also under government investigation for its relationship with doctors - for which Tenet later paid a fine. Dr Pearce, a director of both AMI and OrNda's became Tenet's harshest critic.
This gave Tenet the size it needed. It then marketed a kinder and softer image as it went after not for profit competitors in the regions it wanted to dominate. Some of these it bought and operated. Others it closed. The Federal Trades Commission (FTC), which monitors competition saw this regional dominance as anti competitive. It blocked some of the sales but Tenet challenged their rulings in court and won them all. When the government's restrictions on Tenet were lifted in 1999 Tenet was in a position to push up its prices.
After the scandal the FTC found a number of anti-competitive collusive practices between hospitals and between hospitals and doctors. It prosecuted these and reached settlements with Tenet.
The mergers and takeovers of not for profit hospitals are explored on the Tenet Pacman web page and on another page a price fixing arrangement is examined.
Price gouging:- In 1999 Tenet started pushing up its prices and it did so every year until they were much higher than competitors. Not only did Tenet then start negotiations with insurers from a much higher starting point but it could use its size and regional dominance to ensure that the ultimately reduced fees it negotiated with insurers were higher than those paid to competitors. In some regions such as Shasta county where the Redding hospital operated insurers found it so costly that they left the region.
The largest benefit of these high fees was that it allowed Tenet to exploit a loophole in the payment systems for vast profits.
While the insurers negotiated markedly reduced charges, the uninsured and the partly insured were charged the full inflated fees. Instead of following the long established practice of reducing fees for hardship it aggressively pursued the poor for payment - taking their homes even when these were a humble caravan. Medical fees are the commonest cause of bankruptcy in the USA.
The consequence was that the poor who could not afford to pay for insurance subsidized the care of the rich who could insure with an insurer that would negotiate reduced fees. Many of those gouged in this way were poor Latin Americans.
This all backfired very badly when a determined K.B. Forbes looked at the court records to see who Tenet was pursuing. He contacted these poor people and formed the Consejo de Latinos Unidos. Under his guidance they went after Tenet accusing it of price gouging. Amidst the intense negative publicity Forbes generated Tenet soon backed down, settled the court actions taken by this group, recompensed the patients and changed policy agreeing to reduced fees for the uninsured poor. Others who had also been gouged took to the courts. Communities whom Tenet had undertaken to serve with competitive pricing also sued insisting that Tenet recompense them for overcharging.
These matters are addressed on the Tenet Price Gouging web page.
Alleged Fraud:- The great value of the overpricing was that it enabled Tenet to exploit a loophole in Medicare which got around the restrictions imposed by DRG's. Outlier payments were designed to provide extra funding for difficult and costly patients. By increasing its fees Tenet was able to code many more of its patients as outliers and because the payments were based on a hospitals fees it could charge much more. This was never intended but Tenet claimed that it was perfectly legal. The government insisted if was fraud. Whether Tenet had simply gamed the system or indulged in fraud was never tested in court.
Insurers, Medicaid, Workers compensation and other payers all had similar arrangements that were exploited in the same way. These various payments were the basis for the turn around in 1999 and for Tenet's steadily rising profits and share price over the next three years. It all fell apart in a week.
There were a number of other fraud related matters. Authorities or groups took action on these.
The fraud related issues are addressed on the Tenet fraud web page. There is a list of the various payments I could find at the end of the page adding up to about US $2 billion.
Targeting sicker and more complex cases:- To capitalise on its extra payments bonanza Tenet targeted sicker patients and more complex and risky operations that would generate outlier or similar payments. It concentrated on cardiology, cardiac surgery, spinal surgery and neurosurgery. It marked these across the country. Its most successful hospital was in Redding where it built its service round doctors of very questionable competence and then turned the hospital into a renowned regional centre. It drew patients from long distances by marketing a cardiac screening service, promoting its doctors and making claims about treatment. $500 million was subsequently paid in fines and to settle with over 700 patients who sued because reviews of their cases indicated that they had bypass surgery or other risky heart procedures when they did not need them. Some had died. Others lives were ruined by complications.
The Redding hospital scandal is addressed on two web pages. It was the issue which caught the public imagination and became the subject of a best selling book.
Understaffing and care:- Also very worrying is that at the same time as Tenet was increasing the number of patents needing more intense and better nursing, the nurses and their unions were in conflict claiming that Tenet was understaffing and de-skilling to reduce costs and that patient care was being compromised. They produced convincing figures to support their claims. In addition there are claims and evidence to support them showing that care was being compromised in order to drive up profits. With complications generating increased outlier payments there was no economic incentive to spend money on care.
These matters are addressed on pages about the nursing disputes and about the standards of care.
Profits before care:- Also in this context are the worrying examples where Tenet refused to spend money or cancel surgery when patients were at risk. Theatres, where there was a high risk of infection, were not closed and repaired as this was costly. US $30 million was later obtained by the many patients whose lives were lost or whose lifestyles were destroyed by septic complications. In another hospital surgeons were not told that the sterilizers were not properly sterilising the instruments they were using lest they cancel profitable surgery.
Relationships with doctors:- Tenet's profits depended on the cooperation of doctors. Doctors were in a position to stop some of what happened. Tenet's relationship with its doctors have changed little since the earlier scandal. After the 1994 settlement Tenet hailed its new name as a reflection of its intention to form partnerships with doctors and others based on shared values. It is now clear whose values were to be shared.
Tenet's partnerships involve advantageous financial arrangements of one sort or another (golden handshakes). These are usually called kickbacks but the legal distinction between strategies that are kickbacks and those considered legitimate, even desirable incentives does not really exist. Legal incentives are equally dysfunctional. Tenet had stretched this murky line between what is legal and what is not to its limits.
