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Tenet Healthcare
and the
Outlier plus Stop-Loss scandal

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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 examines the multiple fraud settlements and related actions taken against Tenet Healthcare. It examines more closely the outlier, stop-loss, workers compensation payments and the Medicare DHS payments, all of which allowed the company to circumvent the restrictions imposed by DRG payments. The more they hiked prices the more they were paid under these systems. The range of other investigations complaints and issues made about the company are listed. These make the point that the fraud and outlier problems are simply one manifestation of the severely dysfunctional polices followed, and the existence of a corporate culture which would see these as legitimate and go along with them.



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But Tenet still has plenty of other fires to put out. According to its latest quarterly financial report, released in August, the company is the target of at least four unrelated criminal investigations. It also faces civil probes by the U.S. Securities and Exchange Commission, the Internal Revenue Service, the U.S. Department of Health & Human Services, the Federal Trade Commission, and a congressional subcommittee. Last but not least, Tenet must contend with some 50 private lawsuits, ranging from shareholder actions to tort claims over alleged unnecessary surgeries. The company has steadfastly denied wrongdoing in all these cases.
A Prescription For Tenet Corporate Counsel Volume 10; Issue 10, October 1, 2003

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


Tenet has been the subject of a myriad investigations by multiple authorities and organizations. The multitude of reports and the different languages used make it difficult to determine when reports are referring to the same investigation. A large number of investigations and prosecutions were consolidated into a global settlement reached in 2006. After this the case and the documents were sealed. As a consequence the public does not know exactly what Tenet was charged with and what the documents and evidence actually show. As a result we have no idea of the validity of Tenet's denials and the grounds for its "no wrongdoing proven" claim. I have also been unable to determine which of the many investigations became part of the charge for which Tenet settled for about US $1 billion in 2006.

 As far was we can tell, the government has learned nothing from the last 13 years of dealing with this company. The same formulas are used with the same ineffective results and disastrous consequences. And the public's ability to learn more is severely hampered by the same settlements that seal government files.
How Many More Lives and Billions of Dollars Will Be Lost Before the Federal Government Learns Lessons From the Tenet Healthcare Corp. Scandals? Tenet ShareHolder Committee April 24, 2007

If it is a key tenet of democracy that justice is not only done but is seen to be done then the handling of Tenet's fraud prosecution is a glaring indictment of the way democracy is practiced in the USA.

I have done my best to collect the fraud related payments that Tenet has made since 2002 and I have estimated this as a little over US$2 billion but make no claim about its accuracy. Unlike HCA's recent US $1.7 billion settlement Tenet has paid in dribs and drabs. Its overall payment seems to be as great or greater than HCA.

The main frauds addressed on this page relate to outlier payments to Medicare and similar payments made to Medicaid, insurers and a number of other funding agents. This was only one of a matrix of unsavoury and perhaps fraudulent practices and these are briefly examined first. Some are addressed in depth on other pages.

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What about past problems in general hospitals

In 1994 Tenet, then known as National Medical Enterprises of NME. pleaded guilty to criminal conduct during the 1980s and early 1990s. It paid about US $1 billion in this and related settlements. This was a prime example of ruthless utilization manipulation although that term was not used at that time. Its recent policies and the numerous allegations made about it since indicate that it has not changed one bit. The company was restrained by a number of corporate integrity, compliance and ethical agreements as well as court injunctions. Tenet's ethics committee ignored the submissions I made about some senior staff in 1996. The reports indicate that it subsequently ignored all of its commitments and undertakings. It continued its dysfunctional business practices.

The newly named Tenet Healthcare seemed to start with a clean slate after the fraud settlements of 1994. The government had assisted it in creating a
very contrived guilty plea. It was allowed to amalgamate its divisions and then plead guilty in the name of only one of them. A formula was found to allow it to continue to provide Medicare services when any other group would have been barred. Its general hospital and international operations were not investigated in spite of complaints.

The press, for example reported concerns about
problems in NME's general hospitals in the early 1990's but these were either not investigated or not prosecuted.

If the recent fraud settlements and the many allegations and settlements going back to conduct initiated in 1992 are valid indications of what happened, then it may be that Medicare fraud was ongoing in Tenet's general hospitals during the period it was negotiating its 1994 settlement and signing its integrity agreement. At the time it was loudly claiming its integrity which it claimed its new name reflected. The exploitation of Medicare has continued in one form or another into the present.

Fraud related settlements are made without admitting guilt and companies pay large settlements while continuing to deny the allegations. Because of the serious consequences for patients and for the health care system this analysis assumes that there is some substance to the majority of allegations. Why else would a company whose success depends on its credibility pay these large settlements.

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Fraud settlements before the October 2002 scandal

In early 1999 an antitrust investigation was commenced into three hospitals in Florida. I do not know the outcome or if a financial settlement was negotiated.

In regard to Morton Plant Mease, the Justice Department is looking for "conspiracies or agreements having the purpose or effect of unreasonably restraining competition in the sale of hospital services among hospitals in Northern Pinellas County, Florida," according to a civil investigative demand letter obtained by MODERN HEALTHCARE.
He said the government appears most interested in whether Morton Plant and Mease hospitals shared information about their managed-care contracting.

In 2000 there were problems in Carolina and Tenet paid a fine

At Tenet-owned Hilton Head Regional Medical Center, problems that occurred in the hospital's cardiac catheterization lab between 1997 and 2000 resulted in lawsuits and fines. The hospital self-reported those procedures -- which were not allowed under state regulations -- to state health officials in 2000 and paid a $24,200 fine a year later. Two lawsuits are still pending.
Who really benefits if Tenet buys Coastal Carolina Medical Center? The Island Packet Online June 22, 2007

In June 2002, Four moths before the second scandal broke Tenet paid US $ 55,8 million to settle a series of Medicare fraud charges, some initiated by whistleblowers. These includeD

$17 million for overcharging for laboratory services in 139 hospitals,

$10 million for over billing for rehabilitation services and false cost reports at Brotman Medical Center in Culver City (whistle blower initiated), and

$29 million in a case that accused Lifemark Hospitals of Florida (Palmetto General Hospital) of billing and cost-report violations for home health services dating from 1994 (whistle blower initiated),

At the time Tenet was accused of a much more extensive fraud going back many years and was still busy negotiating this with authorities. These settlements had no effect on Standard and Poor's ratings.

Tenet Healthcare Corp., Santa Barbara, Calif., announced Tuesday it would pay $55.75 million to resolve civil charges relating to national clinical laboratory billing violations and fraud at two of its hospitals, although the company denied any wrongdoing.

The settlement announcement makes Tenet the third national for-profit chain to settle healthcare fraud allegations in the past two years.
Tenet settles fraud charges for $56 million, Modern Healthcare 19 June 2002

The Palmetto settlement
The settlement agreement resolves allegations by the United States that the hospital's submissions to Medicare from 1994 to 1997 included false claims for home health services purportedly provided by three agencies in Dade, Islamorada and Key West, Florida. The government contended that these submissions included claims that contained or were based on false, fraudulent and misleading statements or omissions regarding the patient's medical condition, history and/or eligibility for coverage by Medicare. In addition, the United States asserted that the hospital's submissions included claims for services that were not reimbursable by Medicare because they were not rendered; were provided by unskilled, unlicensed or uncertified personnel; were based upon insufficient, forged or missing documents; and/or were never ordered by a physician.

The government further contended that certain cost reports Palmetto submitted between 1994 and 1997 improperly maximized its Medicare reimbursements through various means, including the reclassification of the costs of one of the home health agencies to the other two and the misallocation of certain capital related, operating, nursing administration, cafeteria and social service costs. Additionally, the United States contended that the hospital improperly claimed non-reimbursable billing fees paid to a related company; and also failed to disclose the related-party nature of that relationship. Lastly, the United States contended that the hospital improperly classified certain non-reimbursable acquisition costs as reimbursable consulting fees.

The civil settlement includes a full resolution of claims brought - - - - under the qui tam or whistleblower provisions of the False Claims
Press Release US Dept Justice JULY 17, 2002

also Tenet's $55.8-Million Payment Settles Claims LA Times June 19, 2002

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After the scandal broke in October 2002

In January 2003 Tenet agreed to settle whistle blower initiated allegations of pneumonia and septicaemia upcoding made about 5 hospitals for $ 4.3 million.

Upcoding is the practice of improperly assigning a diagnosis code to a patient discharge that is not supported by the medical record for the purpose of obtaining a higher level of reimbursement from Medicare for that hospital discharge than the hospital would otherwise receive.

Three of the hospitals were named defendants in a False Claims Act qui tam or whistleblower suit filed by Health Outcomes Technologies, Inc. As a result of the settlement, Health Outcomes Technologies will receive $309,303 of the government's recovery.
The claims in this suit are similar to allegations brought by the United States against 104 Tenet hospitals in an action filed in the federal court on January 9, 2003 in Los Angeles.

Press Release US Department of Justice FEBRUARY 10, 2003

"We believe it is important to stress that, in these settlements, the hospitals are acknowledging only that payments deemed improper were simply the result of error or oversight."
Five Down, 104 to Go
Hospital Compliance Wire February 10, 2003

The Justice department also sued the company for US $323 million for overcharging Medicare by improper diagnostic codes between 1992 and 1998 in another 104 hospitals. The Justice Department had been negotiating with the company for some time. The settlement with the 5 hospitals and the previously settled allegations involving lab tests for $17 million were part of this process. Tenet denied the allegations made about these 104 other hospitals and refused to settle.

The department said Tenet improperly assigned diagnosis codes for in-hospital stays in order to get paid higher reimbursements than it was entitled to between 1992 and 1998. The lawsuit was filed in Los Angeles against the Santa Barbara-based company.

The government is seeking triple damages, which could run as high as $323 million.

The Justice Department sued Tenet Healthcare for up to $323 million Thursday, accusing the nation's second-largest hospital chain of overcharging Medicare for certain procedures to inflate its revenue.
The Associated Press. January 3, 2003

The U.S. Justice Department filed suit against Tenet Healthcare Corp., Santa Barbara, Calif., accusing the nation's second-largest hospital chain of manipulating Medicare DRG codes to fraudulently obtain millions of dollars in extra reimbursement. Much of the alleged misbehavior occurred while Tenet already was operating under a corporate integrity agreement with the government. Tenet not only violated the agreement but also lied to government officials by swearing it was in material compliance with the agreement, the government complaint alleges.

Government files upcoding suit against Tenet
Modern Healthcare January 9, 2003

One of the reasons why hospitals are not prosecuted for substandard care is that while the whole picture is clear the process involves proving every one of large numbers of individual cases. Each will have different and conflicting medical opinions, rationalizations and possible alternative explanations. Government is flooded with more than it can handle. Individuals are therefore left to take on the giants and their lawyers independently. Tenet has tried to force the government to do this in this fraud case asking for each of the 104 hospitals to be tried separately. I have not seen a settlement of this action. It seems to have been subsumed into the larger Outlier fraud scandal and to be part of the 2006 global settlement.

Tenet Healthcare Corp. said the Justice Department should be forced to sue member hospitals individually on allegations that they submitted phony Medicare claims.

Tenet asked a federal judge in Los Angeles to exclude the company as a defendant in a suit seeking $323 million in damages. That would give prosecutors the more difficult task of proving fraud against individual hospitals in the Santa Barbara-based chain.
Tenet Seeks Suits of Individual Hospitals LA Times (Bloomberg News) June 11, 2003

"It's the antithesis of what you want to do in law enforcement," says Eichenwald at the Times. "You don't want to create the impression that if you create enough crime, if its thousands and thousands of documents, well, the government can't handle it." Health-care industry rife with fraud ::Government swamped by $1.5 trillion in paperwork MSNBCNews Nov 12, 2002

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Medicaid investigates too

In 2003 Medicaid started an investigation in Florida

Tenet Healthcare Corp. THC.N on Friday said it is being investigated by Florida's Medicaid program, adding to a raft of legal and regulatory woes for the nation's No. 2 hospital operator.
Tenet said the Florida Medicaid Fraud Control Unit in June issued a subpoena "seeking employee personnel records and contracts with physicians, therapists and management companies, including loan agreements and purchase and sale agreements."
Tenet says being investigated by Florida Medicaid Reuters Aug 8, 2003

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A related company investigated

In 2003 Tenet revealed that a half owned business People's Health Network in Florida was under investigation.

