The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes.

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The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made. Material contained here represents my views based on my study of the operation of the health care marketplace and the material available to me. It should not be assumed to represent the views of any other individual or organization.

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(The Second Coming)

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(1999 to Oct 2002) .......... (Oct 2002 to Jun 2003) 

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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
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Content of this page
This page describes the persistence of NME's culture and tells the story of the new scandal which erupted in 2002

The Story Pages

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



Introduction :: Persistence of a Market First Culture

The Exposure

Major Issues

A Predictable Development

Over the years 1994-99

New Business Policies in 1999 and their Consequences

Tenet's response to the scandal

Persistence of a Market First Culture

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.

NME's founder

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.

Tenet and its peers

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

Institutional Investors

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.

Section Summary

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.

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The Exposure

An illogical solution in 1994

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

Warning signs ignored

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

Exposure and Collapse

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.

Major Issues

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.

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A Predictable Development

Lack of insight

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

The Response to the first 1990s scandal

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
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.

The risk

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.

Market Responses

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

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Over the years 1994-99

(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.

Rapid Expansion

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.

Concern about its practices

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)

Profitability :: Up and then down again

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

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New Business Policies
their Consequences

Back to profitability:-

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.

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

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

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.

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

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

A new business policy

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.

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

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

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.

Regional Dominance

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.

"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

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

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

Chasing Outlier Payments

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).

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

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.

Milking the vulnerable uninsured

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.

Concerns about Tenet's board and its managers

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.

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

An unsuccessful challenge

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.

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

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.

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.

Tenet's revival

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.

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

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

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

With Profit comes Credibility

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.

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

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.
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

See no Evil, Hear no Evil

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.
-- 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

Plans to Expand

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.
"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)
Undeniably, some hospitals are in a position to charge what they want to charge - and get it - say industry watchers.
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.
Weakley's report seemed to raise the specter of Medicare overbillings that have plagued big hospital companies in the past.
- - -, Weakley lowered his rating from "hold" to "reduce" and issued a report analyzing Medicare's so-called outlier payments to Tenet.
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 period.
Tenet Shares Tumble 14% After Downgrade LA Times October 29, 2002

The share price halved dramatically and over the next 3 weeks slid down 70%

At the end of the month trading in Tenet's shares was temporarily suspended.

Tenet said on Wednesday it received an audit request from the Kansas City, Missouri, office of the Office of Audit Services of the U.S. Department of Health and Human Services.
Harris said a ``fiscal intermediary noticed larger than usual or irregular claims -- more than Medicare regulations would normally allow for.'' - - - - . The audit will focus on so-called "outlier payments,''

Tenet Facing Audit of Medicare Payments REUTERS November 2002

The company, which saw its "outlier'' payments double from $351 million in 2000 to $763 million in 2002, has said it outpaces the national average for "outlier'' payments because many of its hospitals have costlier open heart surgery and teaching programs.
Gov't Announces Hospital Crackdown THE ASSOCIATED PRESS November 2002

Later the same day, Tenet responded in a news release that it was affirming its profit projections because it had taken the policy change into effect. "Tenet is confident that its hospitals are fully compliant with Medicare rules and regulations, including those governing outlier payments," the statement said.
Tenet also is not likely to continue to win market share because its local not-for-profit competitors appear poised to resist its further encroachments on their turf, he added.
Tenet's stock takes dive as profit outlook suffers Modern Healthcare November 4, 2002

Tenet's inflated prices also formed the basis of special "stop loss" fees paid to HMO's. These were similar to "outlier" payments so boosted profits in the same way.

Most health insurers pay hospitals a flat, negotiated daily rate for patient care -- usually a fraction of the retail charges. But as with the Medicare system, hospitals also receive "stop-loss" payments from insurers for special cases that can be very expensive. And like outliers, these stop-loss payments are calculated as a percentage of retail charges.
Tenet Shifting Its Formula for Reimbursement LA Times November 29, 2002

Analysts blamed the aggressive business culture in top management for Tenet's problems - the same problem which existed in 1991 (5.4). As in 1991 large incentive payments (5.12) were the driving force in the misuse of patients. In the 1990's scandal central management introduced strong profit pressures and chose not to know how the profits were actually generated (4.2). Note the comment about Barbakow in the report below. Dr Pearce wrote a stinging letter to the board accusing it of "Wall Street Medicine" and of providing substandard care. He called for a major change in management.

But some investors and corporate governance experts believe Tenet's problems are at least partially the result of the aggressive profit-driven culture fostered by Barbakow himself.