One of the governments main charges against Tenet was of paying kickbacks. They pursued an action against one of Tenet's hospitals. The jury was unable to come to a decision in this murky and complex area. There were two hung juries. The government was forced into a settlement without a criminal conviction in which Tenet paid less and continued its denial of wrongdoing. This issue is dealt with on the Tenet kickbacks web page.
Many of the concerns about what happened at Tenet are examined as part of a 9 page grouped series I have called "Tenet and its doctors". This is because doctors were involved in one way or another. The first page reviews my own early experience of Tenet doctors and the role of doctors in Tenet's earlier scandal. It briefly summarizes the other pages which include the price fixing, Redding hospital, kickbacks, dirty theatre and failed sterilizers pages. These are referred to and linked to above. A page looks at allegations about similar practices to those in Redding at other Tenet hospitals and the wider fallout in the sector from this. The way Tenet administrators deal with doctors is examined by tracing the career of an administrator, who received at least one Tenet/NME award. This follows him from his dealing with doctors in Singapore, through his role in Australia, his return to the USA in charge of doctor relations and finally to his dealings with the doctors involved in the Redding scandal.
Another page in the series examines how doctors released from the golden handcuffs (agreements) that bound them to Tenet after the scandal in 2002 started to blow the whistle and speak out about what had and was happening. Many had started to support other hospitals and as happened in Mayne Nickless the company was haemorrhaging as a result.
Tenet's relationship with the JCAHO accreditation body:- Two of Tenet's senior staff were members of the Joint Commission for the Accreditation of Health Care Organisations. The accreditation body has been singularly ineffective over the years, particularly in regard to Tenet in both of its scandals. This issue is explored on a page devoted to Tenet accreditation issues.
Business polices and practices, political influence:- Other concerns relate to Tenet's culture, its business philosophy and its practices. Of particular concern is its use of large incentives which drive staff to put profit ahead of all other considerations. Considerable concern was expressed about the massive salaries and bonuses awarded to its management even when the company was losing massive amounts of shareholders money. There were allegations of insider trading when management sold shares prior to the collapse. There are issues of governance. The head of the legal department was also in charge of the compliance committee.
Tenet has had very strong political links with major parties and with government regulators in the USA. Many politicians and government officials have at one time or another worked for Tenet or with it. Past Democratic presidential candidate Robert Kerrey has been on Tenet's board for many years. President Bush's brother Jeb, governor of Florida joined the board in 2007. Whether these links played any part in the lenient treatment meted out in the global settlement is conjecture.
These additional issues are addressed on a final web page.
Hurricane Katrina:- Tenet was criticised for what happened in its Memorial hospital in New Orleans when it was flooded in 2005. Under appalling conditions some of its staff were alleged to have euthanised some terminally ill patients who would not have survived a difficult rescue. My assessment suggests that Tenet cannot be blamed for this but there are some very interesting ethical and procedural issues that arise.
The investigations and court actions:- I have not attempted to list the vast number of federal and state government departments and agencies, private businesses, individuals, and others investigating or acting against Tenet. Their involvement is covered in the many pages about Tenet. Those where I know that Tenet has paid a settlement are listed at the bottom of the fraud page.
Since October 2002, the Senate Finance Committee, the Securities and Exchange Commission, the HHS Office of Inspector General, the Department of Justice and the Federal Trade Commission have launched separate investigations into Tenet related to alleged Medicare fraud and other issues. The company also faces an investigation by the Florida Medicaid Fraud Control Unit. The U.S. attorney's office in Los Angeles has requested documents related to heart surgeries and billing practices at three Los Angeles-area hospitals.
Hospitals & Health Systems; TENET Agrees to $395M Settlement of Unnecessary Surgery Lawsuit American Health Line December 22, 2004
A dissident shareholder demanding a total
change in management suggested that the final costs of the scandal to
Tenet might approach US $6 billion. Tenet tried to silence him by
lodging a court action. Other estimates during the investigation
ranged from US $1 to 5 billion.
to
contents
It was predictable and it was predicted that
Tenet Healthcare, the repainted criminal organisation National
Medical Enterprises would offend again once it was able to do so. Its
culture of self-deception
and its self-righteousness (5.4)
were deeply embedded and staff including
senior management had never
accepted the serious implications of
what they had done.
Its frustration with the integrity processes imposed on it and its
lack of commitment to them is reflected in its refusal to even
acknowledge repeated submissions to Tenet's widely advertised ethics
committee regarding the conduct of senior staff in the company. One
of these submissions summarizing the concerns expressed in previous
submissions is included
as a web page.
Particularly revealing was when a well lubricated senior Tenet legal
adviser stood up at a legal dinner to speak. He complained
bitterly that everyone was treating
Tenet/NME as if they were criminals. They were even forced to run
criminal checks on staff they employed. This outburst was greeted
with stony silence. NME had only recently pleaded guilty to criminal
and unconscionable behaviour. NME was a criminal organisation but its
staff were quite unable to accept this. Many believed that the
investigation and prosecution was a response to the frenzy created in
the community by a biased press.
This unreal arrogance persisted through the years.
"The level of arrogance that exists at this company still distresses me," Skolnick (a managing director of Fulcrum Global Partners, which provides investor research) said. Specifically, she said, Tenet management needs to address questions in a more forthright manner.
Tenet to Close or Sell 14 Hospitals in an Overhaul :: For-profit chain says it will lay off some employees as it cuts costs and boosts efficiency. LA Times March 19, 2003
No attempt was made to address the
fundamental problems in the way the company and its staff saw the
health care world - the framework within which it provided care.
Tenet set out to gloss up its image and made broad motherhood
marketing statements. It dealt with what it perceived as an image
problem.
NME changed its name to Tenet, claiming the new name reflected its
new commitment to ethics, integrity and cooperation. It marketed
itself as a gentle, caring and socially responsible company. It
boasted of its ethics and compliance programs.