Tenet Healthcare Corp., the U.S. hospital owner under investigation by at least three government agencies, said Monday that a company that provides services to one of its units received a subpoena from federal prosecutors in New Orleans.
Tenet controls half of the company, called People's Health Network. The company does billing, claims processing and other management for Tenet Choices Inc., a unit that runs a Medicare health plan in New Orleans.

"Let me be clear: There's nothing in the subpoena related to Tenet Healthcare Corp. or to Tenet hospitals," Tenet spokesman Harry Anderson said.
Tenet said prosecutors wanted documents from January 1999 to the present related to several physician practices that shared control of People's Health, as well as policy manuals and other records.
Tenet Joint Venture Probed LA Times Oct 7, 2003

Hospital chain Tenet Healthcare Corp. THC.N said on Tuesday a 50-percent-owned New Orleans affiliate has received a second subpoena from the U.S. Attorney's Office seeking additional documents in a probe announced last week.
Tenet New Orleans affiliate gets second subpoena Reuters October 14, 2003

Tenet Healthcare Corp., Santa Barbara, Calif., said its two-campus Memorial Medical Center, New Orleans, has received a subpoena from the U.S. attorney's office in New Orleans related to a previously disclosed investigation. People's Health Network, a health plan management services company in which Tenet owns a 50% stake, was subpoenaed twice in October, and Tenet said that PHN, along with Memorial Medical, also received a new subpoena. Both news subpoenas demand agendas, minutes, bylaws, membership data and policies from June 1, 2002, to the present related to medical staff committees and other medical staff groups. PHN manages Tenet Choices, a Medicare HMO that Tenet operates in the New Orleans area.
Tenet updates La. probe, makes up with Calif. Blues Modern Healthcare's Daily Dose Nov. 24, 2003

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Improper contractual allowances for insurers

 In 2005 a whistle blower revealed another fraud related matter. This had to do with how Tenet dealt with managed care companies.

Tenet Healthcare Corp., Dallas, will delay its second-quarter report to the Securities and Exchange Commission - - - - . Tenet said a former employee alleged that three Tenet hospitals in California recorded improper contractual allowances for managed-care contracts through at least fiscal 2001.
Tenet says accounting issues will delay SEC filing Modern Healthcare Jul 21, 2005

Specifically, the company revealed that those hospitals may have recorded excessive "contractual allowances" -- or discounts for managed care companies -- in certain periods and then released the extra reserves in a manner that boosted results later on.

At the request of the Securities and Exchange Commission, Tenet launched a forensic investigation to determine whether those hospitals -- and possibly others -- had in fact improperly reported revenue in the past.

Peter Young, a business consultant at HealthCare Strategic Issues, finds it interesting that Tenet chose Huron Consulting Group (HURN:Nasdaq) to carry out that work.
"I would view Huron as an outside specialist that's working to address multiple issues," Young says. "With its depth of talent, this is really a restructuring company."

Moreover, Young has his doubts that Tenet will in fact be able to file its quarterly report and satisfy its bondholders. Rather, he believes the forensic investigation has actually widened to include more hospitals -- and become more time-consuming -- since it was first announced.
Tenet Default Raises Eyebrows The (Melissa Davis) Aug 26, 2005

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Battle with the tax office

In June 2003 the Internal Revenue Services demanded US $269 in additional taxes including interest for the years 1995-7. Part of this related to tax issues arising after its 1994 fraud settlement.

What Tenet did wrong is not disclosed but as always it contested this. It ultimately gave way and paid the tax office's demands in dribs and drabs.

Tenet Healthcare Inc. (THC.N), the No. 2 U.S. hospital operator, said the U.S. Internal Revenue Service is asking it to pay about $269 million in additional taxes and interest for the years 1995, 1996 and 1997.

The adjustment includes $157 million in taxes and an estimated $112 million in interest, Tenet said in a filing with the U.S. Securities and Exchange Commission.

Tenet, which saw its chief executive resign last week, said it disputes the ruling and will appeal the decision.Tenet Says the IRS Seeking $269 Million New York Times (Reuters) June 2, 2003

Tenet Healthcare Corp., Dallas, said it will pay $80 million in taxes and interest to resolve most of its dispute with the Internal Revenue Service over the company's tax returns for fiscal 1995 through 1997. The partial settlement relates to two issues: deductions made on a $379 million civil settlement that a Tenet predecessor company, National Medical Enterprises, negotiated with the federal government to resolve fraud charges in 1994 and the amount of tax depreciation expense claimed regarding some capital expenditures. Tenet and the IRS still are negotiating over the timing of deductions related to contributions to the company's health and welfare benefit plans. Tenet said it expects this last issue to cost the company no more than $5 million in cash.

Tenet previously paid $38 million in tax and interest to settle other disputes related to its 1995 through 1997 tax returns, according to a securities filing. In a separate securities filing, Tenet said it expects to pay $85 million in taxes and at least $22 million in interest, as of Sept. 30, to settle nondisputed portions of an IRS revenue agent's report issued last month. That report contended that Tenet had an aggregate tax deficiency of $207 million related to tax returns for June 1, 1997, through Dec. 31, 2002. Tenet said in the filing that it expects to pay the nondisputed amount with interest by year-end.
Tenet, IRS reach partial settlement Modern Healthcare's Daily Dose November 22, 2006

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Were compliant auditors part of the problem?

In the majority of the large frauds perpetrated auditors, compliant because of the other business a company puts its way, either are party to the fraud or turn a blind eye. It can be difficult to prove this. In this instance KPMG seems to have played along. The blame was sheeted home to employees who were likely responding to pressures. KPMG ceased to be Tenet's auditor.

Tenet Healthcare Corp., Dallas, said it is replacing KPMG as its independent auditor with Deloitte & Touche, effective after the audit of Tenet's 2006 financial statements. KPMG and its predecessors have conducted independent audits for Tenet and its main predecessor company, National Medical Enterprises, since at least fiscal 1994, according to securities filings. At deadline, KPMG had not responded to a request for comment. Last January, Tenet was required to restate financial results for fiscal 2000-03 because of incorrect accounting for managed-care contractual allowances. Meanwhile, in March 2006, the Securities and Exchange Commission charged three KPMG accountants with altering audit working papers after questions were raised about Tenet's Medicare outlier payments. That month, two of the accountants settled the charges by agreeing not to practice or appear before the SEC, with the opportunity to seek reinstatement in four years.
Tenet dumps longtime auditor KPMG Modern Healthcare's Daily Dose January 10, 2007

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Other fraud related investigations

Because of the multitude of investigations and multitude of terms used it is difficult to determine what investigation or problem each press report refers to and which were settled with payment. What happened is multi-factorial. The many unacceptable practices impact on one another and are part of a whole. They are all consequent on a driving and uncontrolled pressure for profitability. They are driven by a set of practices justified by rationalizations that have nothing to do with caring for the sick and suffering.

Most of the alleged practices referred to on other pages can be considered as defrauding someone. Illegal or unethical commercial arrangements with doctors that bind them to refer or use a Tenet hospital impact on others who do not get these referrals and are defrauded.

It is ultimately the patients and the community who are defrauded. This can be because of poor care, because they have not received the care which they paid for, or because they were admitted to Tenet's hospitals by doctors who might have taken them to better facilities. It may have been because they were overcharged and gouged when they went to a Tenet hospital, or because their insurance fees were pushed up to cover Tenet's fraudulent charges. The community paid excessive amounts and did not get the sort of service for which members had paid individually or collectively through taxes.

Specialists at non-Tenet hospitals are not referred patients even though they might supply superior care and would otherwise have been selected by primary care doctors. Insurers were overcharged in a variety of ways and so defrauded. Some sued. Hospitals to whom patients would have been referred were also defrauded. Tenets outlier scam meant that there was less money available for other hospitals treating sick patients so they were defrauded. Some sued. Tenet of course denies all this.

Gouging:- The manner in which Tenet sought to gain regional dominance and then used this dominant position to drive up its prices in its hospitals is described on the Pacman and the Price Gouging pages. The intention of this was to push up its outlier fees to Medicare and also similar charges to HMOs. It became the starting point from which Tenet negotiated reduced fees for HMOs. This did not prevent Tenet from aggressively pursuing the uninsured and the partially insured for payment of these excessive fees. The poor subsidized the discounts given to the rich who could afford insurance.

Care:- When the sort of care provided is not what patients, insurers or government agencies have paid for then they are defrauded. Available information about failures in care and about the nursing unions battles for better staffing, pay and conditions over the years are described on separate pages.

Doctors:- Doctors must sign off on all of the treatment from which a hospital's profits come. Controlling them and getting them to go along with what is done is the key to any fraud that involves the care given to patients. Relationships, often financial are the key to this. A series of nine web pages "Tenet Healthcare and its Doctors" looks at Tenet's relationship with its doctors. Many of the alleged problems and failures in the company are examined by focusing on the role of doctors, on their failure to act, and on the relationships Tenet established with them. These included allegations of unnecessary surgery, failures to provide safe services and collusive relationships of various sorts.

Federal Trade Commission:- Tenet successfully challenged the FTC when it blocked mergers and acquisitions. After the scandal broke the FTC commenced a number of investigations into anticompetitive and collusive practices and forced Tenet into settlements. Such practices would have defrauded competitors. These events are documented on the Pacman page.

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The Outlier and Stop-Loss Scandal

Outlier and other payments

Upcoding is a form of fraud where fees are increased by falsely inserting a patient's care into a better paying bracket than it is entitled to. The Outlier and similar strategies are a variant of upcoding. Patients are classified as sicker that they really so that they qualify for lucrative extra payments. There are many other ways in which upcoding can occur.

*Feb. 10 (2003)-- Five Tenet hospitals in Southern Florida settle Medicare coding issues between 1993-1997 with the Justice Department for $4.15 million .
CHRONOLOGY-Tenet Healthcare hit on many regulatory fronts Reuters, September 7, 2003

Tenet vastly inflated its prices in order to be able to claim large outlier payments from Medicare, similar large "stop-loss" payments from managed care companies, extra payments from Workers Compensation, and "DSH" payments from Medicaid. Its dramatic recovery from a low at the end of 1999 to a market darling in October 2002 was largely due to a massive increase in these outlier, stop loss and related payments. Outlier and stop loss rates were 23-26% in Tenet hospitals compared with 3-5% in other hospitals.

The outlier scam and the
Redding cardiac surgery scandal were exposed within days of each other sending Tenet's shares plummeting.

Weakley's group soon honed in on a single data point -- Medicare outlier ratios -- that would explain most of Tenet's recent pretax profit growth. Tenet relied on the generous outlier payments, offered for treating especially sick patients, far more heavily than the industry itself. While others collected about 5% of their Medicare income from outliers, Tenet generated 23.5% of its Medicare revenue -- and, at some hospitals, far more -- from those particularly lucrative cases.

Weakley said he actually shivered at the evidence in front of him.

"I didn't know what to do," he told last week. "This was real."

When questioned, Weakley said, Tenet first attributed the high outlier ratio to its patient case mix and -- when that backfired -- brushed him off completely. Weakley's reduce recommendation, issued a few days later, helped push Tenet into a downward spiral from which it has never recovered.
HMA Could Feel Tenet Backlash (Melissa Davis) Feb 13, 2004

"Outlier" payments, "stop-loss" payments and a similar system for workers compensation cases provide remuneration for complicated and costly procedures which are not adequately covered by the Diagnosis Related Groups formula used for reimbursement in the USA. These extra payments are designed to address this problem for a small number of selected cases.

