Controversies Prompt Analysts To Lower Tenet’s Ratings
At least 11 analysts have downgraded their ratings for Santa Barbara-based Tenet Healthcare in the wake of the company's recent controversies and subsequent "management shakeup," the Tennessean reports (Lewis/Russell, Tennessean, 11/10). Executives announced last month that federal officials are investigating allegations that two surgeons performed unnecessary procedures at Tenet's Redding Medical Center. The HHS Office of Inspector General also announced last week that it is preparing to audit Tenet's hospitals in an attempt to determine whether the company properly billed Medicare for outlier payments, special Medicare reimbursements that cover unusually costly procedures. In addition, Tenet said last week that the Federal Trade Commission has 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, 11/7). On Thursday, Tenet Chair and CEO Jeffrey Barbakow announced that two of the company's highest-ranking officials had departed amid controversy over Tenet hospitals' "sharply" raised retail hospital charges, which are used to calculate outlier payments, resulting in hundreds of millions of dollars in higher Medicare reimbursements. Leaving the company are David Dennis, Tenet's chief financial officer, who resigned, and Chief Operating Officer Thomas Mackey, who retired (California Healthline, 11/8). According to Tenet spokesperson Harry Anderson, Barbakow learned of the "aggressive pricing" techniques in the last two weeks and requested that Dennis and Mackey leave the firm "because he had lost confidence" in them, the Los Angeles Times reports. Analysts responded to Tenet's problems on Friday by downgrading the company's ratings. Standard & Poor's lowered Tenet's debt rating to one level above "junk-bond" status, which will make it more difficult and costly for the company to borrow money. Tenet shares fell $13.05 on Friday, closing at $14.90. Overall, Tenet's stock has fallen 70% in the last two weeks, losing approximately $16 billion in market value (Lee, Los Angeles Times, 11/9).
Meanwhile, the California office of the Attorney General on Friday filed a petition seeking a temporary restraining order to prevent the two doctors accused of performing unnecessary surgeries at Redding Medical Center from practicing medicine, the Sacramento Bee reports. The petition, filed on behalf of the state Medical Board in Shasta County Superior Court, alleges that Drs. Chae Hyun Moon and Fidel Realyvasquez violated state law by participating in conduct that represented an "extreme departure ... from the community medical standard of care." According to Tom Dresslar, a spokesperson for the state attorney general, the plaintiffs will argue that the two doctors pose an "imminent threat to the health and safety" of local patients. A hearing is scheduled for tomorrow. If a judge grants a restraining order, the two physicians would be prohibited from practicing pending the outcome of an investigation by the Medical Board and any resulting disciplinary action (Griffith, Sacramento Bee, 11/9).
Several aspects of Tenet's situation have received media attention. The following are summaries of recent articles:
- The Wall Street Journal today examines a "flaw" in the Medicare reimbursement system that allowed Tenet to "rais[e] rates sharply," triggering higher payments. Auditors are currently investigating whether the outlier payments were appropriate or if Tenet "deliberately" enacted its pricing policies in order to "manipulate the reimbursement system." Advocates for Tenet said the Medicare system "is largely to blame" because it is "so convoluted and full of gray areas that it invites abuse," the Journal reports. CMS Administrator Tom Scully acknowledged in an interview that the mechanism that produces higher outlier payments "invited gaming" by providers and should be changed, according to the Journal (Rundle/Mathews, Wall Street Journal, 11/11).
- The New York Times today profiles Barbakow, who "rescued" Tenet from allegations of fraud and subsequent criminal charges when he was hired in 1993. According to Barbakow, Tenet's recent troubles are not a "replay" of earlier problems (Pollack/Abelson, New York Times, 11/11).
- The Philadelphia Inquirer on Saturday looked at Philadelphia-based Hahnemann University Hospital, Graduate Hospital and Medical College of Pennsylvania, which are among the top 11 hospitals receiving the highest outlier payments of Tenet's 113 hospitals (Stark/Goldstein, Philadelphia Inquirer, 11/9).
- NBC "Nightly News" on Friday reported on the high Medicare outlier payments to some Tenet hospitals and the investigation of the two California surgeons (Smith, "Nightly News," NBC, 11/8). A video excerpt of the segment is available online in RealPlayer.
- MPR's "Marketplace" Friday also reported on the federal investigation into the company's Medicare billing practices (Palmer, "Marketplace," MPR, 11/8). A transcript of the segment and audio of the segment in RealPlayer are available online.
While the possibility of doctors performing unnecessary surgeries to increase their own profit is "bad enough," the idea that a "poorly designed and badly monitored" Medicare reimbursement system may have contributed to such fraud is "even worse," according to a Los Angeles Times editorial. According to the Times, patients cannot help but worry about the "collisions between medicine and profit, because their very lives are at stake." The Times concludes, "Medicare administrators, state regulators and law enforcement have to find out quickly what, if anything, went wrong at Tenet. They also should analyze similar payments to other companies and, if necessary, tighten oversight" (Los Angeles Times, 11/9).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.