Tenet's name reflects its core business philosophy: the importance of shared values among partners - including employees, physicians, insurers and communities - in providing a full spectrum of health care. Tenet can be found on the World Wide Web at www.tenethealth.com.
Statement included at the foot of every Tenet Press Release.
In 1993 when challenged with Tenet's
misinformation to the public during cross examination John Bedrosian,
an NME founder responsible for public relations brushed it aside as
"singing to the choir". In 1992 I called NME's forceful public
rhetoric claiming exemplary conduct, in exactly those areas where
they were most deficient, "NMEspeak" - comparing it to George
Orwell's "Newspeak".
It amazed me how readily the market, so recently burned by NME's
misconduct enthusiastically embraced this newly marketed image. Tenet
was widely praised and its reforms accepted at their face
value.
Within a few years, Mr. Barbakow was winning praise for turning Tenet into what a 1997 Wall Street Journal article called "a model of ethical health care practices."
Tenet Chief to Lose Title of Chairman in a Shake-Up New York Times April 9, 2003
Most worrying was Tenet's very public and
superficially benign emphasis on partnerships and shared values with
doctors and others. There can be little doubt that what they really
wanted was for others to adopt their beliefs and their values.
Financial partnerships with doctors had been at
the root of NME's 1991 fraud.
(5.14) Many of the problems in the health
care marketplace have involved the participation or acquiescence of
doctors in what was happening. Most of them had some sort of
financial
"partnership" arrangement with the
companies. HCA was
forced to abandon this practice in 1997.
Given this behaviour the likelihood that the
company would re-offend was very high - particularly so once the
onerous restrictions placed on them by the integrity and ethics
agreements expired. My belief that Tenet/NME would re-offend, and my
concerns about the staff who were appointed to senior posts are
reflected in my analysis
(5.18),
in my complaint
to Tenet's ethics committee,
and in the statement
made about me in the Australian senate.
The market eagerly waits for companies who have indulged in disreputable conduct to recover and be successful again. It is not receptive to adverse information until it actually challenges marketplace success (3). It is definitely not interested in hard data such as that generated by their traditional enemies the unions. They are often the first to speak out.
When a company's shares recover from a crash vast sums can be made by astute banks and investors. Patient care, probity and criminality are not considerations.
The question is not whether Tenet will be prosecuted for fraud or for working with doctors who were killing people by operating on them needlessly. It is whether they will survive and recover. If so shares can be purchased while low and large profits can be made.
The exposure of collusive practices between companies, market analysts and banks in HealthSouth and across the Wall Street marketplace raises a spectre of possibilities about what is happening behind the scenes. Tenet, Barbakow and Fetter's past close links with Merrill Lynch one of the companies allegedly involved fuels suspicion.
But some pros have turned bullish, with several fund managers buying--and expecting the price to hit 40 this year.
-----------------------------
Since free cash flow is expected to rise from $800 million in 2003 to $1.4 billion in 2007, Hewitt believes the financial risk from the probes is "manageable." With a shakeup in management and a new focus on internal controls, "Tenet will emerge from the crisis," he says, with its ills resolved in a year or two.
Can Tenet Fight Off Its Many Ailments? INSIDE WALL STREET FEBRUARY 10, 2003
(Added 2007)
Even while operating under the CIA (Corporate Integrity Agreement), Tenet continued gaming federal healthcare programs. In fact, in April 2001, Tenet settled a qui tam lawsuit that alleged that one of its hospitals overcharged Medicare patients for surgical outpatient pathology services during the period Tenet operated under the CIA.Last January, DOJ filed a $323 million lawsuit - - - -. According to DOJ, many of the allegations took place during the 5-year period Tenet was under a CIA with HHS-OIG. DOJ alleged that Tenet falsely certified that it was in compliance with Medicare regulations and the terms of its CIA, when in fact, Tenet knew of a significant number of fraudulent claims that had been submitted and for which Tenet had never, and still has not, made restitution to the Medicare program.
Letter Senator Grassley to Trevor Fetter (Tenet CEO) re recurrent fraud Sept 5, 2003
If we look more closely at what has happened
since 1994 it is clear that the old Tenet was never far below the
surface. What happened can be traced to a continuation of the same
policies and practices which resulted in the fraud for which it was
convicted in 1994.
After its 1994 fraud settlement, exclusion
from the specialty hospital marketplace and the forced sale of over
half of its hospitals, NME's new chairman and CEO Jeffrey Barbakow
moved rapidly. He received massive support from the banks in the form
of loans. He changed the company's name
to Tenet Healthcare
(5.18),
marketed a
new image and bought American Medical
International, American Medical Holdings and then OrdNa Healthcare.
He sold off NME's international holdings which were under pressure
because of its fraudulent conduct.
Tenet was now the second largest hospital group in the USA. It
continued to expand competing with Columbia/HCA in Pacman takeovers
of not for profits and also buying from Columbia/HCA when it was
subject to fraud investigations in 1997. It was not long before the
general public forgot that Tenet was the same company as NME and
accepted its new image.
While the marketplace welcomed Tenet back
into the fold, community groups interested in health care generally
had a longer memory. Its attempt to
take over the University Teaching Hospital in
Missouri (5.18)
in 1995 was abandoned after the community and the medical staff
united in opposition.
As with Columbia/HCA there were repeated objections when Tenet
attempted to form joint partnerships or buy community and university
hospitals. They were repeatedly challenged by community groups and
close scrutiny from state attorney generals.
To maintain its "nice guy" softer image Tenet was forced to give
undertakings to serve the community and the uninsured. This was not
in its commercial interests. There have been ongoing concerns about
the way in which it has fulfilled its agreements, particularly when
it closed community hospitals, transferring services to its other
hospitals.