How responsible is Barbakow for the mess at Tenet? He backed an incentive plan under which hospital CEOs receive cash bonuses tied largely to exceeding profit and revenue growth targets. In fact, cash bonuses represented half of all the compensation hospital chiefs earned in 2001. That incentive plan, critics charge, may have led to abuses.
"If you have a CEO who claims he doesn't understand where his revenues and profits are coming from, you need to change your CEO fast," says Lynn E. Turner, director of the Center for Quality Financial Reporting at Colorado State University.
A Scandal-Ridden Tenet Stands by Its Man BusinessWeek magazine NOVEMBER 25, 2002

In 2002 alone, the United States has extracted payments from Tenet Healthcare on 3 occasions. With CMS's press release of December 3rd, it is apparent that Tenet will once again be making a payment to the Medicare system. How many times must the company be fined before the Board realizes that the problems are endemic and systemic? How many people must unnecessarily die because cardiac physicians and surgeons are allegedly performing medically unnecessary procedures, or because hospitals such as Palm Beach Gardens, it has been alleged, are not properly cleaned and maintained?

If you conduct an investigation, independent from management, you will probably find that these are not isolated incidents. The culture is fundamentally flawed; as it provides too much incentive for physicians and administrators to push profit goals over patient health.
Dr Pearce Letter to board December 2002

Investigations start

Tenet's market bubble disintegrated as agency after agency started investigating. Shareholders, patients and investigators took to the courts. In December Barbakow announced Tenet's new reformed practices but by now his credibility was gone and no one was listening. By the end of December at least 16 lawsuits had been commenced.

Business Prospects go from bad to worse as the months go by.

Tenet had pushed itself into an impossible position. It had somehow to regain its credibility and it could only do so by claiming a new image, cooperating with government, cutting its pricing, responding to the community, settling with the uninsured, and giving in to the nurses. This meant abandoning most of its profits. It now had to negotiate with aggressive and angry HMO's who would have no more hesitation than Tenet had in the past in capitalising on its weakness.

It had committed itself to treating the sicker and more complicated cases but without the outlier payments and the reduced staffing levels these would run at a loss.

Without that strategy (ie outliers), Tenet could get saddled with more of the financial liability for taking care of the sickest patients. Yet it continues to pursue an aggressive growth plan of targeting aging baby boomers who demand the best in cardiac care, orthopedic surgery, and other risky procedures.

Some who follow Tenet worry that it may get blindsided. During an analysts meeting in December, Sheryl Skolnick of Fulcrum Global Partners asked Barbakow and his management team how Tenet could maintain its profitability while being paid less to take on more risk. "They had these looks on their faces like they were deer caught in the headlights," Skolnick recalls. "Clearly, they haven't really thought this through."
Tenet's Prognosis: Lots of Complications BusinessWeek magazine NEWS ANALYSIS JANUARY 13, 2003

Tenet had previously been in a position to aggressively drive hard bargains with HMO's. It had now cut its prices. HMOs were angry about stop-loss charging and responded accordingly in their bargaining.

A key factor contributing to Tenet's weaker profitability is a major change in its managed care pricing. Tenet is renegotiating many contracts after previously employing aggressive pricing practices. This is resulting in far weaker pricing trends, including actual reductions in certain cases. The weak trend will likely continue for the next couple of years as contracts are renegotiated on an ongoing basis. Subsequent rate increases will also probably be smaller than in the past. In addition, weak Medicaid reimbursement is also expected to affect future profitability.
S&P cuts Tenet Healthcare ratings to junk status Reuters July 10, 2003

Tenet set about addressing its problems by publicly claiming new business practices, and giving way to the nurses and the uninsured. Over the months it repeatedly downgraded its profit expectations and its share price shrunk. Analysts followed by downgrading its shares and its debt repeatedly. Tenet optimistically indicated that there would be no recovery until well into 2004. Its started reporting losses. By the end of June 2003 its shares were below $12 and its dept had been downgraded by Moody's rating agency to junk.

"Tenet's issues are resonating so deeply in the sector that they remind investors that acute-care hospitals are highly regulated and bound by Medicare rules," said Darren Lehrich, an analyst at SunTrust Robinson Humphrey in New York.
At least 10 other analysts Friday downgraded Tenet's stock, which lost $13.05 to close at $14.90 on the New York Stock Exchange. More than 114 million shares changed hands.
Shares of Tenet Fall on Cuts in Ratings LA Times November 9, 2002

After weeks of negotiations, Tenet is close to signing a two-year contract with Health Net Inc. that sharply reduces Tenet's reliance on payments based on a hospital's retail charges.
The shift signals that Santa Barbara-based Tenet, the nation's second-biggest hospital chain, is backing away from its much-criticized policy of ramping up hospital prices.
But some analysts are skeptical. "It's going to be tough for the company to exert the kind of leverage they've had," said Sheryl Skolnick, a managing director at Fulcrum Global Partners, which provides investor research.