Without these extra payments corporations would have "cherry picked" profitable cases by treating only healthy patients and by targeting short term complication free surgical procedures. Complex cases were turned away.

Old, frail and potentially complicated cases are turned away. This is alleged to have occurred in Australia when Mayne Health was accused of cherry picking in 2001.

In the USA the excess of extra payments which Tenet and other groups found that they could claim had the opposite effect. Tenet specifically targeted complex, complication prone procedures and then pushed up the charges. The market displays endless ingenuity in finding its way around regulations designed to keep it in line.

What is also very worrying is the concurrent allegations of cost cutting and understaffing made by nurses. More complex cases would have required many more nurses with greater skills - but then the more complications that developed the more they could charge for outlier payments.

Medicaid, the state and federal insurance for the poor and disabled pays Disproportionate Share Hospital (DHS) payments to compensate hospitals for the care they provide to patients who cannot pay.

Outlier, Stop-loss, Workman's Compensation, and DHS extra payments are all calculated using formulas based on the hospitals normal charges and the higher they are the more money is paid. Tenet responded by rapidly increasing its normal charges - charges which only the uninsured paid. They provided an opportunity to avoid the restrictions placed on profits by the DRG system and to capitalize on a perceived loophole in Medicare funding.

Although insurers negotiate markedly reduced fees, a high starting price gives an big advantage.

Even so, the fact that Tenet has been aggressively pushing up retail hospital charges -- which the company acknowledged last week -- does matter for patients, hospitals and the health-care industry. Wall Street analysts say they think Tenet deliberately raised its list prices to maximize special payments it receives from Medicare.

And now some of them are questioning whether Tenet's pricing policy allowed it to collect excessive amounts of certain payments from another government program: Medicaid, - - - -
So, if the hospital raised its retail charge for the coronary procedure to $120,000, and the Medicare reimbursement remained the same at $20,000, the hospital could calculate its outlier payments based on the higher $100,000 unpaid charge. Thus, the greater the increase in retail charges, the greater the outlier payments.
Although hospitals closely guard the retail rates for procedures and supplies, public records show how rapidly prices have been rising at some Tenet hospitals.
Tenet Under Closer Exam :: Pricing policy may have resulted in excessive Medicaid payments, some analysts say. LA Times November 11, 2002

From 1996 to 2001, Tenet's average daily inpatient charge in Orange County grew 101 percent, compared with 28 percent for non- Tenet hospitals.
As Tenet's prices have risen, so have its profits. Since 1999, the company's net income has more than tripled to $785 million.
Health-care experts say Tenet and other large hospital chains have pursued a strategy of buying smaller competitors, then using their increased market share to raise prices. Tenet concedes as much.
Tenet admits that its high charges have enabled it to qualify for an unusually large share of extra Medicare payments, so-called outlier payments, which were intended to protect hospitals from the financial burden of particularly expensive cases.

Tenet's hospitals O.C.'s most expensive // Since 1996, it has raised its charges for patient care at more than triple the rate of smaller competitors. The Orange County Register November 24, 2002

It (California Nurses Association study) found that Tenet owns 64 of the (100) highest-cost hospitals, including those ranked 1-14 on the list. (in the USA)
Tenet hospitals are priciest, study says South Florida Sun-Sentinel June 12, 2003

Tenet has pointed to its rapidly increasing gross charges as the main factor behind its much higher-than-normal Medicare outlier reimbursements, which helped trigger a new federal policy on outlier payments.
Tenet S.C. hospital sued over charges Modern Healthcare's Daily Dose June 20, 2003

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Tenet gamed the outlier system

Tenet's policy of securing market dominance allowed it to markedly increase prices and so secure higher payments in these areas. It targeted complex cardiac, orthopaedic, neurology and other high risk cases which qualified for these payments. It sought to increase the admission of these cases and provide more of these services. At the same time it reduced costs. In 2002 it was paid $763 million by Medicare in outlier payments. Total stop-loss, Workers Compensation and DHS payments have not been disclosed. Tenet was not alone in this but it was the prime offender.

Tenet's strategy, especially at the company's seven teaching hospitals, ensures Tenet hospitals will treat a high number of patients with medically complex conditions. Those cases are the kind that trigger Medicare outlier payments-the extra money Medicare pays on cases in which the cost of treatment far exceeds the DRG reimbursement.

That strategy, combined with what the company now acknowledges have been aggressive increases in its listed gross charges, has been a rocket booster for the proportion of Tenet's Medicare revenue generated from outlier payments. The company's proportion far exceeds those of large urban hospitals, its for-profit competitors and even top academic hospitals
In the fiscal year ended May 31, 2000, Tenet took in $351 million in outlier payments, 3.1% of its $11.4 billion in net revenue. By fiscal 2002, that figure had more than doubled, to $763 million, 5.5% of its $13.9 billion in net revenue. After reviewing every patient record for fiscal 2002 that resulted in an outlier payment, Tenet determined that $429 million of those outlier payments, or 56%, came from just 11 of its hospitals-seven in California, three in Pennsylvania and one in Texas.

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

While hospitals generally receive about 5 percent of their Medicare reimbursements from these special payments, Tenet received roughly 25 percent.
U.S. to Review Big Payments for Medicare
New York Times November 13, 2002

Tenet's outlier payments from Medicare rose from $351 million in 2000 to $564 million in 2001 and $763 million in 2002. Barbakow has said that aggressive pricing contributed to the surge.
Tenet raises prices more quickly than competitors :: Union asks state to look at charges
San Francisco Chronicle November 20, 2002

Jul 2003 Not only Tenet
In testimony before Congress in March, CMS Administrator Tom Scully said certain hospitals were "gaming" the system by rapidly raising their listed charges. To set the reimbursement for an outlier case, Medicare adjusts a hospital's gross charges based on that facility's cost-to-charge ratio, which is determined by its most recently settled Medicare cost report. Rapidly rising charges and time lags in settling cost reports allowed payments to some facilities to soar beyond actual costs, Scully said.
It's more than just Tenet Modern Healthcare July 18, 2003

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Getting past DRGs

By targeting payment systems outside DRG's Tenet was able to recreate the situation it had exploited so successfully in specialty hospitals in the 1990's scandal (2.2). During that period vast profits were generated by

The allegations indicated that this was happening again. The higher your fees were the more cases qualified for the extra payments.

"Tenet is driving up the cost of health care in California for everyone," said Don DeMoro, executive director of the Institute for Health and Socio- Economic Policy, a nonprofit research group in Oakland. "Many of the charges for various cases and DRGs (diagnostic-related groups) are double for what everyone else is charging. That's an enormous red flag."
Tenet has relied on "stop-loss provisions" to increase payments from insurers. Stop-loss provisions require insurers to reimburse Tenet more than the set per-diem for expensive cases. High list prices would trigger the stop- loss clause more often.

Stop loss "has become a back-door way (for hospitals) to rapidly increase compensation," said Chris Ohman, vice president at Blue Shield of California.

A hospital often can charge its list prices to insurers when people seek medical care outside their regular network -- if they fall ill while traveling,

But the bills
(In one such case described) were another story. They've received an avalanche of bills for tens of thousands of dollars, the difference between what their insurer paid and what Tenet charged.

-- 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 - - - -- and the high sticker prices at Redding Medical Center. While HMOs increasingly are leaving other rural counties for similar reasons, Shasta still appears to stand out, both in cost and in treatment rate.

"In Shasta, we were seeing admits (hospital admissions) that were around two times higher than what we'd see in our book of business for the rest of the state," said George Anderson, a vice president at Health Net in Woodland Hills (Los Angeles County). Health Net pulled out of Shasta County in 1999. "Some of the more elective procedures, particularly in the surgical area, such as hysterectomies and colon surgeries, were much higher -- three or four times more than the rest of the state."

An analysis of state data by the service employees union shows that Tenet's charges in Shasta outpace its rivals by big margins. For a coronary bypass with cardiac catheterization, Tenet's Redding Medical Center charged $228,793 in 2000 -- 184 percent more than the average $80,500 charged by the other four hospitals in Shasta County.
Uninsured people lack the resources to pay huge medical bills. But by charging them high prices, Tenet can run up a large figure for bad debt. That is then used to calculate how much state money Tenet collects for charity cases, said K.B. Forbes, spokesman for Consejo de Latinos Unidos. The Los Angeles advocacy group for Latinos has filed several lawsuits accusing Tenet of predatory pricing for uninsured patients.

"We think it is part of a corporate culture that looks at opportunity and tries to aggressively collect money and make profits," Forbes said.

Profiting from health care :: Hospital chain's steep prices blamed for raising costs for all
San Francisco Chronicle November 14, 2002

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Hypothetical's and rumours

It is interesting that in 1993 the West Australian Health Department (6.8) advised the health minister to set up a process to rid the state of Tenet/NME and revise regulatory processes to cope with similar threats. One of the hypothetical models to show how the system could be similarly exploited was heart disease screening. Had Tenet been allowed to stay in Australia this prophetic example might now be with us today.

One of the hearsay and unconfirmed stories about Tenet/NME's international division which I heard in 1990/1 but never repeated publicly as I had no proof involved increasing profits by excessive investigation including unwarranted invasive cardiac procedures.

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Dealing with market problems

Tenet's deliberate targeting of complex cases and its manipulation of compensatory payments is a disgrace. These were set in place to be fair to the companies and to discourage them from cherry picking. Their tactics illustrates the impossibility of providing ethical and responsible health care in a market driven system, particularly one where investors call the tune. What sort of people stab you in the back when you are trying to help them? What sort of pressures make them do it?

Also, shouldn't we now start questioning whether any for-profit healthcare company that pursues such an aggressive path toward maximizing profits is a good thing for patients, payers and the healthcare system as a whole? It's not the for-profit status that bothers me; it's the public ownership. Healthcare isn't just any other business, and the need to satisfy investors with earnings growth each quarter drives some executives to do things they might not do otherwise.
Tenet's turn :: Another for-profit under scrutiny raises questions about publicly traded chains Modern Healthcare November 18, 2002

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Likely practices

In a situation where strong market pressures for profit exist, where profits are restricted by DRGs, and where practices cannot be effectively monitored, we should expect that

These things all occurred

Tenet have shown no signs of reforming their culture or their market practices. It is therefore very probable that the allegations of fraudulently overcharging Medicare, poor care, and unnecessary procedures are valid and that the practices are systemic. It is unlikely that any of these companies would have made fundamental changes to their corporate cultures. If they did so then they would no longer be profitable and they would go under. Tenet struggled during the late 1990s while it operated under a restrictive 5 year corporate Integrity Agreement (CIA).

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Is it fraud?

Most of us would consider the deliberate overpricing and manipulation of weaknesses in Medicare to boost profits to this extent as blatant fraud. The response of the market suggests that they know this. Dr Pearce and his shareholder group clearly believe this. An analysis performed by them indicated that Tenet could have to pay up to $6 billion. This is improbable as the government does not levy fines which would force large health care companies out of business or which would seriously compromise care. The social costs of the collapse of a major hospital provider are prohibitive.

Tenet Healthcare Corp. (THC.N) could face up to $6 billion in legal liabilities to the federal government from the way it charged to treat Medicare patients with unusual costs, a shareholder group said on Monday.
The group, which is headed by Dr. M. Lee Pearce, conducted its own research with six attorneys about the Centers for Medicare and Medicaid rules and the potential exposure and legal penalties, including the possibility of treble damages under the law.
Tenet Group Sees Up to $6 Bln Liability New York Times (Reuters) April 7, 2003

While admitting that its practices were overly aggressive Tenet claimed that its practices were legal and some analysts seemed to agree. The company and its CEO claim that they did not know of the "outlier" problem until outsiders exposed it. Companies skate around the limits of the law and stretch it. They usually take legal advice before doing so. It is hardly surprising that regulators have difficulties.