Nurses at the coal face have known what was happening all along. They
have repeatedly warned of the risks Tenet's management posed. The
spine chilling allegations made in 2002 about heart procedures speak
for the validity of their concerns.
If Tenet's intent was indeed to start over as a new company with a clean break from the "dark years" of the early 1990s, one might reasonably expect a new management and board untainted by the NME scandals, and new corporate leadership with experience as a healthcare professional. Instead:
- Most of Tenet's top operations management are hold-overs from Tenet's corrupt years.
- All of Tenet's current board members were board members of Tenet in 1993.
- A replacement CEO was a board member whose previous principal work experience was in investment banking.
Risky Business: The Tenet Story* SEIU Research document Jan 1999
Nursing groups have repeatedly expressed concerns about staffing levels, employee safety, and care in Tenet hospitals. There have been a number of Medicare fraud settlements. These were not large enough to alarm the marketplace, which chose to ignore them. I will deal with these matters later under individual headings.
It was a case of the fox guarding the hen house. Tenet/NME's legal council, Sulzbach had negotiated the Corporate Integrity Agreement for the company in 1994. She then became chief compliance officer responsible for its implementation. How right the nurses union was! (Added 2007)
Moreover, the company is suspected of reneging on a "corporate integrity agreement" -- fashioned with help from Sulzbach herself -- pledging to refrain from the very behavior that nearly leveled the company a decade ago.
-----------------------------
"This casts a very long, dark shadow over Ms. Sulzbach," said Young (business consultant), who counts hospitals among his diverse base of clients. "All of these events happened on her watch."
-----------------------------
Pete Stark, a Democratic congressman in Tenet's home state of California, suspects that Tenet is "up to its old tricks." And in many ways, the current scandal does seem hauntingly familiar.
Top Lawyer Bailed Before Tenet Tanked The Street.Com (Melissa Davis) August 14, 2003 (Added 2007)
Tenet recovered and did reasonably well with
its softer partnership approach for the first 2-3 years after its
1994 fraud settlements. Market conditions were favourable.
By the late 1990's health corporate shares all lost ground. This was
due to Medicare cuts, the shift of market money from the static
health sector into the technology boom, Columbia/HCA's fraud, the
collapse of aged care chains, and a community outcry about managed
care. Tenet was probably constrained by its integrity agreement and
less able to compete under pressure in a marketplace where bending
the rules gives a large competitive advantage. It did poorly and sold
20 of its 129 hospitals in 1999.
In January 1999 Michael
Focht retired but stayed on the board
until June 2002. He had been brought back from NME's (claimed to be
fraud free) international division in 1991 to become COO and help
sort out the mess. My concerns about his involvement in NME's
dysfunctional practices had been ignored.
Thomas Mackey, who joined NME in 1985, and Trevor Fetter, who
followed Barbakow from Merril Lynch to MGM and then to Tenet in 1995,
were promoted into senior positions to fill the gap. In June 1999
Fetter was moved to Broadlane e-commerce a spin off of Tenet's mass
buying strategy.
Statement by Mr Barbakow
"He (Focht) will be greatly missed by all of us who have had the pleasure and honor of working with him. Long before it became a hot topic, Mike understood that it was essential to build a corporate culture that emphasizes ethics. As chairman of the management committee of Tenet's corporate integrity program, he continued to play a critical role in shaping the company's character. Tenet owes Mike a great debt for his leadership in this area."
Tenet Healthcare President Michael H. Focht to Retire; Two Company Executives Promoted Business Wire January 14, 1999
Statement to Australian Senate by Senator John Herron
Dr Wynne is asking National Medical to honour its public commitment to integrity and its statement that it will not tolerate ethical misconduct. He has asked Tenet's ethics committee to investigate the conduct of National Medical's international division in Singapore, to investigate their refusal to explain why they did not properly contest the Ng allegations - - - - .
He is particularly concerned at the possible involvement of Focht in these activities because Focht is now in overall charge of Tenet's compliance program. The welfare of patients in Tenet's hospitals will depend on the integrity which Focht displays in fulfilling his obligations under the compliance program.
ADJOURNMENT :: Dr Michael Wynne Australian Senate Hansard for 28th November 1995
By June 1999 Tenet owned 129 hospitals. It was performing particularly poorly and it sold twenty. Tenet's restricting integrity agreement had now expired, 5 years after the fraud settlement. Tenet's fortunes rapidly recovered.
1999
Onetime investment-grade hospital management companies like Tenet Healthcare and Columbia/HCA Healthcare have been downgraded to junk - - - - , a trend that isn't likely to reverse anytime soon.
Bonds to run away from FORBES June 14, 1999
Tenet, a chain of 130 hospitals, experienced a 29% drop in its stock to close at $18.56 on June 30.
Health care; Health care stocks mostly ailing in first half of year THE BUSINESS PRESS/CALIFORNIA July 19, 1999, Monday
2000
A U.S. House panel approved a plan that would result in bigger Medicare payments to health-maintenance organizations. Also, Tenet Healthcare Corp., the big hospital chain, reported pershare profits that beat forecasts.
HEALTHSOUTH SHARES SURGE IN HEAVY TRADING Birmingham News (Alabama) October 8, 2000
2001
Tenet Healthcare Corp. expects to beat analysts' estimates for the fiscal fourth quarter because admissions are rising at hospitals owned by the No. 2 U.S. hospital chain. The company will report higher profit from operations than the current 61 cents-a-share estimate of analysts, Tenet said in a press release - - - .
ON THE MONEY The Commercial Appeal (Memphis, TN) June 13, 2001
By October 2002 Tenet owned 114 acute hospitals, more than double its holding after the fraud settlement in 1994. It was doing very well and was a Wall Street darling. Its stock sold for $51.47. It was planning a large expansion. This was a result of new policies introduced in 1999.