Tenet Shifting Its Formula for Reimbursement LA Times November 29, 2002

Tenet Healthcare Corp., chastened by harsh criticisms for reaping excessive Medicare payments, on Tuesday slashed its earnings outlook for the next two years and outlined a new approach to hospital pricing that includes discounts for uninsured patients.
Tenet Cuts Earnings Forecast for 2 Years :: The hospital chain says it is overhauling policies that let it boost prices charged to Medicare. LA Times December 4, 2002

Tenet Healthcare Corp., Santa Barbara, Calif., said it has volunteered to revise its outlier payment practices as of Jan. 1 in anticipation of upcoming federal changes and as a gesture of good faith.
Tenet volunteers to revise outlier policy Modern Healthcare January 6, 2003

Tenet Healthcare Corp., Santa Barbara, Calif., today gave investors their first peek at the company's financial results - - - -: a loss for the three months ended Feb. 28 of $55 million, or 12 cents per share.
Outlier payments sharply lower, Tenet reports loss Modern Healthcare April 10, 2003 April 11, 2003

Moody's Investors Service placed the ratings of Tenet Healthcare Corporation (Baa3 senior unsecured) under review for possible downgrade.

Tenet has undergone extensive changes, by revamping senior management, announcing a $100 million cost-cutting plan and establishing a new policy for fair treatment of uninsured patients.
Tenet chief executive resigns AP Newswires May 27, 2003

"Based on results for April and May, and the recent completion by our new executive management team of a highly detailed, hospital-by-hospital budget review process, we now believe this transitional period will continue through at least the first half of 2004, and its impact on our financial performance will be more substantial than previously anticipated," Mr. Fetter said.
Tenet shares fell 5 cents to $16.23 on the NYSE. Tenet Healthcare lowers estimate for 2Q, rest of year Dow Jones Business News June 23, 2003

Hospital chain Tenet Healthcare Corp. (THC.N), under government probe for billing practices, on Monday said earnings would fall well short of Wall Street forecasts, leading the stock to lose roughly a quarter of its value.
Trouble Reigns at Tenet Healthcare New York Times June 23, 2003

Tenet Healthcare Corp., Santa Barbara, Calif., said today that its problems with Medicare outlier reimbursements have spread to managed-care contract negotiations. The company acknowledged what analysts had been predicting -- that health plans are driving a harder bargain with Tenet than its competitors because of Tenet's prior strategy of rapidly increasing its gross charges.
Tenet woes spread to contract talks Modern Healthcare June 23, 2003

Standard & Poor's, New York, said it was putting Tenet's corporate credit and senior unsecured debt ratings on "CreditWatch Negative," indicating a possible downgrade from the lowest investment-grade rating, BBB-.
Tenet's lowered projections cause stock to crash Modern Healthcare June 24, 2003

Tenet Healthcare, - - - - blamed higher costs and its limited success in negotiating more favorable prices with private health plans for care.
"This is a company where costs are growing seven to eight times faster than revenues," said John W. Ransom, an analyst with Raymond James & Associates.
In some cases, Tenet said it was forced to lower its prices to keep its contracts, - - - . "
Already Battered, Tenet Healthcare Reduces Earnings Forecast New York Times June 24, 2003

Moody's Investors Service on Wednesday cut its debt rating on No. 2 U.S. hospital company Tenet Healthcare Corp. THC.N by three notches to junk status following a profit warning and said it may cut the rating again.
Moody's cut Tenet's senior unsecured rating to "Ba3," its third-highest junk rating, from "Baa3", its lowest investment-grade rating.
Tenet's stock closed at $11.95 on the New York Stock Exchange on Wednesday.
The stock, which is trading at lows not seen since March 2000, has taken a beating
UPDATE 1-Moody's cuts Tenet Healthcare rating to junk Reuters June 25, 2003