Tenet's legal problems include a probe into whether its hospitals broke the law or merely gamed the Medicare system by extracting extraordinary charges for very sick patients, known as outliers.
Tenet Could Pay $1 Billion to Settle Claims LA Times June 11, 2004

After Tenet changed its rules on Medicare outlier reimbursements, its payments declined by about 80%, from $513 million in 2002 to $101 million in 2003, according to the lawsuit.
Even so, health law attorneys say the case (about outlier payments by state authorities in Florida) may face an uphill battle. Attorney John Reiss of Saul Ewing in Philadelphia says, "You can argue what these hospitals did was outrageous, but there was nothing illegal about it. There was nothing ... that said you can't raise prices."

Tenet accused of $1 billion Medicare fraud USA TODAY Mar 3, 2005

The Justice Department claims Tenet artificially inflated its hospital charges and, as a result, wound up improperly pocketing generous "outlier" payments that were intended to cover especially expensive Medicare cases. In reality, the government claims, the company was simply charging a lot for cases that should have generated regular Medicare payments instead.

"The United States emphatically disputes Tenet's assertions that it was entitled to claim outlier payments based on whatever it wanted to charge and without any consideration of its actual costs," the court filing states. "To the contrary, the Medicare laws make clear that hospitals are eligible for outlier payments only for extraordinarily costly cases, and that any receipt by Tenet of outlier payments for cases that failed to meet this criteria was unlawful and improper."
Feds Turbocharge Tenet Talk The (Melissa Davis) May 23, 2005

The problem in dealing with this company is that it has a history of denial, dishonesty and deception going back probably 20 years and its recent statements are not credible. It is not possible to believe anything it says and most of its claims if not frankly dishonest contain an element of deception. Most worrying is that much of this is self deception.

The Company's annual report on form 10-K stated, in each of the last three years, that outlier payments in the following year will be lower than the base year. In view of the increased outlier payments these statements were obviously untrue. It is also obviously material, given the decline in the stock price when the correct information was made public. Tenet also failed to disclose the importance of the outlier payments to Tenet's financial results. Letter to Tenet's board by Dr Pearce December 2002

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The outlier problem unfolds

On 29th October 2002 an analyst identified the outlier problem and advised negatively on Tenet's share value. The problem had also been identified by an insurer acting for the government. The company received notification of a nationwide audit of its billing practices soon after. Tenet delayed a week before notifying shareholders. Its share price plummeted.

Federal Medicare authorities started an audit of Tenet's outlier payments. In January 2003 Tenet received the first of a series of subpoenas from the Department of Justice and other government agencies seeking documents related to Medicare outlier payments. The Justice Department lodges a lawsuit alleging upcoding (but not outlier fraud) soon after. The government took steps to block the loophole provided by outlier payments. This had a large impact on profits. Also in January the California Assembly's Committee on Health started a hearing to inquire into Tenet's billing practices.

In February the California Public Employees Retirement System released a report documenting that Tenet charge to its beneficiaries were 46% higher than the average and its stop-loss payments 23-26% compared with 3%.

The US Securities and Exchange Commission (SEC) had started an informal investigation of insider trading soon after the scandal broke. In July 2003 it started a full investigation into Tenet's business practices including its outlier and stop-loss payments. It subpoenaed documents.

The Senate Finance Committee, chaired by Senator Grassley also requested documents and commenced an investigation.

The extracts below relate to several separate government institutions interested in the outlier payments. They each have a slightly different interest and a different emphasis. These include the Department of Health and Human Services, the Department of Justice, The Securities and Exchange Commission, The US legislature in Washington, and various state bodies.

Nov 2002 Health and Human Services
The Department of Health and Human Services contacted Tenet about performing an audit to make sure the payments were appropriate, Tenet said, and the agency will examine how the payments were calculated. The federal inquiry coincides with increasing analyst concern about the issue, and Tenet has insisted that it is entitled to these special payments.

Tenet Faces Agency Audit Of Payments For Medicare Excerpted by SEIU from the New York Times, November 7, 2002:

Nov 2002 Health and Human Services
Officials at the Department of Health and Human Services said the audit, which was first made known to Tenet on Oct. 28, was prompted by concerns raised by a contractor that processes Medicare claims for the government.

Department officials declined to provide details, but said the audit would examine "outlier payments" made to Tenet's hospitals nationally.
Analysts said both the audit and the fact that Tenet waited more than a week to disclose it presented problems.

U.S. to Audit Tenet Hospital Bills LA Times November 7, 2002

Nov 2002 SEC
Tenet said it met with Securities and Exchange Commission officials about its billing practices. A letter to shareholders says the operator of 114 hospitals will review pricing strategy.

CHRONOLOGY-Tenet Healthcare hit on many regulatory fronts Reuters, September 7, 2003

Dec. 2002 Dept. Justice
-- Tenet said it remains "far apart" in discussions with the Department of Justice on settling certain Medicare coding issues over reimbursements paid between September 1992 and December 1998. Federal investigators seize records from two administrative offices at the Alvarado Medical Center .
CHRONOLOGY-Tenet Healthcare hit on many regulatory fronts Reuters, September 7, 2003

Jan 2003 Department of Justice
Tenet Healthcare Corporation (NYSE: THC) said that it received today an administrative investigative demand subpoena from the Department of Justice seeking documents related to Medicare outlier payments. 

The demand requests documents from Tenet and 19 hospitals owned by its subsidiaries.  Fifteen of the 19 hospitals are located in California; the remaining facilities are in Texas, Pennsylvania and Louisiana.  The demand focuses on the time period from January 1, 1997 through the present. 
Tenet Receives DOJ Demand for Information Regarding Medicare Outlier Payments Tenet Healthcare web site January 02, 2003

Jan 2003 Department of Justice
Tenet Healthcare Corp., the second-biggest U.S. hospital chain, was accused in a lawsuit by the Justice Department of filing false Medicare billing claims. The department has been investigating allegations Tenet improperly classified illnesses to inflate reimbursement from Medicare. Settlement talks with the government broke down Wednesday, Tenet said. The government filed its lawsuit in federal court in Los Angeles.
Daily Briefing : Tenet faces Medicare case The Atlanta Journal-Constitution January 10, 2003

Jul 2003 The SEC
The Securities and Exchange Commission has subpoenaed Tenet Healthcare Corp., Santa Barbara, Calif., for patient-billing records dating back to 1997, Tenet said. The subpoena indicates the SEC has elevated its 8-month-old probe of Tenet into a formal investigation. The SEC began an informal inquiry in November, shortly after Tenet's relatively high Medicare outlier payments were revealed. The subpoena demands billing documents dating back to May 31, 1997, and covers documents related to stop-loss payments as well as to outlier payments. Like federal outlier payments, stop-loss payments made by private health plans are meant to compensate providers for extraordinarily costly cases. The SEC also asked for documents related to increases in Tenet's gross charges,
SEC subpoenas Tenet in outlier payments probe Modern Healthcare July 9, 2003

Sep 2003 Whistle blower
In a letter fielded by the FBI early this month -- and now in other agency hands as well -- a whistleblower accused Twelve Oaks of abuses that, some say, are fundamental to Tenet's business model.

Whistleblowers Piping Up at Tenet The (Melissa Davis) September 30, 2003

Oct 2003 Dept Justice
The nation's second-largest hospital chain, which previously disclosed that authorities were examining its Medicare billing practices, reported Friday that the subpoena calls for documents from two hospitals owned by Tenet subsidiaries, Tarzana Regional Medical Center and USC University Hospital.
Federal probers looking into Tenet Staff and Wire Services October 17, 2003

Apr 2004 Coding and relationships with a home care company
Tenet said the U.S. Attorney's office in Los Angeles has asked it to voluntarily turn over documents related, among other things, to the center's coding and billing practices from 1993 to the present, specifically related to 353 patient records.
The second, separate, inquiry relates to the relationship between Tenet's Centinela Hospital Medical Center in Inglewood, California, and Allied Homecare Consultants Inc., an independent home health placement service.
Tenet Subject of 2 New Federal Inquiries The New York Times April 14, 2004

Jun 2004 Alleges false diagnoses (this occurred in the 1990s scandal too)
In addition, the U.S. attorney's office in Los Angeles alleges that Tenet hospitals submitted Medicare bills with false diagnoses to boost reimbursements.
Tenet Could Pay $1 Billion to Settle Claims LA Times June 11, 2004

Aug 2004 New Orleans subpoena
Tenet said in a filing with the U.S. Securities and Exchange Commission that the federal prosecutor in New Orleans issued a subpoena on July 30 requesting documents regarding physician relationships and financial arrangements at three hospitals.
Tenet Healthcare loss widens, gets new subpoena Reuters Aug 3, 2004

May 2005 Turbocharging - heading for Criminal and Civil charges
But the Justice Department said last week that it believes Tenet engaged in a practice called "turbo-charging" -- meaning that it sought lucrative so-called outlier payments from Medicare when smaller payments were justified. The government also indicated it is probing whether Tenet's actions could entitle the U.S. to seek additional damages. Justice, which laid out its case when responding to a Tenet motion to dismiss a Florida state racketeering lawsuit, hasn't sued Tenet over the outlier payments.
"The brief provides the first look the outside world has had at the DOJ investigation into Tenet's outlier abuse," says Peter Young, a business consultant at HealthCare Strategic Issues. "It appears the DOJ investigation is seemingly headed toward both civil and criminal action."
The federal government is investigating whether Tenet violated the False Claims Act when collecting the payments. If that proves to be the case, Tenet could pay double damages to settle the probe or triple damages if the company goes all the way to trial and loses in court.
Feds Turbocharge Tenet Talk The (Melissa Davis) May 23, 2005

Nov 2005 SEC probe
Tenet Healthcare Corp. (THC) recently received a subpoena from the Securities and Exchange Commission related to the agency's ongoing investigation of alleged irregularities in some managed-care contracts, the company said Tuesday.
Tenet Healthcare Gets SEC Subpoena Tied To Ongoing Probe Dow Jones Nov 1, 2005

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The Senate Finance Committee

Senator Grassley has been very active in investigating problems in health and aged care in the USA. His committee set about a broad investigation into Tenet's practices. He was scathing about these and the company's track record. This was a company which had offended spectacularly in the early 1990s and had been operating under integrity agreements and other restraints.

No. 2 hospital operator Tenet Healthcare Corp. TCH.N , already beset by multiple government probes and earnings weakness, on Friday said the U.S. Senate Finance Committee is investigating its corporate governance practices.

Tenet, based in Santa Barbara, California, said the committee has asked for documents relating to its Redding Medical Center in Northern California, physician relationships, alleged unnecessary medical procedures and certain Medicare payments.
US Senate committee investigating Tenet Healthcare Reuters September 5, 2003

43. Provide a summary of the current status of any qui tam lawsuit filed against Tenet and the following documents: all qui tam complaints (including consolidated complaints); DOJ notices of intervention (and partial intervention) and complaints; Tenet's answer to all complaints; and Tenet's motions or responses arising out of the qui tam lawsuits, including all post settlement motions.

44. A copy of Tenet's document retention and document destruction policies that were in effect at any time from 1990 to the present.

45. From 1990 to the present, all documents relating to Tenet's compliance, integrity and ethics policies.
Letter from Senator Grassley, chairman of the Senate Committee on Finance to Trevor Fetter, CEO Tenet Healthcare requesting documents September 5, 2003

The latest probe doesn't appear to cover new ground, but it underscores the gravity of the allegations against Tenet and the difficulties of resolving persistent questions about the company's corporate culture. The four-page letter sent to Trevor Fetter, Tenet's acting CEO and president, is a harsh recitation of Tenet's corporate history dating back to nearly a decade ago when, as National Medical Enterprises, it paid a then-record $379 million fraud settlement.

