Tenet Stock Drops 14% in Wake of Analyst Report Questioning Medicare Billing Practices

Shares of Santa Barbara-based Tenet, the second-largest hospital operator in the nation, dropped 14% on Monday after the release of an analyst report that raised questions over whether the company could "sustain its stellar growth rate" and whether the system had overcharged Medicare, the Los Angeles Times reports. The report, from UBS Warburg, examined Tenet's Medicare outlier payments -- payments for costly hospital inpatient care meant to prevent a facility from incurring a loss -- and found that such payments increased from 7.7% in the 12 months that ended in August 2000 to 23.5% in fiscal year 2003. By comparison, the average for all urban hospitals remained steady at 5.6% and 5.7% during the same period. According to the report, the "financial benefits" Tenet has received through the payments might not continue because of changes CMS made to the outlier formula. The Times reports that some investors are concerned that Tenet intentionally overstated hospital costs to increase Medicare payments. However, such a situation was not suggested by the report. Tenet said it was confident that its facilities are adhering to Medicare rules. Tenet shares dropped $6.81 to close at $42.50 yesterday (Lee, Los Angeles Times, 10/29).