Standard & Poor's Ratings Services said today that it lowered its corporate credit and senior unsecured debt ratings on health care service provider Tenet Healthcare Corp. to a speculative-grade 'BB' rating from 'BBB-'.
"The downgrade reflects weaker profitability and cash flow expectations at Tenet," said Standard & Poor's credit analyst David Peknay.
S&P cuts Tenet Healthcare ratings to junk status Reuters July 10, 2003

to contents

Tenet's Response


Denial then Scapegoats

Barbakow and Tenet's response to the exposures was vintage NME - multiple improbable and often conflicting justifications. Barbakow's first response was to deny any wrongdoing claiming Tenet had done nothing wrong, but he conceded that it had been too aggressive. He as CEO had not been kept informed - hardly reassuring. He asked senior financial executives to resign shifting the blame to them. Barbakow's predecessor Richard Eamer behaved similarly in 1993 firing Norm Zober who was in charge of the specialty hospitals. Barbakow's lack of insight speaks for itself.

"The actions I am taking to form a new management team and to take a fresh look at our approach to pricing are not a signal that our fundamental strategy is flawed or the result of any impropriety,"
Barbakow said he was confident Tenet would be vindicated by the audit and that the company's earnings would continue to grow.
"As I carefully studied our Medicare outlier situation over the last two weeks, it became clear to me that formulas that drive these outlier payments were affected by our overall pricing," Barbakow said. "In some cases, particularly aggressive pricing strategies created increasing outlier payments. That's simply not the way I want to do business at Tenet, nor do I want such a perception to exist in anyone's mind."

Tenet gets new president amid probe United Press International November 11. 2002

The company said it did not break Medicare rules, but analysts said Tenet unfairly took advantage of Medicare's outlier payment formula to reap excessive reimbursements.

He said that Jeffrey Barbakow, Tenet's chairman and chief executive, learned in the last two weeks that aggressive pricing was leading to big increases in outlier payments. Barbakow then confronted Chief Financial Officer David Dennis and Chief Operating Officer Thomas Mackey last week. He told them that he had lost confidence in them and requested they leave the firm, according to Anderson.
(Tenet spokesman)
Shares of Tenet Fall on Cuts in Ratings LA Times November 9, 2002


Barbakow claimed that Tenet had done nothing illegal. The fees which far exceeded those of competitors were he claimed never actually paid. They were simply a starting point for negotiations. Analysts compared this with the asking price of used cars.

Hospital charges, similar to the sticker price for cars, ordinarily are not paid in full. But they help determine payments for unusually expensive cases.
Tenet raises prices more quickly than competitors Union asks state to look at charges San Francisco Chronicle November 20, 2002

The comparison of Tenet's practices with used car salesmen was certainly appropriate to the situation but this was a devious explanation. These are the prices Tenet places on its services and which the public sees. This is not the way the public expects those who care for them when they are sick and vulnerable to behave. These charges were used for the uninsured, the least able to pay, and they were pursued aggressively for payment.

Barbakow claimed that the problem of unnecessary cardiac procedures at Redding hospital was related to the conduct of the doctors and had nothing to do with Tenet or its outlier policy. In fact Tenet was responsible for ensuring an effective quality assurance process was in place and its staff had repeatedly ignored concerns. The extra patients increased its returns from outliers.

All this unrealistic rationalisation mirrors the
convoluted justifications and rationalisations (5.17) used in the 1991 scandal. It reflects the continuation of NME's culture of verbal self deception under Barbakow's stewardship. In 1993 I christened it NMEspeak.

The Santa Barbara-based company said there was nothing illegal in sharply boosting retail hospital charges, which are used in calculating special Medicare reimbursements known as "outlier payments."
Under heavy pressure from investors, Tenet on Thursday disclosed that it received $763 million in outlier payments in fiscal 2002, much of it from 11 hospitals that have ramped up retail charges. Seven of those 11 hospitals are in California.
Tenet officials did not answer a question about whether they deliberately pursued a pricing strategy so as to maximize outlier payments, - - - .
But Jeffrey Barbakow, Tenet's chairman and chief executive, said it had come to his attention only recently that aggressive pricing was leading to big increases in outlier payments.
Barbakow called the resignation of Dennis and the retirement of Mackey voluntary, but analysts wondered why the two executives who probably knew the most about the hospital's pricing strategy were now gone.
Tenet officials have said the Redding investigation and the outlier controversy are two separate issues. But they are linked in that Tenet's Redding hospital has been getting a significant amount of outlier payments, according to analysts' estimates.
Tenet Admits Price Hikes; 2 Execs Leave LA Times November 8, 2002

Creating a false image

Barbakow probably learned from the way Columbia/HCA's Thomas Frist had twisted the truth to his advantage. Like Frist Barbakow tried to present himself as the good guy who had not been part of all this. He conceded that Tenet's aggressive pricing was inappropriate and claimed it was not what he would have liked, shifting the blame to underlings. He had not been told. This is hardly credible given his public statements over the years. Barbakow very publicly revised Tenet's policies, reversed its previous practices and downgraded profit expectations. Tenet might survive this way for a while but it would not be profitable and Barbakow must have known this. As Tenet's experience up to 1999 shows this was not an image any company could successfully live up to and survive.