"In the annals of corporate fraud, Tenet more than holds its own among the worst corporate wrongdoers," the letter charges. "If anything, Tenet's history of defrauding government health-care programs reached new heights under [Jeffrey] Barbakow," the CEO who resigned in May, the letter continues. Mr. Barbakow was brought in during a management reshuffling about a decade ago. Until his resignation, the letter says, eight of the 12 senior management positions at Tenet were holdovers from, National Medical Enterprises. Four of the eight, including Tenet's general counsel, remain at the company.
Senate panel is investigating Tenet Wall Street Journal September 8, 2003

According to DOJ, many of the allegations took place during the 5-year period Tenet was under a CIA (Corporate Integrity Agreement) 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 from Senator Grassley to Trevor Fetter Sept. 8, 2003

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State investigations

Towards the end of 2002 Californian state authorities commenced an investigation into Tenet's charging practices, among other issues. A year later after finding serious billing problems at Redding hospital they started a wider investigation. After another year it was extended further. We assume that the findings all ended with federal prosecutors.

The California Assembly Health Committee will open hearings in January to investigate whether Tenet and other hospital chains charged health maintenance organizations and the state too much for services and drugs, said Assemblyman Dario Frommer (D-Los Feliz), the committee chairman.

Tenet executives will be asked to testify and turn over records and pricing schedules. Frommer vowed to subpoena hospital officials if necessary.
State Investigates Billing Practices of Tenet, Others LA TIMES December 5, 2002

The hearings, expected to start in January, would largely focus on allegations that Tenet Healthcare overbilled patients, HMOs and the state, as well as charges that a pair of Redding doctors performed unnecessary operations.

The committee is expected to hear from doctors who say they were told to keep patients hospitalized longer than necessary. The committee also will explore whether the for-profit hospital chains tweaked rules to pad patients' bills.
Legislators to eye billings by hospitals The Sacramento Bee December 5, 2002

Tenet Healthcare Corp., Santa Barbara, Calif., is under fire again for high charges. A new report prepared for the California Public Employees Retirement System said Tenet hospitals charged CalPERS beneficiaries 32% more per discharge than other large hospital systems in California and 46% more than the statewide average. The study covered the first 10 months of 2002. The report was prepared by Blue Cross of California, CalPERS' third-party administrator, in preparation for a hearing tomorrow on hospital pricing by a committee of the state Assembly. The report also noted that Tenet's 188-bed Redding (Calif.) Medical Center and 392-bed Doctors Medical Center in Modesto, Calif., had high stop-loss rates -- 23% and 26%, respectively, compared with the 3% average among Blue Cross network hospitals.
New report slams Tenet on eve of Calif. hearing
Modern Healthcare February 3, 2003

"Our system tolerates a wide variation in pricing that's not related to a variance in quality of care or patient satisfaction," Allen Feezor, assistant executive director of CalPERS, told the Assembly Health Committee.
Tenet Criticized at Assembly Hearing
LA Times (Associated Press) February 7, 2003

Diana Ducay, deputy director of audits and investigations at the California Department of Health Services, said the decision to widen the probe was spurred by "the number and severity of discrepancies found at Redding Medical Center" and concerns that they may reflect a pattern.

"We will refer our audit findings to the state Department of Justice, the FBI and federal Centers for Medicare and Medicaid Services," she said.
The state Department of Health Services said it launched its extensive financial review of Redding Medical Center after a routine audit uncovered billing discrepancies.
In a statement, California health officials said their review of the Redding hospital's books revealed "numerous inaccuracies and questionable costs for which Medi-Cal and CMSP [the rural program] should not have paid, including: inflated billing charges; manipulated Medi-Cal billing codes; inappropriate recording of costs and charges; cost report errors consistently favorable to the hospital; undocumented depreciation expenses; unsubstantiated interest expense charges; inflated workers' compensation costs."
State Audit Finds Overpayment at Tenet Hospital : Investigators say they will expand a review of Medi-Cal billing to all 40 of the company's California facilities. LA Times Nov 4, 2003

The California Department of Health Services has announced plans to audit billing practices at all 40 Tenet-owned hospitals in the state based on information that Redding overbilled state programs by almost $12 million.
Hospitals & Health Systems; TENET Agrees to $395M Settlement of Unnecessary Surgery Lawsuit American Health Line December 22, 2004

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Insurers take up the issues

 The insurers used the exposure of Tenet's practices as a means of driving far tighter payments and this cut into Tenet's profits. In addition to this they came looking for restitution for past overcharging.

Dec 2002 HMOs also probe Tenet contracts
Now that the SEC and other agencies are probing the hospital operator for overcharging Medicare, U.S. health insurers are likely auditing their deals with Tenet Healthcare, analysts said. Those probing their deals may include Health Net and PacifiCare Health Systems.
BUSINESS BRIEFS; NATIONAL EDITION Investor's Business Daily December 2, 2002

Jun 2003 HMOs getting tough
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's Daily Dose June 23, 2003

Jul 2003 Weak managed care pricing
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.
TEXT-S&P cuts Tenet Healthcare ratings to junk status Reuters July 10, 2003

May 2004 Managed care arbitration payment
The quarter's net loss was larger than the preliminary estimate reported by Tenet last week. The final figure includes $8 million Tenet must pay an unidentified managed-care company as part of an arbitration decision, said Tenet, which three U.S. agencies are investigating.
Tenet to reduce costs as losses escalate : The second-largest U.S. hospital chain will focus on its most profitable facilities by shedding 27. BLOOMBERG NEWS May. 05, 2004

The Tenet Healthcare Corporation, the hospital chain, agreed on a settlement with an insurer, Health Net, that includes a $28.5 million payment from Health Net to resolve a dispute over outstanding claims.
Tenet Health Gets Settlement From Insurer The New York Times February 15, 2005

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 Other hospitals were defrauded by Tenet's practices

 Outlier payments came from a capped pool so that the more one hospital obtained the less others got. By gaming Medicare Tenet took money from others. They felt they had been defrauded and sued.

The Florida attorney general and 13 public hospitals and health systems in the state sued Tenet Healthcare Corp., Dallas, alleging that the company caused the hospitals "direct, foreseeable and substantial economic harm" by manipulating the Medicare outlier system. Tenet received more than $1 billion in wrongful reimbursement because of its actions, according to the complaint filed in U.S. District Court in Miami. The complaint seeks unspecified damages and demands that Tenet disgorge all revenue generated from "unfair competition or unconscionable, unfair or deceptive acts."
Florida, hospitals sue Tenet over outlier payments Modern Healthcare Alert March 2, 2005

By raising its prices nationally to an average 477% over actual costs, the lawsuit alleges that Tenet received a larger share of those Medicare funds and drove up the minimum threshold other hospitals had to meet to qualify for payments. The case alleges that Florida hospitals lost millions as a result.

"Our main concern is that they are, frankly, stealing from hospitals that were doing it the right way and not fudging their numbers or inflating their bills," says Florida Attorney General Charlie Crist, a Republican.
Tenet accused of $1 billion Medicare fraud USA TODAY Mar 3, 2005

A class-action lawsuit against Tenet Healthcare Corp., Dallas, by Boca Raton (Fla.) Community Hospital may be consolidated with a nearly identical case brought on behalf of public hospitals by Florida's attorney general, said Paul Risner, vice president and general counsel at Boca Raton Community. The 394-bed, not-for-profit hospital filed the suit last week in U.S. District Court in Miami.
Risner estimated that as many as 4,000 hospitals could join the class action. Both suits seek unspecified damages, ask that Tenet be forced to disgorge wrongly gained revenue and accuse the company of racketeering, which could result in triple damages.
Fla. hospital echoes state in class action against Tenet Modern Healthcare Mar 10, 2005

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  Shareholders were defrauded

Tenet's share price dropped by about 80% in October 2002 when the scandal broke. Shareholders felt that they had been defrauded.

A range of class actions on behalf of shareholders, included Tenet employees who participated in employee stock purchase plans. In November and December 2002 over 16 such lawsuits were filed. More followed. The allegations include

a. the 24 hour delay in not notifying the market of federal raids on its Redding hospitals and the 1 week delay in informing the market about the audit of its outlier payments. Those who traded shares during these periods feel that they were defrauded.

b. that Tenet was aware that its business practices were defrauding Medicare and that it had failed to respond to concerns about cardiac surgery at Redding hospital. Instead it had made false positive and upbeat statements about Tenet's prospects. Investors had been deceived and want recompense.

They court actions were consolidated and a number of class actions were settled.

Wolf Popper LLP has filed a securities fraud class action complaint against Tenet Healthcare Corporation (NYSE:THC) and its CEO, Jeffrey C. Barbakow
Plaintiff has alleged that defendants knew on October 30, 2002, that forty agents from the FBI, Office of Inspector General and Internal Revenue Service had executed search warrants on Tenet's Redding Medical Center, but failed to disclose this information to investors. Defendants had a duty to promptly disclose this material information

Defendants actually knew that the quality of Tenet's profits were inflated by, among other things, wrongfully inducing patients into undergoing unnecessary and invasive surgeries. Defendants knowingly or in conscious disregard for the truth engaged in a scheme to cause patients to undergo unnecessary invasive coronary procedures. The scheme included unnecessary heart catheterizaton, including angiogram and intravascular ultrasound, stent placement, angioplasty, coronary artery bypass surgery and heart valve replacement surgery. Milberg Weiss Announces Class Action Lawsuit Against Tenet Healthcare Corporation December 2002 (

The alleged violations, according to the complaint, stem from materially false and misleading statements made by the defendants during the Class Period that, as detailed below: (i) materially misrepresented Tenet Healthcare's operational practices and financial results (ii) causing Tenet Healthcare stock to trade at artificially-inflated prices. Tenet healthcare December 2002

Tenet Healthcare Corp. is being sued by employees holding company shares, saying they were misled by false financial statements. The Santa Barbara-based hospital company and its officers knew or should have known the firm was artificially inflating revenue, claims the suit on behalf of employees participating in a stock purchase plan. Employee Shareholders File Suit Against Tenet LA Times (Bloomberg News) February 21, 2003
November 2002 through January 2003Tenet is named in 20 securities class action lawsuits. Tenet claims the lawsuits are without merit. Additionally, the company is facing derivative lawsuits filed against the board of directors and senior management on behalf of shareholders.
CHRONOLOGY-Tenet Healthcare hit on many regulatory fronts Reuters, September 7, 2003

Tenet Healthcare, the hospital chain, said yesterday that it had agreed to settle shareholder suits accusing it of fraud by paying $215 million, including $1.5 million from two former executives.

The net cost to the company, after insurance pays a portion, will be about $140 million, Tenet said. The costs will be recorded in the fourth quarter ended Dec. 31.
Yesterday's settlement covers a consolidated series of lawsuits filed against the company starting in late 2002 on behalf of people who bought Tenet securities from Jan. 11, 2000 to Nov. 7, 2002. The suits alleged that Tenet and some of its former officers and directors had made or had been responsible for false and misleading statements about Medicare payments and other issues.

Jeffrey C. Barbakow, a former chairman and chief executive who stepped down in May 2003, will contribute $1 million to the settlement, the statement said. Thomas B. Mackey, former chief operating officer, will contribute $500,000.
Tenet Healthcare Agrees to Settle Fraud Lawsuits The New York Times (BLOOMBERG NEWS) January 13, 2006

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Tenet was not alone

When a major way of defrauding the system is found competitors soon get the message and it becomes prevalent, first in some localities, and ultimately industry wide. They have to follow to keep up.

It is interesting that not for profit groups also jump on the bandwagon. I sometimes wonder whether the ability to unquestioningly adopt supernatural belief systems and meanings, makes some of us more vulnerable to rationalizing in other sectors. Richard Scrushy founder of HealthSouth was a devout Christian. Some of the most dysfunctional and dangerous individuals I have known have proudly worn their religion on their sleeves and lacked insight. Others of course are dear, kind and insightful.

