Tenet Hospitals Overcharge for Prescription Drugs, CNA Study Says

Tenet Healthcare-owned hospitals charge approximately eight times the actual costs of prescription drugs, nearly twice what other hospitals nationwide charge, according to a study commissioned by the California Nurses Association, the New York Times reports. The study compared charges for drugs in approximately 5,000 hospitals nationwide to the actual costs of the drugs from 1993 to 2000, the most recent year that drug pricing data were available. The Times reports that hospitals regularly charge more than the actual costs of prescription drugs, but those "list prices" do not reflect the payments hospitals actually receive because of discounts given to the federal government. However, the price increases are passed on to private insurers and other payers. Researchers from the Institute for Health and Socio-Economic Policy found that hospitals across the country typically charge about four times the "true costs" of prescription drugs but that Tenet hospitals were "much more aggressive" in their drug pricing. Tenet's hospitals in California charged 1,038% of the actual costs of drugs, the study found. According to the Times, Tenet is "already under scrutiny" for the "unusually high" Medicare payments it has received in recent years (Abelson, New York Times, 11/24). The HHS Office of Inspector General in early November announced 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 (California Healthline, 11/7). According to Don DeMoro, executive director of the Institute, Tenet's practice of boosting drug prices is the "principal driver in their overall charges" that result in higher Medicaid payments.

Reaction

Tenet spokesperson Harry Anderson said his company is already conducting an "extensive review" of its pricing policies, including drug prices, which the company expects to complete by next month (New York Times, 11/24). Anderson also "questioned" the study's methods and cited the CNA's "adversarial relationship" with Tenet. "I have no way to know what their methodology was. I can't vouch for those numbers, but I would view them with suspicion given that CNA, which is in contention with us, is putting them out" (Squatriglia/Hendricks, San Francisco Chronicle, 11/24). The New York Times reports that the CNA is currently attempting to unionize several Tenet hospitals and has been a "vocal critic" of Tenet in the past. Meanwhile, CNA spokesperson Charles Idelson said the findings point to the "broader" issue of hospital markups, saying, "This is a stealth issue in the debate about prescription drugs." He added that in a time of spiraling health care costs, hospitals' decision to inflate prices is a "national scandal" (New York Times, 11/24).

Tenet Charges More in Orange County

In related news, Tenet increased patient charges at its 10 Orange County hospitals by more than three times the rate charged by other local hospitals after the hospital chain purchased the facilities in the mid-1990s, according to an Orange County Register analysis of state billing data. The Register reports that between 1996 and 2001, the average daily charge for inpatient care at the 10 Tenet-owned facilities rose 101%, compared to 28% for other area hospitals. Charges for outpatient care increased 119% at the Tenet hospitals, compared to 43% at non-Tenet hospitals. In 2001, Tenet owned eight of the county's 10 highest-charging hospitals. While hospitals rarely receive the full amount they charge, the higher charges "trigger" extra payments from Medicare and insurers, the Register reports. "To the extent that other hospital systems across the country are engaging in aggressive pricing strategies similar to Tenet's, this could be one of the most important contributors to rising health care costs," Stephen Shortell, dean of the school of public health at the University of California-Berkeley, said (Wolfson et al., Orange County Register, 11/24).

Tough Acquisitions?

The recent troubles experienced by Tenet, the nation's second-largest hospital chain, have analysts speculating that it will be "tougher" for the company to pursue acquisitions, the Los Angeles Times reports. Acquisitions have been a "key part" of Tenet's strategy since the mid-1990s; the company has doubled the number of facilities it owns in that time, the Times reports (White, Los Angeles Times, 11/22). Tenet announced in early November 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). Princeton University professor and health care economics expert Uwe Reinhardt said, "I don't think Tenet can buy any hospital right now. That growth strategy is dead for them for a while." However, Tenet spokesperson Anderson said his company will soon complete a deal to purchase a hospital in Philadelphia. And the Times reports that the board of Louisiana's Slidell Memorial Hospital voted 8-1 to continue with a deal to sell the hospital to Tenet for $130 million. Still, the board also agreed to put the sale of the hospitals on a referendum for voters to decide next year. "Two or three weeks ago ... [the sale] would have passed. Now ... I'm not sure. It's going to be tough. Not impossible, but tough," Salvatore Caruso, former mayor of Slidell, said (Los Angeles Times, 11/22).

Editorials

The following are summaries of recent editorials examining the controversy surrounding Tenet:

Los Angeles Times: Although Tenet says it encourages its employees to "strive for higher standards," the "pressure to increase profits" from Wall Street has come at patients' expense, a Los Angeles Times editorial states. According to the Times, health care companies' profits come directly from the patients "who are being priced out of the medical coverage" required to pay for treatments. The editorial concludes, "The system is broken if what makes health care executives and investors happy comes at the expense of patients who can't afford to get sick and employers who can't afford to offer decent health insurance" (Los Angeles Times, 11/22).
San Francisco Chronicle: The recent revelations regarding Tenet hospitals are indicative of an overall health care system that is "open to gaming by canny operators," and it is "time to demand tough reform," a San Francisco Chronicle editorial states. According to the Chronicle, Tenet "shrewdly" purchased hospitals in markets in which "it could play a dominant role" and then "nimbly worked the Medicare system" for additional payments. While Tenet's practices "may meet the law," the results of their actions "victimize both patients and taxpayers." The Chronicle concludes, "[B]older action is needed to rein in the Tenets of the health world. In the semi-public health care system, where enormous state and federal programs are carried out by private operators, there must be sharp oversight of the public dime and the common good. ... In Tenet's case, this watchfulness was missing" (San Francisco Chronicle, 11/22).

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