Reversion to old faces

Instead of bringing in new blood to generate real change Barbakow turned to his old colleagues from NME days, the people who had helped him mount the public relations exercises and negotiate NME's unexpected survival from its previous fraud.

He brought back Trevor Fetter and Michael Focht. Fetter had been with Barbakow at Merril Lynch, followed him to MGM and then moved to Tenet/NME from 1995 to 1999. Focht had been president of
NME's international division at a time when un-confronted allegations suggest that similar practices to those unearthed in the USA scandal occurred there. He became Chief Operating Officer (COO) in 1991 guiding operations during the fraud negotiations (5.17). He had retired as COO in 2000 but remained on the board until July 2002.

Barbakow relied heavily on Sulzbach, the lawyer who made her fame by rescuing NME from oblivion in 1994. She was by now a senior officer in Tenet. Dr Pearce and his group challenged the role Sulzbach had played as Chief Compliance Officer. He asked how the problems at Redding could have been overlooked if she had done her job properly?

Will you continue to rely upon the legal advice of Ms. Sulzbach? She has the titles of General Counsel, Chief Compliance Officer and recently she was promoted to Chief Corporate Officer. Do you not see the inherent conflicts of interests?
How is it legally or ethically possible for Redding to produce this level of earnings?

How is it possible that your internal auditors missed the fact that these physicians were such huge admitters? Did Ms. Sulzbach, or anyone in management, or on the Board ever question how it was possible to legally and ethically do so much profitable business at Redding? Did anyone, ever, question the medical necessity of this volume of procedures, particularly after the hospital was contacted by patients asking questions about these two physicians?

How is it that medical experts from California to New Hampshire believed, for a number of years, that Redding had been "wild" for a long time and was being led by doctors described in the medical vernacular as "cowboys" (doctors who aggressively offer invasive procedures) and the Board didn't see a problem? How much did the CEO at Redding receive in compensation?

During Ms. Sulzbach's tenure as Chief Compliance Officer, the Company has repeatedly paid the government for violations of Medicare billing, and is now embroiled in allegations of over-utilization of surgery and other cardiac services and allegations that Tenet nearly doubled its list prices in three years in order to increase Medicare reimbursements. Does this sound like someone who has done an effective job?
Dr Pearce Letter to Tenet's Board December 2002

When Tenet declared a loss in April 2003 and Moody's looked to downgrade the company Barbakow's days were numbered. There was a massive backlash accusing Tenet of dishonesty, of delaying disclosure, and of misleading the market in its disclosures. Many shareholder court actions blame this delayed disclosure for their losses.

Analysts said both the audit and the fact that Tenet waited more than a week to disclose it presented problems.
Judy Holtz, a spokeswoman for the Inspector General's Office at the Department of Health and Human Services in Washington, said Wednesday that the agency notified Tenet by telephone of the audit Oct. 28 -- the same day as the analyst's report.
U.S. to Audit Tenet Hospital Bills :: Focus will be on large Medicare payments. Meanwhile, state seeks to curb Redding doctors. LA Times November 7, 200

Strategic Lawsuits to silence critics

Tenet tried to silence Pearce by taking legal action against him when he suggested that the cost to Tenet might be as high as US $6 billion. This is the strategy NME had used to silence its critics in the 1990's.

Tenet Healthcare Corp., Santa Barbara, Calif., filed a securities lawsuit late yesterday against shareholder M. Lee Pearce, - - - - Pearce and his Tenet Shareholder Committee issued a news release contending that Tenet could face up to $6 billion in liability for practices related to Medicare outlier payments. Pearce also urged the CMS, HHS' inspector general's office and the U.S. Justice Department to prosecute Tenet under the False Claims Act and other civil and criminal laws.
In the lawsuit, - - - - Tenet asked for a preliminary injunction ordering - - - "to cease making false and misleading statements regarding Tenet," and "to correct the false and misleading statements" he and his committee have made.
Tenet takes rabble-rousing shareholder to court Modern Healthcare April 11, 2003

In his response, Pearce turned the tables and accused Tenet of using the lawsuit against him as part of an unregistered solicitation and, more broadly, as part of a campaign to silence Pearce. The 72-year-old physician also accused Tenet of moving up the date of its annual meeting to July 23 from Oct. 8 to stifle attempts by Pearce or others to change the board's makeup.
Shareholder accuses Tenet of seeking to silence him Modern Healthcare May 13, 2003

Finding money

Tenet's profits fell rapidly. With Medicare and HMO's squeezing Tenet and refusing to accept Tenet's pricing there was little prospect of making more in the foreseeable future.