2002
Tenet Healthcare Corp., which operates hospitals in the Philadelphia area, said it expected operating earnings per share to beat Wall Street estimates, thanks to higher admissions, cost controls and pricing gains.
Business news in brief The Philadelphia Inquirer Sep 24, 2002
2003
Cripe (general counsel for the Tenet Shareholder Committee) said it was not a coincidence that Tenet had embarked on the "aggressive" pricing strategy the month the corporate integrity agreement had expired with the federal government. Tenet Group Sees Up to $6 Bln Liability New York Times (Reuters) April 7, 2003
Somewhere around 1999 to 2000 Tenet adopted a far more aggressive and unfriendly business policy. It made no secret of this and its success in implementing these business strategies was enthusiastically welcomed and praised by analysts. Clearly none of them saw anything wrong or antisocial in what Tenet were doing. These policies were simple business common sense. At the same time it changed its ethics policies and initiated a different sort of ethics program to that approved by regulators in 1994. One of the key managers from the 1990s scandal became president of the company.
Tenet's turnaround, which ended years of erratic profits, came after major changes in 1999.Between January and June of that year -- when a strict "corporate integrity agreement" with the government expired -- Tenet revamped its leadership team. In mid-January, just a week after disappointing Wall Street with poor quarterly results, Tenet announced that longtime President Michael Focht would be retiring early at the age of 56. In late February, the company promoted Christi Sulzbach -- regarded by some as "Ms. Cleanup" because of her focus on compliance -- to chief counsel. In March, the company hired a new person to head up its ethics training. Then in May, when Focht officially departed, Fetter and Mackey stepped in to share the role of president.
Mackey arrived on the job with some baggage. During Tenet's previous life as National Medical Enterprises, or NME, Mackey had overseen the psychiatric division that nearly put the company out of business.
-------------------------------
"When they promoted Christi to general counsel, it appeared to be such a raging conflict of interest," said one former executive. "Now, she was wearing two hats -- and they were such important ones."
-------------------------------
In July of 1999, the month after Tenet's corporate integrity agreement expired and its aggressive business strategies apparently kicked in, more than 100 Tenet hospital CEOs sat mesmerized through a presentation by ethics guru Quint Studer. By early 2000, Studer -- who made a name for himself by turning a Florida hospital around -- had branched out on his own and landed Tenet as his first big client. He helped fashion Tenet's "Target 100" program, seeking 100% patient satisfaction, that the company still touts today. And within two years, he was already declaring the program a resounding success.
---------------------------
- - - - "Tenet's work with Studer Group helped drive quarterly earnings on Wall Street to an all-time high."In reality, aggressive Medicare billing -- based on price hikes now viewed as unethical or even illegal -- was fueling much of that growth. And Tenet nurses, a large and crucial segment of the company's staff, weren't nearly as happy as Studer's training was supposed to make them. Nurses have long complained that Tenet regularly places corporate profits ahead of patient care. Those complaints, supporting claims of unnecessary surgeries and lax infection control, continue to flood in even today.
Tenet's Mr. Outside Has Inside Game Too The Street.Com (Melissa Davis) September 2, 2003
The policy was to provide more expensive and profitable services by treating more sicker patients with more serious conditions, dominate its markets, charge more wherever they could, and reduce costs wherever they could get away with it. The overall policies were directed from the centre and enforced by coercion and incentives - exactly as in the 1990's scandal. Tenet was quite open about what it was doing and about its plans to increase outlier payments. It did not see anything wrong with this and neither did the marketplace.
2000
Tenet is raising prices it charges insurers by 3 percent to 6 percent when it renews contracts and is shifting from contracts that pay fixed rates (ie DRGs) per patient to those based on hospital costs (ie outliers), said Thomas Mackey, chief operating officer. Tenet Healthcare's Profit Up by 20% New York Times October 4, 2000
2002
Tenet's strategy, as the company explained to admiring Wall Street analysts when its stock was on the rise, is three-pronged: raise prices, cut costs and try to dominate regional markets.
Profiting from health care :: Hospital chain's steep prices blamed for raising costs for all San Francisco Chronicle November 14, 2002
2002
Another part of its strategy has been to concentrate on seriously ill patients needing services that command the highest profits, particularly cardiology and orthopedics. While that approach has made the company a darling of Wall Street, it has angered some patients, unions and community activists.
Inquiries Raise Questions About Tenet's Strategy New York Times November 11, 2002
The impossibility of treating many more sicker patients and undertaking more complicated care while reducing costs (ie nurses) without compromising care and increasing mortality did not enter the equation. It was inevitable that the nurses, who were expected to be part of this dangerous policy would revolt. They eventually did, forcing Tenet to back down on some matters.
This change in policy was probably part of a
long term plan formed long before its irksome integrity agreement
expired. Tenet had been assiduously pursuing a policy aimed at
securing dominance in regional markets. It sought to buy up
competitors and was suspected of buying not for profit competing
hospitals simply to close them down and remove competition.
Once secured this regional dominance enabled Tenet to bargain more
effectively and dictate higher payments when negotiating with managed
care plans. Analysts praised all this.
The Federal Trade Commission was aware of the dangers and had
prohibited many of the purchases on the basis that they reduced
competition. Tenet and other corporations had appealed these
decisions to the courts which had overturned almost all of them.
This is exactly the strategy adopted by
Mayne Nickless in Australia during
the same period. The experience with Tenet is a salutary lesson of
what might have happened had they succeeded.
Compare the 1999 to 2001 reports above and below with Barbakow's
November 2002 (see later) claim that he did not know what was
happening and was not kept informed.