Nov 2002 Not only Tenet
Tenet is not alone in its billing practices. Consultants advise many hospitals to push the envelope on the Medicare rules, though experts say Tenet plays the game better than most.
Health-care experts say Tenet and other large hospital chains have pursued a strategy of buying smaller competitors, then using their increased market share to raise prices. Tenet concedes as much.
Tenet's hospitals O.C.'s most expensive // Since 1996, it has raised its charges for patient care at more than triple the rate of smaller competitors. The Orange County Register November 24, 2002

Jul 2003 Not for profits also pushing outlier payments
A Modern Healthcare analysis of 2001 Medicare payment data provided by HSS, a healthcare reimbursement consultancy in Germantown, Md., shows less than one-third of hospitals that received 21% or more of inpatient Medicare revenue from outliers were owned by Tenet. In fact, the vast majority of hospitals with the largest outlier percentages were locally operated not-for-profits, and more than a quarter were in New Jersey.
Tenet, with more than 100 hospitals, had 30 facilities that received in excess of 21% of revenue from outliers.
While New Jersey hospitals received the bulk of outlier payments, providers in other states also reaped disproportionate shares. For example, Methodist Hospital in Houston netted $41.4 million, or 23.8% of its Medicare inpatient revenue, while two-hospital Crozer-Keystone Health System in Springfield, Pa., received $38.5 million, or 32.1% of its Medicare inpatient revenue.
It's more than just Tenet Modern Healthcare July 18, 2003


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Government changes the system

 As has been said many times, the system was set up to be raped, and it was. This occurs when there are conflicting meaning systems and requirements within a particular social system. Laws seek to accommodate both patterns of thinking and succeed in neither so are not water tight. A determined market will ultimately find, or else make, holes in the regulatory bucket in order to succeed on their terms. Government keeps patching the bucket to close the holes. Authorities promised greater scrutiny and also changed the regulations but I do not have details.

Large Medicare payments under scrutiny
HEALTH CARE. The Centers for Medicare and Medicaid Services said hospitals that get large Medicare payments for their most expensive cases will undergo greater scrutiny and that the reimbursement policy will be revised.

Tenet Healthcare Corp.'s disclosure of high reimbursements for so-called outlier patient cases prompted the agency to review the policy, Medicare administrator Thomas Scully said.
FIAT WORKERS ON THE MARCH Charlotte Observer (North Carolina) December 4, 2002

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Remediation claims by Tenet

As in the early stages of the psychiatry scandal exposed in 1991 Tenet is once again making much of its claim to have changed and to be a different company. We should not doubt its intentions but the problem with Tenet has not been its intentions but its insights. It has never been able to understand the difference between, and the incompatibility of the requirements of the market and the requirements of health care. It has served the market over health and there is no indication that it will change this. If it did change it would be out of business - which is what those citizens aware of its practices think should happen to it.

Aug. 4 named Cheryl Wagonhurst as the new compliance officer, the Los Angeles Times reports. Wagonhurst will manage a 40-member compliance department that will include legal, clinical and financial staff, Tenet officials said.

In addition, the company hired D. McCarty "Mac" Thornton, former chief counsel to the HHS Office of the Inspector General, as special adviser to the compliance department. Tenet announced the new compliance measures as part of an effort to "restore its reputation," the Times reports.
Tenet Names New Compliance Officer, Special Adviser Kaiser Daily Health Policy Report July 22 2003

Tenet Healthcare Corp. didn't admit any wrongdoing when it reached a civil settlement with the government earlier this year over alleged Medicare fraud. But the company voluntarily made a significant number of personnel changes, an apparent acknowledgment that not everything was right at the Dallas-based hospital chain. In addition to bringing on several new executives and directors, about 80 of the 97 vice presidents who were at Tenet prior to January 2003 are now gone. The shake-up was one of several major reforms that the company has implemented over the last few years.

The sweeping personnel overhaul at Tenet was "uncommon," says Peter Henning, a former lawyer in the criminal division of the U.S. Department of Justice. Now a law professor at Wayne State University, Henning adds, "When you get down a couple of levels into management, that‚s a substantial change˜ and one that rarely happens.
Urbanowicz, 42, was charged with negotiating the settlement with the government. He says that his experience at Health and Human Services was one of the reasons he was hired at Tenet: "I think the board wanted someone who knew the rules [at HHS], and knew them very clearly."

After he arrived at Tenet, Urbanowicz made sweeping changes to the legal department. He streamlined the staff, reducing the number of lawyers from about 60 to around 40 today. He also severed relationships with several outside counsel in a quest for a "fresh viewpoint," and hired a defense team headed by Latham & Watkins.
But the organizational changes weren't the only steps Tenet took. Urbanowicz also moved the corporation‚s compliance program outside the legal department to encourage transparency. He helped develop a new position ˜ independent compliance officer ˜ who reports directly to the board. At Urbanowicz‚s urging, Tenet‚s compliance department has grown from just three staffers to more than 100 full-time employees (there‚s one in almost every one of the company‚s hospitals).
Tenet Looks for Way to Cure Itself‚ Corporate Counsel October 19, 2006

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 Critics reject Tenet's claims and government's plans

Dr Lee Pearce and his Shareholder Committee have been among Tenets strongest critics. Much of what they say is valid and I share their views on Tenet and on the failures in the system. We differ in that they still have faith in a reformed company operating in the marketplace. Dr Pearce is still primarily a businessman. I see the contradictions between health and market as un-resolvable. We need to develop another more appropriate set of practices for this sector. Patterns of thinking in the USA are so deeply embedded in markets that they are unable to think outside this paradigm. They are conceived as a critical component of democracy and the USA's legitimacy in the world.

Pearce strongly expressed his opposition to a likely "cookie cutter" token "chequebook justice" settlement with Tenet - one which would allow it to continue business as usual. This of course is exactly what he got. Anything else would have challenged the legitimacy of the market in sickness and aging.

M. Lee Pearce, M.D., chairman of the Tenet Shareholder Committee, today called on the U.S. Department of Justice to reject any settlement with Tenet Healthcare that fails to guarantee fundamental changes in the company's corporate culture, fails to ensure delivery of quality healthcare, fails to protect patient safety, and fails to end the financial rip-offs.
"These 'checkbook justice' settlements have not worked. Writing large checks, drawn on shareholder assets, haven't yet put the fear of God in the executives and Board members who have been running this company. Will it ever?" Pearce asked.

"There was a settlement in 1994, under which the company pled guilty to seven federal felonies, paid a record fine, and signed a corporate integrity agreement, which the government now charges the company violated. More scandals followed, leading to additional settlements in June 2002, in July 2002, in February 2003, in August 2003 and in March 2004. These settlements just minimally increased the cost of doing business that Tenet passed on to patients and taxpayers. But Tenet's top executives and Board members continued to prosper greatly, while the company's patients and shareholders suffered and taxpayers were cheated," Pearce added.

According to the Los Angeles Times (3/17/04) and other media sources, Tenet is seeking a global settlement with the government to resolve multiple allegations of Medicare fraud and patient abuse, stemming from a new avalanche of scandals first disclosed beginning in October of 2002. Shareholder value has declined by nearly 80% since that time.

"Another cookie cutter global settlement will not stop the endless cycle of scandal, settlement, and more scandal at Tenet," Pearce said. "The government should hold top executives and Board members responsible for what this healthcare company did. The government should not continue to risk the health of patients by papering over the conduct of a chronic repeat offender."
"Checkbook Justice'' Will Not Stop Endless Cycle of Scandal at Tenet Healthcare, Shareholder Committee Says BUSINESS WIRE May 12, 2004

After playing out behind the scenes for weeks, the feud spilled into public view when the Tenet Shareholder Committee, chaired by Dr. M. Lee Pearce, ran an ad in the Wall Street Journal. The ad called on the Department of Justice to stop an "endless cycle of scandal" at the hospital chain, which is under myriad federal investigations.
Tenet has resolved at least six fraud and patient care cases brought by the government, without acknowledging any wrongdoing, and agreed to pay more than $140 million in fines.
He said the committee placed the ad in the Wall Street Journal because it was tired of what he called "checkbook justice"‚ probes that end with Tenet paying a settlement but admitting no wrongdoing.
Bad Blood Boils Over in Tenet Dispute LA Times May 14, 2004

Settlement provisions recommended by the committee include a request that Tenet executives and board members be held responsible for unjust enrichment at the expense of patients, shareholders and taxpayers; complicit individuals be terminated and banned from future participation in government health care programs; hospital CEOs should receive pay incentives based on measured and verified delivery of quality health care, not individual hospital profitability; provide for public disclosure of records turned over to the government as part of these multiple investigations; immediate and unfettered public access to the compliance reports and a full recovery of any funds misappropriated or "gamed" from government health care programs.

"Without these, or similar provisions, another settlement will be nothing more than an expensive Band-Aid, paid for by shareholders, and will encourage even more fraud and abuse," Pearce said.
Tenet shareholders push DOJ to add settlement provisions South Florida Business Journal May 26, 2004

"There is justified concern that yet another settlement, the eighth, will result in just more of the same.‚" Pearce continued, "These settlements should be more than some kind of an endless pro-wrestling match between the government and Tenet's hired guns. A ten year run of scandals, settlements, and more scandals at this company needs to stop."
Tenet Shareholder Committee Recommends Strict Settlement Provisions May 28, 2004

"The evidence suggests that the corporate culture is so pervasive that they may well be incapable until there is a total housecleaning of those in management that are a part that corporate culture," Cripe (author of a book about Tenet "Greed, Scandal and Wrongful Deaths at Tenet Healthcare Corporation,") said.
New Orleans hospital operator has checkered past CNN March 9, 2006

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 The global settlement

 When the settlement finally came 2 years later it was much as Tenet had feared. This long delay was undoubtedly due to the hung juries in the unresolved ongoing Alvarado kickbacks case in San Diego. This was a very complex commercial relationship with doctors. It stretched the kickback laws by exploiting the loopholes left by the need to accommodate a market process in health care law. The issues were complex and the law contradictory.

It was a test case of the legality of Tenet's relationship with doctors. Had the jury found the hospital and its staff guilty the government could have extracted a much larger settlement and probably a criminal plea. Had they found it not guilty Tenet would have paid even less. The court case dragged on and after 2 hung juries, and another mistrial in April 2006, government gave up and a compromise settlement was reached in May 2006. Tenet paid $21 million but government planned to ban it from Medicare. It agreed to sell the hospital instead.

In just the past four years, Tenet has spent hundreds of millions of dollars to settle lawsuits while denying any wrongdoing. That amount includes $7 million just last month to the state of Florida to settle a billing dispute.

Many of the lawsuits alleged the company overbilled Medicare, cheating taxpayers. But there have also been allegations that some Tenet hospitals practiced bad medicine, harming patients in the process.

The company has denied all those allegations. And according to the letter it sent to CNN, Tenet says it brought in new management in 2003 and developed a new strategy to resolve all of its legal problems from the past, to resolve all pending federal investigations, and to put transparency, honesty and integrity at the forefront of everything it does.
New Orleans hospital operator has checkered past CNN March 9, 2006

Tenet Healthcare Corp. is in talks that could result in it paying more than $1 billion to settle hundreds of claims of unnecessary heart surgeries and to end most of the federal investigations into the hospital chain's business practices, sources familiar with the talks said Thursday.

The discussions are preliminary. If negotiations fail, the Santa Barbara-based company faces the prospect of civil and criminal trials around the country.
"Tenet's new management team is attempting to resolve all issues related to its past pricing strategy and other matters," Anderson said. "We believe we have made significant progress in our conversations with the government and others. And we hope to reach appropriate settlements. Speculation about the shape and size of any settlements, however, is very premature."
Tenet Could Pay $1 Billion to Settle Claims LA Times June 11, 2004

The latest development also suggests that a global settlement -- sought by Tenet for two years -- could remain elusive for some time. A criminal trial against the company, currently under way in San Diego, could be stalling settlement talks as well. A first trial ended in mistrial.