Tenet had $4 billion in debt and had to reduce this by $500 million by the end of 2003. It was cutting jobs, selling off expensive corporate toys, and rationalising services. It sold 14 hospitals which were still profitable and also 8 million shares of Ventas common stock, which it owned, at $11 per share. Ventas was the REIT associated with Vencor.
Vencor went bankrupt amidst allegations of a US $3 billion fraud. The size of these cutbacks and sales suggested that in spite of its denials Tenet was also preparing for a large fraud settlement. In July 2003 it sold off a large slice of its spun off company Broadlane, claiming this had always been intended.

Changes in payments by private insurers alone, including moves such as that made by Health Net, could cost Tenet $122 million next year and $985 million in 2004, says Darren Lehrich at SunTrust Capital Markets.

And if other insurers pressure hospitals to drop so-called stop-loss payments, as Health Net did with Tenet, it could send hospitals that care for costlier-than-average patients into the red.
Tenet deal with insurer could have wide impact USA TODAY December 2, 2002

On Monday, Tenet's shareholder committee, a dissident shareholder group, said that the company could face up to $6 billion in legal liabilities to the federal government
Tenet Chief to Lose Title of Chairman in a Shake-Up New York Times April 9, 2003

To meet its obligation under its bank credit agreement, it must reduce its debt by $500 million by the end of the year.
Already Battered, Tenet Healthcare Reduces Earnings Forecast New York Times June 24, 2003

Tenet Healthcare Corp., the second largest U.S. hospital operator, on Thursday sold $1 billion of bonds, twice as much as planned,
Tenet sells $1 bln bonds after doubling sale Reuters January 23, 2003

In an effort to bolster profit and restore investor confidence, Tenet Healthcare Corp. said Tuesday that it would close or sell 14 hospitals, cut expenses by $100 million and adopt certain accounting changes. - - - - - - are expected to fetch as much as $900 million.
The company said that its expense-cutting steps would include an undisclosed number of layoffs and a reduction in travel costs and other corporate expenses.

Tenet said it also would dispose of two of its three Gulfstream corporate jets.
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

Tenet Healthcare Corp., Santa Barbara, Calif., said it plans to consolidate 56 billing offices into eight regional offices in a three-year project that will cost $275 million and eliminate 300 jobs.
Tenet to consolidate billing into regional offices Modern Healthcare June 13, 2003

Purging Old Faces

Since October Barbakow had struggled to stay on. With escalating exposures the full consequences of his leadership became apparent. Like John Bedrosian, NME's spokesman in 1991 he was so disingenuous in his explanations that he was no longer trusted. His initial claim that only a few hospitals were involved was shredded by Dr Pearce. This is exactly the claim made in the 1990's scandal. As late as 1994 Focht publicly described over half of Tenet's hospitals which had pleaded guilty to fraud as an infected appendage which had been amputated.

November 2002
But now, Mr. Barbakow, Tenet's 58-year-old chairman and chief executive, is in danger of losing the trust among investors that he and his management team have so carefully built up over the years.
Tenet delayed telling them (shareholders) about the federal inquiries it faces, and Mr. Barbakow created further anxiety by insisting in an often combative conference call with analysts last week that the sudden departures of two executives were voluntary.
Mr. Barbakow now says that he lost confidence in the two executives,
Many analysts believe Mr. Barbakow genuinely did not know what was happening, though they find that troubling in itself.
When Mr. Weakley, the analyst, issued his report on these special Medicare reimbursements on Oct. 28, the company initially played down their significance.

Only after federal regulators said they planned to audit these reimbursements to make sure they were proper did Mr. Barbakow say the company had been overly aggressive in pricing.

The company also waited a day to tell investors that federal agents had raided a Tenet-owned hospital in Redding, Calif
Tenet says it heavily discounts those prices for the uninsured (but see price gouging later). Those prices do not affect what payments it receives, the company said.