1999
"Tenet’s strategy is to build integrated networks of hospitals in large markets and to use its size and market concentration to reduce costs, gain market share, and improve pricing." Source: Legg Mason Wood Walker, Inc., Company Report, Tenet Healthcare (THC), Oct. 1, 1999.
Tenet's Strategy for Making Money From the SEIU web site Tenet Monitor Accessed Dec 2002
2001
Hard times for managed care companies have meant surging profits for Tenet Healthcare, the country's second-largest hospital chain.
----------------------------
Its new strength in key regions, particularly in California, has given it "pricing power" in the opinion of several analysts, who recommend buying Tenet stock despite the already considerable appreciation of its shares.
------------------------------
But the fortunes of Tenet have risen, partly as a result of its ability to exert pricing pressure.
In the earnings advisory on Tuesday, Jeffrey C. Barbakow, the company's chairman and chief executive, pointed to its ability to raise prices for hospital services. "The continuing phenomenon of strong pricing trends combined with strong admissions trends is a potent combination," Mr. Barbakow said.
A Hospital Chain Rises as Managed Care Suffers New York Times June 17, 2001
2002
Mr. Barbakow sought to increase profits by buying often distressed hospitals in areas where Tenet can command a significant market share. - - - - - That gives it leverage in consolidating services and boosting prices.
Inquiries Raise Questions About Tenet's Strategy New York Times November 11, 2002
He (Michael Cowie, Federal Trade Commission) said that when hospital companies buy facilities and later close them, it also can create antitrust problems.
"When they eliminate competitors, that could lead to higher prices," Cowie said, although he declined to comment about specific companies.
----------------------------
Feinstein (analyst) said. "It's not the crux of their strategy to close down hospitals."
But with Daniel Freeman Marina (hospital purchased by Tenet), many people would argue that was the plan all along.
-------------------------------
But along the way, Tenet also has closed hospitals, including facilities in Philadelphia, St. Louis and New Orleans. In California, the company shuttered at least five hospitals and was involved in the closure of three others from 1995 to 2000, according to a study by UC Berkeley's School of Public Health. Closures Put Big Hospital Chains Under Microscope Health: An uproar in Marina del Rey reflects growing government and consumer pressure. LA Times August 22 2002
Tenet shifted its focus to more complicated cases and procedures, principally cardiac, neurology, and orthopaedic procedures. These could be manipulated to attract extra "outlier payments". It built, equipped and marketed its hospitals for these complex procedures. It set out to increase admissions in these areas. It used its regional dominance to rapidly increase the prices it charged, and cut costs (ie nursing).
2001
Admissions at hospitals owned for more than a year rose 3.6 percent over the prior year, Tenet reported. It has been expanding its cardiology, neurology and orthopedic units and is benefiting from the aging of the baby boom generation, several analysts said.
A Hospital Chain Rises as Managed Care Suffers New York Times June 17, 2001
2002
Tenet has "completed a rather miraculous turnaround" of the facilities (purchased from bankrupt not for profit Allegheny Health system), Tenet spokesman Harry Anderson said. The hospitals are for the most part focused on high-end care. Tenet in talks to expand Philadelphia network Modern Healthcare August 21, 2002
Outlier payments by Medicare and stop-loss
payments by HMOs were based on the prices a hospital charged rather
than the discounted prices negotiated under Medicare and managed care
contracts. They were used to claim extra payments for complicated
cases which did not adequately fit DRG categories. They were simply
another way around Diagnosis Related Groups (DRGs). DRG's were
introduced in the mid 1980's in order to curb rorting of the health
care funding system.
In the 1980's NME moved into specialty hospitals principally because
the DRG system
was not used there
(2.2) and it could successfully exploit
the system. The aged care chains Sun Healthcare, Horizon and IHS
similarly moved into step down care to capitalise
on the opportunities presented by the
absence of DRG's.
Outlier and stop-loss payments differed from DRG's in that they were
based on the fees charged by the provider. DRG's were based on the
average costs paid for treating a particular diagnosis.
Tenet's new policy increased the number of treatments eligible for
outlier payments. By dramatically increasing its fees it boosted the
remuneration it got from Medicare for each "outlier" payment. Most of
its increased profits and its financial recovery between 1999 and
2002 came from these outlier payments. The more of these services it
could induce its doctors to provide, the greater its profits. The
concern is that as
in the 1990's scandal
(5.14),
Tenet induced its doctors to provide these profitable but high risk
treatments when they were not medically indicated. Tenet paid US $500
million to settle allegations that it did so at one hospital at
least.
Tenet also dramatically increased its charges
to the uninsured and pursued them aggressively for payment, even
claiming their houses. When the uninsured were unable to pay they
used these increased charges to claim more than they should have from
the Medicaid funds set up to assist hospitals in paying for unfunded
care.
The nursing unions had been pointing to the
problems in Tenet's hospitals and expressing their concerns at the
continuation of NME's management since 1998
Instead of bringing in new faces Tenet put long term NME staff in
senior positions. Mackey (see below) was eventually promoted to Chief
Operating Officer, a position where he was central to the outlier
debacle and in a position to put pressure on doctors to admit more
and treat more.
1999
But instead of bringing in an experienced healthcare professional untainted by the NME scandals, Tenet pulled from inside the organization and moved Jeffrey Barbakow from a director's position to the CEO.
The continuity with the past is evident in the rest of top management. Most of the current key operations staff worked for or were board members of Tenet prior to the settlement of fraud and of patient abuse cases:
· Michael Focht, Tenet's Chief of Operation, joined Tenet in 1978.
· Barry Schochet, Executive Vice President of Operations, joined Tenet in 1979.
· Thomas Mackey, Executive Vice-President of Western Operations, joined Tenet in 1985.
· Jeffrey Barbakow, Chief Executive Officer, joined Tenet in 1990 as a director.