Meanwhile, the government continues to build its case.

For starters, it says, the outlier statute "unambiguously limits" payments for cases that truly cost an excessive amount to treat. Moreover, it says, that limitation already has been supported by legislative history as well as case law. Finally, it says, Tenet itself has previously acknowledged that such a limitation exists.

The government then attempts to discredit Tenet's own arguments. It claims that the company failed to interpret the outlier regulations in context. It says that Tenet's own reading of the regulations is "unreasonable because it conflicts with the express terms of the outlier statute." Even if Tenet's reading could be supported, the government concludes, it should be rejected because it would lead to "absurd results."

"If a hospital were to have increased charges high enough, the hospital could have radically disrupted -- or even bankrupted -- the Medicare Trust Fund," the government states. "Such an interpretation of the outlier regulations cannot be squared with any rational intention of Congress or the Department of Health and Human Services."
Feds Turbocharge Tenet Talk The (Melissa Davis) May 23, 2005

For its part, Tenet has denied any wrongdoing while promising to cooperate with the government. But after more than two years of discussions -- and even hiring one of the government's top health care lawyers as its own general counsel -- Tenet has yet to resolve its past issues and move on.
But "several incremental data points over the past months have increased our conviction that Tenet is not likely to reach a universal settlement with the government on outliers and other issues in the near term."
"Our recent meeting with company management leads us to believe that Tenet would rather have its day in court with the government than settle for what it considers an unfair amount," Lieberman wrote. "While it is extremely unclear as to the eventual outcome of a court-based decision, should it go that route, we view it as increasingly probable that the issues will not be resolved for some time."

In its recent court filing, the federal government accused Tenet of overbilling Medicare by more than $1.6 billion. Racketeering charges, if upheld in court, can trigger triple damages.
Tenet Settlement Hopes Ebb The (Melissa Davis) June 9, 2005

"Outliers are an overblown legal and financial risk," Shove (analyst) says. "Even if the federal government declares the pre-2003 outlier payments as illegal, Tenet's financial exposure would be in the $800 million to $1 billion range, which we believe is manageable and far below naysayer expectations."
Push Comes to Shove at Tenet The (Melissa Davis) December 9, 2005


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Terms of the settlement

 When the settlement came it was for under US $1 billion, only half the US $1.9 billion the government claimed had been defrauded. No one faced criminal charges. It consisted of a financial settlement, the sale of hospitals and a complex corporate integrity agreement. Although Tenet had already set aside the full amount the arrangements for payment were exceptionally lenient.

Tenet Healthcare Corp., the No. 2 U.S. hospital chain, agreed to pay $725 million and waive another $175 million in government payments to resolve a federal probe of its Medicare pricing.
Tenet will pay the government over a four-year period.
Tenet agreed to hire an outside company to review its Medicare billing, and said it will sell 11 hospitals by the middle of next year to help fund the settlement.
 Reaching a deal "marks the closure of the bad old scandal- ridden days and gives management the opportunity to say, `We'll move on from here, we're not the same old Tenet,''' said Sheryl Skolnick, an analyst at CRT Capital Group LLC in Stamford, Connecticut, in a February telephone interview. "As for the fundamentals of the business itself, will the hospitals fill up and doctors all of a sudden return in droves? I don't think so.''
The payment announced today compares with the $975 million in cash and cash equivalents Tenet had on hand as of March 31, according to a May 9 filing with the Securities and Exchange Commission.
"Tenet made mistakes in its conduct before 2003,'' Fetter said in the statement today. "Regulators depend on providers to be trustworthy and to set and abide by their own high ethical standards. Some of this company's past actions did not measure up to the high standards that we have imposed on ourselves.''
Tenet Settles U.S. Investigation for $725 Million Bloomberg June 29, 2006

Tenet said it will pay the $725 million, plus interest, over four years and waive $175 million in Medicare payments. Tenet will take a second-quarter charge for the settlement.
enet said the settlement concludes investigations by the Justice Department and U.S. attorneys "with no finding that Tenet had engaged in illegal behavior." It also ends civil litigation that the agency filed against the company regarding the Medicare coding.

The agreement does not include the Securities and Exchange Commission, Tenet said.
Tenet also plans to sign a corporate-integrity agreement with the Department of Health and Human Services. It has assembled a staff of 100 to ensure its compliance with rules on coding, relationships with doctors, setting hospital charges, and quality of care.

It plans to sell 11 hospitals before mid-2007, including four in New Orleans and including the previously disclosed plan to sell Alvarado Hospital Medical Center in San Diego. After these divestitures, Tenet will operate 57 hospitals in 12 states. See more health-care coverage.
Tenet, U.S. settle Medicare-payment dispute : Health-care provider notes 'mistakes,' agrees to pay $725 million MarketWatch Dow Jones June 29, 2006

A few weeks after the government case against St. Barnabas was settled, Tenet Healthcare, one of the nation‚s largest hospital chains, agreed to repay $788 million of the $1.9 billion it had been accused of overcharging. No one involved in either case faced criminal charges.
As they announced the settlements with Tenet and St. Barnabas in June, Justice Department officials said they were satisfied that they had collected a substantial sum of money without risking an uncertain outcome at trial and without endangering the viability of the two hospital systems. David Knowlton, executive director of the New Jersey Health Care Quality Institute, an advocacy group, said that even though the settlements did not recover all the fraudulently obtained funds, they would provide a strong deterrent.
Hospitals Grew With Medicare Paying the Way NEW YORK TIMES August 20, 2006

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Tenet's Corporate Integrity Agreement (CIA)

Two months later, in September 2006, Tenet entered into a corporate integrity agreement with The Office of Inspector General (OIG) of the Department of Health and Human Services. I have not seen the ineffective CIA agreement Tenet/NME entered into in 1994 the items and conditions seem very similar to those reported in 1994.

My impression from this document is that the processes set out in the agreement are so complex, costly and onerous that there is little chance of them being fully implemented. It is likely that this is more for public consumption and political purposes than a genuine belief that Tenet will do what the document requires.

It is difficult to imagine how the OIG, limited by government funding could possibly effectively oversee the many CIA agreements listed on its web site - let alone a complicated one like this. It failed to police the 1994 agreement at a time when there were far fewer CIAs. Instead the OIG is going to rely on oversight conducted by a number of commercial "Independent Review Organisations (IROs)".

The give away in all this is that the IROs are to be appointed by Tenet and Tenet will have the right to terminate an IRO and appoint another. Tenet will in effect have control of its own oversight by appointing those who will do what it requires - with a suitable payment of course.

The full CIA (3.2 MB pdf file) can be downloaded from the OIGs web site by clicking on

The following press extracts give an overview of the CIA's terms.

Tenet Healthcare Corp., Dallas, and the U.S. Justice Department signed a corporate integrity agreement governing Tenet's compliance program for five years through Sept. 26, 2011. Tenet said it has implemented most of the measures detailed in the 64-page agreement, which was anticipated when Tenet and the Justice Department reached a $900 million global settlement in June. Tenet agreed to maintain an ethics and compliance department led by its chief compliance officer and distinct from its legal department.

Regional and hospital-level compliance officers will report to the compliance department. Tenet agreed to implement policies and procedures based on its code of conduct and train all employees and many physicians on the procedures within 120 days. The company also agreed to hire independent review organizations to monitor its compliance in five clinical and financial areas. Tenet must report to HHS' inspector general's office on its efforts to comply with the agreement in 150 days and once annually thereafter. Senior-level executives, from Tenet's chief executive officer to its regional compliance officers, will sign certifications of the company's reports to the inspector general's office.
Tenet signs five-year corporate integrity agreement Modern Healthcare September 28, 2006

Unprecedented Provisions Include Board of Directors Review Inspector General Daniel R. Levinson announced today that the Office of Inspector General (OIG) of the U.S. Department of Health & Human Services has reached an agreement with Tenet Healthcare Corporation on a Corporate Integrity Agreement (CIA). The CIA is part of Tenet's resolution of its civil and administrative liability for a wide range of investigated conduct, including Diagnosis Related Group (DRG) upcoding, improper outlier payments, kickbacks to physicians, and other fraudulent activities.
In June 2006, Tenet agreed to pay over $900 million to the United St ates to resolve its liability under the False Claims Act and related authorities. Specifically, the Federal government had alleged that Tenet submitted claims for payment to Medicare using DRG codes that Tenet could not support or were improperly assigned to patient records in order to increase reimbursement to Tenet hospitals. Tenet also allegedly inflated its charges substantially in excess of any increase in the costs associated with patient care, which resulted in improper outlier payments.

The CIA, which has a five year term, will cover Tenet, its wholly owned subsidiaries and affiliates, and all hospitals and other health care facilities managed or controlled by Tenet. Under the CIA, Tenet will implement a comprehensive compliance program that includes corporate, regional, and hospital compliance officers; compliance policies and training; an employee hotline and reporting mechanism; and mandatory reporting and repayment of overpayments. In addition, Tenet is required to engage independent review organizations to review Tenet's DRG claims, outlier payments, physician relationships, and clinical quality management.

The CIA also includes unprecedented provisions requiring the Quality, Compliance, and Ethics Committee of Tenet's Board of Directors to undertake a review of the effectiveness of Tenet's compliance program and adopt resolutions with respect to this review.

Tenet is required to submit annual reports to OIG, which will include certifications by Tenet officers that the company is in compliance with the requirements of the Federal health care programs.

In consideration of Tenet's obligations under the CIA, OIG has agreed to release and refrain from instituting any administrative action seeking exclusion of Tenet from participation in Medicare, Medicaid, and other Federal health care programs under section 1128(b)(7) of the Social Security Act for the investigated conduct.

Under sect ion 1128(b)(7) of the Social Security Act, OIG may exclude an individual or entity from participating in the Federal health care programs if the individual or entity has engaged in fraud, kickbacks, and other prohibited activities.

Under a separate divestiture agreement entered into on May 17, 2006, Tenet is selling Alvarado Hospital Medical Center to an unrelated party to resolve OIG's possible exclusion of Alvarado for paying kickbacks to physicians. OIG will continue to monitor Tenet's compliance with the Alvarado divestiture agreement.
OIG Executes Tenet Corporate Integrity Agreement Office of Inspector General For Immediate Release September 28, 2006

Tenet‚s settlement, which was announced June 29, comes at a time when other companies under investigation for alleged criminal violations have had to enter into more severe deferred and nonprosecution agreements with the government. On Sept. 28 Tenet also signed a "corporate integrity agreement" with the U.S. Department of Health and Human Services, which administers Medicare.

Urbanowicz supported the decision made by Tenet CEO Trevor Fetter to settle with the government. A former deputy general counsel at Health and Human Services, Urbanowicz became Tenet‚s legal chief at the end of 2003. "When I joined the company, I let them know we couldn't afford to have a bad relationship with the government," Urbanowicz says. But, he adds, "you don‚t want to agree to [settle claims] just for the sake of expediency," and Tenet fiercely defended itself against any accusations of criminal wrongdoing.
The company also agreed to fork over $47 million to resolve claims that it paid kickbacks to physicians who patients referred to its clinics. In addition, Tenet will pay $46 million for "upcoding" payments, which caused already costly procedures to be billed at an even higher rate. The settlement also put an end to the whistleblower suits.
The stated aim of the agreement is to avoid violations of two federal statutes: one that bars a physician from referring patients to products or services in which he has an interest, and one that imposes criminal penalties on anyone in the Medicare system who accepts bribes.
David Schindler, a Latham partner who worked on the agreement, says that the biggest challenge for Tenet was establishing trust with the government prior to and during the negotiations. The government was "particularly skeptical," he says. Tenet‚s lawyers had to "persuade [the government‚s lawyers] that the company that lives today bears no resemblance to the old one."
In Urbanowicz‚s view, it was especially important for Tenet to figure out a way to cure itself. "It‚s not like a number of other companies [in other fields] where someone else could pick up the slack," he explains. "In many cases we [operate] the only hospital in town".