Although Mr. Barbakow said the company was undertaking a thorough review of its systems in light of recent events, he said he was convinced that the issues that had surfaced were limited to only a handful of hospitals among the 113 Tenet now owns. "This is an exceptional organization," he said.

Inquiries Raise Questions About Tenet's Strategy New York Times November 11, 2002

During a conference call with Tenet officials, investors vented their frustrations with that huge drop, openly questioning the credibility of management and repeatedly asking when the next shoe would drop.

One fund manager wondered whether Tenet was "trying to game investors the way you gamed Medicare." Others questioned Barbakow's explanation that Dennis and Mackey left because they wouldn't work with Fetter above them on the organizational chart.

Stormy weather :: Echoes of Columbia/HCA heard as Tenet overhauls management amid scrutiny of outlier payments and investor protests Modern Healthcare November 11 2002

Jeffrey C. Barbakow, the chief executive who led Tenet Healthcare Corp. back from the brink of disaster nine years ago, is facing increasing blame for the company's current woes and mounting pressure to resign.
"Investors need to know that they can trust the institutions they are involved in," CEO Thomas Marsico said Tuesday in an interview. He said that reinvestment in Tenet later would depend on a number of factors, including "a total change in the management team."
Analysts say Tenet and Barbakow face a crisis of confidence exceeded only by the dark days of 1992 and 1993,
Pressure on Tenet Chief to Resign :: Jeffrey Barbakow is increasingly getting the blame for the hospital chain's troubles. New York Times November 13, 2002

There are many more questions than answers in this affair. How, for example, could Barbakow say that Tenet's pricing strategy "is inconsistent with the position and posture that I want Tenet to have in the industry" and that he was unaware of the intensive effort to win higher outlier payments? Given that the company has openly said it has been placing a strong emphasis on increasing its high-acuity services and has prided itself on its market domination, it just doesn't ring true.
Another for-profit under scrutiny raises questions about publicly traded chains Modern Healthcare November 18, 2002

December 2002
It is time for the Board of Tenet Healthcare Corporation to stand up and take back the company from a management team that has neglected its duties, mislead its shareholders and omitted material information in its statements to the public and to you, its Board.

The culture of imperial power that permeates the organization ... epitomized by its resort town headquarters, astounding bonus compensation, and $111 million in ill-gotten profits from stock options must and will come to an end. We are absolutely dedicated to making sure that the culture that allowed the over utilization at Redding, that allowed the infections to continue at Palm Beach Gardens, is changed. It must and will be done.

Dr Pearce Letter to Tenet's Board December 2002

January 2003
But the landscape has changed-and Tenet's shares have declined from $52.50 to $17 this year. Though AFSCME is not backing Pearce, it is seeking management change and concedes many of Pearce's points.

David Miller, senior strategic analyst for the government employees union, said the pension fund "has serious concerns about truthfulness of this management team," accusing executives of engaging in insider trading before negative news was made public in a Securities and Exchange Commission complaint. "And while we share many of the concerns Dr. Pearce has raised, we do not see Dr. Pearce himself as the agent of change," Miller said.
Tenet faces JCAHO surprise visits, management critic Modern Healthcare January 2, 2003

Barbakow goes amidst a shake up

Barbakow tried to hang on but in May six months after the scandal broke he went.

He resigned as chairman in April 2003 but stayed on as CEO. This was unacceptable. Pearce met with a new independent board member, Edward Kangas, who was soon to become the new chairman in May 2003. He seemed to reach some sort of understanding of what would happen. He and his group decided not to nominate new members for the board. While he expressed some confidence in the new board, his subsequent statements indicate that he was still after a clean sweep of the old brigade including Barbakow's mate Fetter.

Within days of this meeting Barbakow announced his resignation as CEO taking effect immediately. Fetter took over. It is clear that institutional investors such as the pension funds had had enough.

At the same time several of the older long term directors were forced to go. Tenet went looking for new blood. All executives in the company were removed from the board so that it was completely independent of management.

While Pearce seemed satisfied by these measures it remained to be seen whether the sort of people joining the board would be able to produce the sort of cultural changes needed. The new directors appointed so far came from Toys "R" Us, the accountants Deloitte Touche Tohmatsu and from the pharmaceutical corporate sector.

The institutional investors avoided any doctors. It is also worrying that instead of bringing in new management as urged by Dr Pearce long time Tenet/NME chief accounting officer Raymond L. Mathiasen was replaced with Timothy L. Pullen who joined Hillhaven while it was part of NME then moved to NME and has been with the company since.