It is the same story with Tenet's board of directors. Of the nine board members (as of August 27, 1997), all served on Tenet's board in 1993. In 1995, these same board members approved a $63.8 million settlement of a shareholders' derivative suit which alleged in part that key managers were aware of Tenet's illegal and criminal activities.
In short, while the company has adopted some changes -- a new name after a merger and a highly hyped "ethics" program -- it is clear that the core leadership of this company are holders from its NME days.
-------------------------------
The board opted for Wall Street experience over patient care expertise.
Risky Business: The Tenet Story* SEIU (Nurses Union) Research document Jan 1999
Dr Pearce, a medical businessman and shareholder from Florida was alarmed by Tenet's practices and the likely consequences. In 2000 he formed a group of minority shareholders which attempted to oust CEO and chairman, Barbakow and his supporters from the board, reduce executive compensation and relocate the headquarters. He tried to get himself and three others voted onto the board. By this time Tenet's new policies were working and Tenet's profits were improving. The large institutional shareholders whose only interest is profit sat on their hands and refused to back Pearce.
2000
Recent SEC filings say Pearce will "explore reduction in executive compensation, relocate corporate headquarters to a central location and reduce a bloated management structure."
"Significant changes in makeup of the board are necessary to revitalize the company and improve and maximize shareholder value," said Pearce and his Tenet Shareholder Committee in the cover letter sent to the SEC.
-----------------------------
- - - - - - Health care is a profession, not a commodity. We think that Tenet would be better run by health care professionals rather than investment bankers.
"When you look at the record, nine of the 10 Tenet directors have virtually no ownership stake in the company," he said. "Their interests are not aligned with the shareholders. In reality, they have relinquished the company to its CEO. And he is inaccessible to employees and lives the expensive life."
----------------------------------
According to Villwock, the independent proxy solicitation firm Innisfree M&A of New York has been hired to help convince institutional shareholders, who own more than 90 percent of the company's stock, that Pearce's group can reverse Tenet's poor financial performance over the last five years. The proxy solicitation will cost Pearce about $2.5 million.
Miami Beach doctor challenging Tenet American City Business Journals Inc. September 22, 2000
The Tenet Healthcare Corporation, the No. 2 United States hospital chain, said today that fiscal first-quarter profit rose 20 percent as its hospitals admitted more patients and charged health insurers higher prices.
Tenet Healthcare's Profit Up by 20% New York Times October 4, 2000
2003
That time, Pearce was rebuffed when major institutional shareholders such as the pension fund of the American Federation of State, County and Municipal Employees, which owns more than 2 million Tenet shares, backed Barbakow.
Tenet faces JCAHO surprise visits, management critic Modern Healthcare January 2, 200
Dr Pearce had been a director of AMI and OrNda before they were purchased by Tenet in 1995 and 1997. In November 1996 I wrote to OrNda's president, Charles N Martin Jr, and to doctors in OrNda's hospitals, and put material on this web site (since removed) urging OrNda shareholders to think twice before selling to Tenet.
At the time Tenet's hospital was still prosecuting a defamation action against me in Singapore and my submission to Tenet's ethics committee questioning the ethical integrity of senior staff had not been acknowledged. My 1996 letter and my submission echoes Pearce's concerns expressed in 2000 and again in 2003. I wonder if this letter ever got to OrNda's board or was seen by Dr Pearce. Instead of acknowledging my letter the sale was brought forward.
1996
The need for independent assessment and advice, for shareholders on non-financial issues in the healthcare "industry":- Ethical considerations, integrity and a sense of social responsibility to others are important in the provision of care to people who are ill and often very vulnerable. To outsiders it seems that Tenet owned hospitals have followed Milton Friedman's advice that managers should shun all social responsibility in their pursuit of profits for shareholders. I respectfully suggest that you have my submissions to Tenet and the documents which support them evaluated by a responsible medical ethicist and by a medical representative appointed by an independent body such as the American Medical Association. Such objective outsiders could prepare a report for your shareholders and for your doctors, prior to final approval of the purchase. An informed decision could be taken.
Extract : Letter from Dr Michael Wynne to OrNda's president Charles N Martin Jnr. November 6, 1996.
By 2001 investors were moving from the collapsing technology sector into the more stable health sector. With its new policies Tenet made a rapid recovery during 2001 and by 2002 profits had soared 43%. Barbakow confidently predicted even more in the future. By October 2002 income was double that in 2001 and the share price reached a record high of $51.55. Analysts were ecstatic. Tenet must by now have been aware that the outlier payments that had really turned the company around were not an acceptable strategy. They were silent about them.
2002
Tenet Healthcare Corp. said profit surged beyond expectations in its fiscal fourth quarter as the hospital operator treated more patients, raised prices and controlled costs. The Santa Barbara-based company's earnings grew 43% - - - .
Tenet Says Quarterly Profit Beats Estimates LA Times July 12, 2002
2002
Tenet attributed the gains to strong revenue growth, driven largely by rising demand for more sophisticated and costly hospital services, and to reduced costs, including lower debt and interest payments.
Tenet Says Earnings Will Top Estimates LA Times September 24, 2002
2002
Chief Operating Officer Thomas Mackey in a conference call said intensive care, critical care and acute care patient stays (generating outlier payments) increased in the quarter while lower revenue, sub-acute care patient (paid by DRG) stays became shorter.
--------------------------
Shove (analyst at Prudential Securities) said he expects Tenet's shift to treating sicker patients will help to drive 20 percent growth earnings for the next several years.
Tenet Chairman and Chief Executive Jeffrey Barbakow said the company has significantly increased its investment in hospitals, expanding and enhancing the facilities and the services Tenet offers.