Thanks to the settlement, those hospitals are staying in business.
Tenet Looks for Way to Cure Itself‚ Corporate Counsel October 19, 2006

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Whistleblowers role

Probably two thirds of health care prosecutions are a consequence of whistle blowers speaking out. In Australia whistle blowers are inadequately protected and there is no reward for success. The US system is structured to allow whistleblowers to act for government and then rewards them for this. Claims that health care fraud in Australia is not a serious problem when compared with the USA consequently lack validity.

Tenet's case is not an exception. Six whistleblowers had played their part.

Following claims from six whistle-blowers, prosecutors accused Tenet of overbilling the government for $806 million in Medicare payments and paying $49 million in kickbacks to doctors who referred patients to the health care chain.
Whistle - Blowers Bring Govt. Payback New York Times November 21, 2006

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Criticism of the settlement

 Dr Pearce and his Shareholders Committee were scathing about the settlement and the CIA. The committee points ut that links with the past, with its practices and its thinking have not been properly severed. Two of Tenet's previous director's remain. The CEO Trevor Fetter is himself a protege of both Barbakow and Tenet.

Under Democrats and Republicans, government agencies have repeatedly claimed success in attacking fraud and abuse in federally funded health care programs.

The government's failure to prevent repeated scandals at one hospital company - Tenet Healthcare Corp. - over the last 13 years shows that those claims are false. We believe the consequence of that failure was an unnecessary loss of life, misuse of billions of tax dollars, increased healthcare inflation, unjust enrichment of greedy corporate executives, and a huge loss of shareholder value.
After 13 years of scandal at this one company, we still do not see that happening. The government, perhaps operating with inadequate legal authority, is still using the same old formulas that have failed to deter repeat offences. Government warnings are ignored, corporate executives are unjustly enriched, and taxpayers and shareholders are, once again, stuck with the bill.
In the 13 years from 1994 through the beginning of 2007, the federal government agreed to 13 separate settlements with this one company -- Tenet Healthcare Corp. -- on charges of fraud, false claims, and over-billing Medicare. Many years after the alleged fraud, taxpayers received pennies on the dollar in recoveries under these settlements. The company's senior executives and Board members got rich, and not one of them faced criminal prosecution, much less was convicted.
As far was we can tell, the government has learned nothing from the last 13 years of dealing with this company. The same formulas are used with the same ineffective results and disastrous consequences. And the public's ability to learn more is severely hampered by the same settlements that seal government files.
Our fear is that this last settlement will be used to slam the door shut on these scandals, without ever investigating the causes and the prevention of the underlying rot. If the government, and particularly Congress, fails to learn from the Tenet scandals, similar behavior, destructive of patients and healthcare programs, will continue on in the future, as it has in the past.
We take issue with the claim that Tenet is "virtually a new company." Two current Board members (J. Robert Kerrey and Floyd Loop) were serving on the Board while the outlier scheme was in operation.
There is a ridiculous quality to the "game" played by Tenet and the government over the last 13 years; almost humorous, but for the tragic consequences to patients, shareholders, healthcare consumers generally, and taxpayers.
In the last 4 years the company had a cumulative net loss of $5.9 billion and shareholders suffered a loss of approximately $20 billion in shareholder value.

But, in all those 13 years, not one senior executive or Board member has been charged with or convicted of anything.
In announcing the July 2006, settlement, the Department of Justice said "the settlement amount was based on the company's ability to pay." But as noted earlier somehow the company is able to pay its Board members 2.5 times more than the median compensation for Board members at the 200 largest U.S. companies.
How Many More Lives and Billions of Dollars Will Be Lost Before the Federal Government Learns Lessons From the Tenet Healthcare Corp. Scandals? Tenet ShareHolder Committee April 24, 2007



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The Securities and Exchange Commission (SEC) settlement

When the settlement with the SEC came in April 2007 it was no more than a slap on the wrist - another $10 million. Two wealthy executives have paid paltry fines of $240, 000 and $150, 000, less than it would cost to buy a very simple house.

At this rate one wonders what Barbakow will be required to pay the SEC. Barbakow, undoubtedly the driving force behind Tenet's policies and practices had received an estimated US $400 million in compensation since joining Tenet. He walked away from the scandal after pocketing $111 million from stock options. We should remember that he was one of president Bush's pioneers in generating political donations. The company had close political connections with governments.

The shareholder Committee had been campaigning for prison sentences for corporate officers. They were critical.

Tenet Healthcare Corp., Dallas, said that it has been notified by the Securities and Exchange Commission that SEC investigators expect to recommend that the agency bring a civil enforcement action against the company, former Chief Executive Officer Jeffrey Barbakow and five other former executives. The SEC has been investigating the adequacy of Tenet's financial disclosures regarding its Medicare outlier payments and managed-care stop-loss reimbursements for at least two years. Tenet disclosed the investigation in April 2003 and said it continues to cooperate with the probe.

Tenet, Barbakow and the other executives each received what the SEC calls a "Wells notice." The recipients all have the opportunity to respond to the investigators before the final recommendation is made, Tenet said. Besides Barbakow, the other former executives are Chief Financial Officer David Dennis, Chief Operating Officer Thomas Mackey, General Counsel Christi Sulzbach, Chief Accounting Officer Raymond Mathiasen and Steven Dominguez, senior vice president of government programs. Mathiasen was also a senior vice president.
Tenet notified of possible SEC civil action Modern Healthcare April 27, 2005

Tenet Healthcare Corp., one of the largest U.S. health-care companies, agreed to pay a $10 million civil penalty to settle charges that it failed to disclose that its earnings growth from 1999 to 2002 was driven by its exploitation of a loophole in the Medicare reimbursement system.

The U.S. Securities and Exchange Commission also charged four former Tenet executives in connection with the scheme. The former chief financial officer, David Dennis, and the former chief accounting officer, Raymond Mathiasen, agreed to pay civil fines and settled without admitting or denying wrongdoing. The former chief operating officer Thomas Mackey and former general counsel Christi Sulzbach haven't settled the charges.
Mackey was depicted by the SEC as the principal architect of the scheme. In 1999, under Mackey's direction, Tenet management calculated the precise increase to Tenet's gross charges needed to boost Medicare payments to a level that would allow the company to meet earnings targets, according to the SEC. By 2002, revenue from treating extraordinarily sick Medicare patients had more than tripled, accounting for over 40 percent of earnings in fiscal 2002, the SEC said.

The SEC said that as early as 1999, Mackey's subordinates approached Sulzbach, who was also the chief compliance officer, about the legality of increasing gross charges. By 2002, after Tenet's internal audit department issued a report on the matter, Sulzbach labeled the document as subject to attorney-client privilege and kept it in her office, the SEC said.
Tenet to Pay $10M in SEC Settlement Associated Press April 2, 2007

Without admitting or denying fraud charges, Tenet agreed to pay the government a $10 million civil penalty. Former chief accounting officer Raymond Mathiasen will pay an additional civil penalty of $240,000 and former chief financial officer David Dennis will pay $150,000.
The SEC complaint filed April 2, 2007 and the settlement on the same day was silent on the remaining two executives identified in Wells Notices -- former Chairman and CEO Jeffrey Barbakow and former Senior Vice President of Government Programs Steven Dominguez.

Barbakow had been the highest paid CEO of a publicly traded company and walked away from the scandals after pocketing $111 million from stock options.
The SEC has done this before. In July of 1994 the company, then operating under the name National Medical Enterprises, was subject to a permanent injunction against future violations of SEC laws and rules. At the time, the SEC accused the company "of a pattern of fraudulent practices and statements that misled investors about its prospects over a nearly three year period…"

How many times must the Government catch Tenet with its hand in the cookie jar before it exacts a punishment against the corporate executive wrongdoers, instead of the shareholders who end up paying the fines levied by the government, and taxpayers who subsidize the payments when the government allows Tenet, and other corporate thieves, to deduct the penalties from their taxes.?
In announcing the SEC settlement, Tenet Healthcare Corp. General Counsel Peter Urbanowicz said: "With this SEC settlement, we have now concluded all the investigations and litigation that arose after the outlier and other matters first surfaced in late October 2002…
How Many More Lives and Billions of Dollars Will Be Lost Before the Federal Government Learns Lessons From the Tenet Healthcare Corp. Scandals? Tenet ShareHolder Committee April 24, 2007


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Adding up the payments
US $2 billion plus

It is difficult to make an accurate tally of what Tenet has paid out in the last few years. Whether some sums for instance are included in other totals. The Shareholders Committee refers to a number of settlements which I could not find. The following is my guesstimate and its comes to a little over US $2 billion


June 2002

Overcharging lab services
Overbilling at Brotman Medical Center
Billing and cost report violations since 1994

$17 million
$10 million
$29 million

Jan 2003

Pneumonia & Septicaemia upcoding

$4.3 million

Feb 2003

Coding issues in Florida

$4.15 million

Mar 2004

Failure to provide emergency care at Southpointe hospital
10 year old
breach of contract settlement*


$148 million

Mar 2005

North Ridge Medical Centre kickbacks settlement

$22.5 million

July 2004

Pays for failures in infection control at Palm Beach Gardens in Florida


Dec 2004

Settles with 106 patients from Palm Beach Gardens hospital in Florida

$31 million

Feb 2005

Settlement with insurer Healthnet

$28.5 million

Mar 2005

Tenet sets aside $30 million to repay uninsured patients

$30 million

July 2005

A series of payments to government, to patients and to others by Tenet and its doctors in relationship to unnecessary surgery at Redding Hospital

$500 million

Jan 2006

Settles actions by shareholders

$215 million

Feb 2006

Billing dispute in Florida

$7 million

May 2006

Settles Alvarado kickback case

$21 million

June 2006

Global settlement
Paying kickbacks
Upcoding payment

$900 million
$47 million
$46 million

Nov 2006

Past and still to pay settlement with tax office

$225 million

April 2007

SEC settlement

$10 million


$2.147 billion

There is a great deal more information about Tenet and its problems on the Tenet Shareholders Committee web pages. Go to


 *John Bedrosian, one of the founders of National Medical Enterprises was fired after the 1990s scandal. He sued for breach of contract and it has taken 10 years of appeals for him to get US $148 million compensation.

Moody's cited Tenet's expected cash flow problems, a $148 million judgment in a breach-of-contract case with former executive John Bedrosian - - - .
Tenet to move ahead with discounts for uninsured Modern Healthcare's Daily Dose Mar. 2, 2004

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The final word

After its criminal conviction in 1994 Tenet agreed to a Corporate Integrity Agreement and to the creation of structures to monitor ethical behaviour. Government were to supervise. In the following years Tenet refused to acknowledge serious allegations about the ethics of some senior staff, let alone assess them. Government had copies but did not acknowledge them or force Tenet to address the issues.

During these years Tenet indulged in a number of practices that generated allegations and resulted in settlements. Authorities did not invoke any of the strictures in the agreements. If Tenet could ignore its undertakings in this way it is little wonder that it was able to offend in such a similar away a second time.

Once again we have an integrity agreement that looks as if its full of loopholes, and every indication of strong government and political support. This is an aggressively competitive market. What chance it will work this time?

I leave it to a review of Stephen Klaidman's book, "Coronary", the story of Redding hospital and its doctors to have the last word.

Klaidman never forgets that, at its core, this is a tale of a company that seems to have "cracked under pressure from Wall Street to continually boost profits". Americans are at the mercy, ultimately, of a giant medical machine. Parts have our best interests at heart. Other parts will grind our bones to make their bread.
Coronary‚ cuts to heart of Tenet scandal Redding Record January 21, 2007

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Web Page History
This page created July 2003 by
Michael Wynne
revised and updated June 2007