Barbakow To Leave Tenet Board To Allay Shareholder Concerns; Will Remain CEO
In an effort to address shareholder concerns about the governance and independence of Tenet Healthcare's board, CEO Jeffrey Barbakow will step down as chair and director of the company -- the nation's second-largest for-profit hospital chain -- but will retain his position as CEO, the Wall Street Journal reports. The changes to the board, which are expected to be announced today, will also include the retirement of three other tenured directors. After Barbakow leaves the board following the next annual meeting, the 10-member board will be left with no management representatives -- a "highly unusual configuration," the Journal reports. The four vacant posts will be filled by independent outsiders, who will join the six existing board members. Tenet officials said the company has retained a search firm to find "strong independent candidates" and will require the board members to stand for election every year. In addition to the board reconfiguration, company officials also said they will establish minimum Tenet stock ownership conditions for company officers of one to five times their annual salaries so that their interests are aligned with those of other shareholders. The changes stem from meetings Barbakow held with stockholders in recent months after the drop in Tenet stock price following a series of announcements about government probes into company practices (Rundle, Wall Street Journal, 4/8).
The HHS Office of Inspector General last November announced that it would audit Tenet's hospitals in an attempt to determine whether the company properly billed Medicare for outlier payments, which reimburse for unusually expensive care. Tenet executives also announced last October that federal officials are investigating allegations that two surgeons performed unnecessary procedures to fraudulently boost Medicare payments at Tenet's Redding Medical Center in Redding, Calif. In addition, Tenet said in early November that the Federal Trade Commission had requested information about the 1999 merger of two of its hospitals in Missouri as part of the agency's broad inquiry into hospital mergers nationwide (California Healthline, 3/19). The decision to split the chair and CEO posts came after a meeting with the American Federation of State, County and Municipal Employees Pension Plan -- which owns 4% of Tenet stock -- in which pension plan officials proposed putting the idea to a shareholder vote this year. AFSCME said Tenet's $17 billion decrease in market value in the last six months reflects "inadequate monitoring and control at the highest levels of the company." To regain investor confidence, Tenet also has changed its overall hospital pricing strategy, overhauled its senior management, announced a $100 million cost-cutting initiative and created a new policy for treatment of the uninsured (Wall Street Journal, 4/8).
Meanwhile, according to the Tenet Shareholder Committee, Tenet could face up to $6 billion in legal liabilities to the federal government from the way it charged Medicare for outlier payments, Reuters/Los Angeles Times reports (Reuters/Los Angeles Times, 4/8). In January, the Justice Department announced a lawsuit alleging that the company submitted fraudulent Medicare claims between 1992 and 1998 to boost its revenues (California Healthline, 1/10). The Tenet Shareholder Committee, which holds 25,000 shares of Tenet stock, is calling for a change in top management, Reuters/Los Angeles Times reports (Reuters/Los Angeles Times, 4/8).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.