The likelihood that people like these new appointments will move away from a Wall Street culture of profit before care is very small. In this marketplace Tenet's current culture is the norm. Alternative more appropriate conduct is not profitable nor competitive.

April 2003
Jeffrey Barbakow, chairman and director of U.S. No. 2 hospital chain Tenet Healthcare Corp. THC.N , will step down later this year in a bid to quell shareholder discontent, the Wall Street Journal reported on Tuesday. - - - - - - though Barbakow will stay on as chief executive officer.

- (This)- - - - - will leave the board without any management representatives at all, a step which the Journal described as highly unusual. All four director posts will be filled by independent outsiders, joining the six existing ones.
Tenet CEO to leave board over governance issues-WSJ Reuters April 8, 2003

Tenet also said its three longest-serving outside directors won't stand for re-election, giving the company four new board members out of the 11 total.
Tenet's Barbakow to resign as chair in board revamp Modern Healthcare April 8, 2003

Tenet also said in a statement it would name new heads of its compensation, nominating, and audit committees as part of a shake up of its corporate governance rules.
Tenet: CEO Barbakow Loses Chairman Title Reuters April 08, 2003

Edward A. Kangas, 58, former chief executive of Deloitte Touche Tohmatsu, has been added to the company's board.
Tenet Adds Former Deloitte CEO to Board LA Times April 25, 2003

May 2003
Barbakow will remain CEO
. Robert Nakasone, former CEO of Toys "R" Us, was elected as the 12th board member.
In other people news Modern Healthcare May 7, 2003

In a letter sent Monday to non-management board members, Pearce said Tenet must replace its senior management, name a chief executive from outside the company and adopt tougher standards for director independence.
Pearce added the troubled hospital company also must name a physician as its chief quality assurance officer, stop spending resources on share repurchases, and move Tenet's headquarters to Dallas from Santa Barbara, Calif.
enet shareholder group says company must name new CEO AP Newswires May 19, 2003

After meeting last week with Edward Kangas, a former accounting executive and a new independent member of Tenet's board, Pearce said in a written statement that he's convinced the board will work to reform the company and its governance. As a result, Pearce said, he won't challenge the board by nominating a slate of directors for election at Tenet's annual shareholders' meeting, set for July 23.
Tenet's board wins over disgruntled shareholder Modern Healthcare May 19, 2003

Tenet Healthcare Corp., Santa Barbara, Calif., this morning announced the resignation of CEO Jeffrey Barbakow, effective immediately.- - - - Tenet President Trevor Fetter, 43, was named acting CEO, the company said, adding that Fetter and outside candidates will be considered as the board looks to hire a replacement CEO.
Barbakow resigns as Tenet's CEO Modern Healthcare May 27, 2003

"It's not a total surprise to me," said Michael Yellen, a portfolio manager for AIM Investments who invests in health care companies. "There were a lot of institutions that were upset that he was still at the helm."
Tenet's board plans to hire an executive search firm to help find a permanent successor. It will consider Mr. Fetter and candidates from outside the company.
Barbakow was the chief architect and practitioner of short-term `Wall Street medicine' at Tenet," Dr. Pearce said in a statement. "His departure clears the way for improved corporate governance, provision of high-quality health care and the eventual restoration of real long-term financial performance."
With No Surprise, Chief Leaves Tenet Healthcare The New York Times May 28, 2003

Troubled Tenet Healthcare Corp. said Thursday that Timothy L. Pullen will become the Santa Barbara firm's chief accounting officer Aug. 15. - - - (he) will replace Raymond L. Mathiasen, who will be retiring - - .
Pullen joined Hillhaven Corp., a subsidiary of Tenet's predecessor company, in 1983 and has served in various finance-related jobs.
Tenet Taps New Accounting Officer LA Times June 13, 2003

Meantime, the Tenet Shareholder Committee, a group of investors led by Florida physician M. Lee Pearce, said Monday that Fetter should quit and be replaced by a CEO outside the company. Fetter is part of an "entrenched management team" that has been discredited, the group said in a statement.
Tenet cuts 2003 profit estimates BLOOMBERG NEWS, June 24, 2003

Tenet Healthcare Corp., Santa Barbara, Calif., said its board has elected its third new independent member this year -- John Kane, former vice chairman, president and COO of drug distributor Cardinal Health, Dublin, Ohio. - - - He also spent 19 years at Abbott Laboratories, the pharmaceutical and medical device giant.
Tenet board adds former drug-distributor exec Modern Healthcare June 26, 2003
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This page created July 2003 by
Michael Wynne
Partly rewritten and updated June 2007