Tenet Earnings Surge, Raises Outlook Reuters October 2, 2002
In the marketplace the strategies by which success is attained are seldom questioned. Success is validation enough and the credibility it gives prevents criticism. Even Modern Healthcare which has documented and commented on the ever increasing corporate fraud over the years did not question Tenet's unexplained success describing Tenet as "well-respected". It was often contrasted with Columbia/HCA. Modern Healthcare ranked Barbakow number 16 in its list of most powerful people in US health care - a long way ahead of HealthSouth's Richard Scrushy. No one asked how treating sicker patients with more complex illnesses and complications had so suddenly changed, from a widely recognized financial drain, to a source of such large profits.
2002
To not-for-profit hospitals looking to sell, the rehabilitated HCA is on a par with well-respected Tenet Healthcare Corp., Santa Barbara, Calif., the second-largest for-profit chain, Montalvo said. - - - - - By the time Columbia/HCA was imploding, (1997-8) Tenet was joining the American Hospital Association to improve relationships with not-for-profit hospitals - - - - .
End of an era: Justice Department ends nine-year criminal probe of Columbia/HCA executives, but company recovery began earlier Modern Healthcare July 29,2002
2002
Tenet executives said the company is generating higher revenue by treating older patients and those with acute conditions--a cornerstone of Tenet's long-term strategy. The company said it is spending $1 billion this year for capital improvements, much of it for specialties such as cardiology.
Based on such trends, Tenet estimated that earnings for the 2002-03 fiscal year would grow by at least 25%. Analysts said that was realistic, but perhaps a little conservative.
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Skolnick (analyst) said Tenet is well-positioned because its strategy is to be a dominant player in its market. "Concentration in discrete markets seems to be working," she said.
Tenet Says Its Profit More Than Doubled LA Times October 3, 2002
This arrogant management was almost certainly
so caught up in its success and its new credibility that it saw
itself as invincible. Its culture, so brutally bruised in the 1990's,
and its core beliefs were validated.
It chose not to see and hear anything which did not fit with its new
successful and widely praised policies. It failed to heed the
warnings from the nurses, the findings of poor care in its
facilities, the allegations of unnecessary procedures, the
community's concern about its takeover practices and policies, the
outcry from the uninsured, the response of the HMO's, and the general
disenchantment about its prices and strategies pervading the
community. It chose not to look. Even Sulzbach, in charge of its
compliance program did not look. After the scandal broke in October
the press started to report what people had been saying and what the
Federal Trade Commission (FTC) had tried to prevent. Tenet had used
the courts to overturn the FTC's restrictions.
Anderson said Sunday that it probably would take two to three weeks "to determine how a situation of this magnitude was not properly vetted in the organization, and to figure out exactly what the pricing situation was at every hospital."
Tenet Under Closer Exam :: Pricing policy may have resulted in excessive Medicaid payments, some analysts say. LA Times November 11, 2002
The strategy has hurt consumers nationwide and especially in California, according to health care professionals and consumer advocates. They say it has inflated costs for hospital care, run up taxpayer-funded Medicare bills and increased the amount some insurers pay -- which ultimately gets passed on to their customers.
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-- HMO withdrawals: In the past couple of years, Shasta County, where Redding Medical Center is located, has lost all its HMO plans. HMOs said they pulled out because it was too expensive to do business there, citing the limited competition
Profiting from health care :: Hospital chain's steep prices blamed for raising costs for all San Francisco Chronicle November 14, 2002
Tenets financial success in 2002 was reflected in plans to spend US $1 billion buying and building new facilities. But outside the market place there was a large increase in negative sentiment. There was growing criticism of the way Tenet's market dominance had pushed prices up, and the impact of its policies on care. Government bodies were starting to investigate. As in 1991 Barbakow and his cohort of arrogant managers were totally impervious to this. The press had been publishing the communities concerns before the scandal broke in October 2002.
The Santa Barbara-based hospital chain unveiled its fiscal 2003 capital plan in an atmosphere of growing unease over hospital mergers and acquisitions and their effect on patients.
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"They have not kept their promises," said Laurie Sobel, staff attorney for the San Francisco office of Consumers Union.
Chain says capital improvements are needed to meet needs of aging baby boomers. LA Times August 24 2002
Tenet's hard tactics of getting rid of under-performing hospitals and of driving hard bargains with health plans also have earned enemies.
Tenet CEO to Receive Double Pension LA Times August 27, 2002
Atlanta hospitals charging the highest rates for patient care may be using their market sway to command those above-average prices. Five metro hospitals charge more than Atlanta's average $596 a night rate for a patient room. (Two were Tenet hospitals and they topped the list)
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Undeniably, some hospitals are in a position to charge what they want to charge - and get it - say industry watchers.
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The Federal Trade Commission has recently revived its interest in just how a bevy of national hospital mergers and acquisitions has affected pricing nationally.
Powerful hospitals push up rates Atlanta Business Chronicle August 30, 2002
In early October authorities subpoenaed documents, to look at Tenet's practices and the way it fulfilled its undertakings to local communities. An investigation of its doctors in Redding was commenced. These had no immediate impact on Tenet's share price but when an analyst questioned Tenet's profit projections the market suddenly spooked.
An analyst's report raises questions about the hospital company's Medicare reimbursements and whether it can sustain its stellar growth.
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Weakley's report seemed to raise the specter of Medicare overbillings that have plagued big hospital companies in the past.
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- - -, Weakley lowered his rating from "hold" to "reduce" and issued a report analyzing Medicare's so-called outlier payments to Tenet.
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Weakley estimated that Tenet's outlier payments as a ratio of its total Medicare reimbursements went up from 7.7% in the 12 months ended in August 2000 to an estimated 23.5%, or $657 million, in fiscal 2003. The average for all urban hospitals, he said, held steady at 5.6% to 5.7% during that p