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Tenet Fails to Reassure Market Amid Probes

Shares and bonds of Tenet Healthcare Inc. (THC), which faces probes into its billing practices and the merger of two of its hospitals, plunged Friday after two top executives left and the company failed to reassure investors that it could fix problems.

Tenet's stock fell 47 percent, dragging other hospital operators down with it and making it the most actively traded issue on the New York Stock Exchange. Volume was about four times the second most-active issue, its rival HCA Inc. (HCA).

Tenet sank $13.05 to $14.90, and was the Big Board's most active.

Tenet, which is the second-biggest U.S. hospital operator, said it would neeeral Medicare program for the elderly and the disabled, before it could provide a long-term outlook.

Late Thursday, the company said Chief Operating Officer Thomas Mackey, 54, retired after 17 years, and that David Dennis, 53, chief corporate officer and chief financial officer since 2000, had resigned.

Also late Thursday, Standard & Poor's cut Tenet's debt ratings to its lowest investment grade and threatened to cut them to "junk" status. Tenet had about $3.6 billion of debt on Aug. 31, it said.

The rating agency cited a "probably future reduction in Medicare outlier payments; potential costs relating to alleged physician misconduct at one of its hospitals; damage to Tenet's reputation; management changes, and litigation related to the unfolding events.

Tenet bond investors also saw more credit risk. Its 6.375 percent notes maturing in 2011 fell to 84 cents on the dollar from 98 cents, pushing their yield up to 9 percent from 6.67 percent, according to Trace, the National Association of Securities Dealers' bond pricing service.

Chairman and Chief Executive Jeffrey Barbakow said on a conference call Thursday that "aggressive pricing strategies" created higher Medicare outlier payments, or reimbursements from the government for patients whose treatment costs exceed the normal expenses. The federal government said earlier this week it would audit these payments to Tenet.

In a statement released late Thursday, the California Nurses Association, which is trying to form unions at hospitals in California, and the Institute for Health and Socio-Economic Policy, said their research showed outlier payments to Tenet Healthcare are nearly triple the national average.

Nationally, outlier payments comprise 10 percent of all Medicare reimbursements to Tenet, the groups said. The national average for all hospitals is just 3.5 percent, they said.

In California, where Redding Medical Center is based, outlier payments account for an average of 14 percent of all Tenet's Medicare reimbursements, compared to a statewide average of 5.4 percent.

The data raises some critical questions, said Kay McVay, president of the California Nurses Association. "Has Tenet's aggressive pricing policies led to inappropriate qualification of some medical procedures as outlier cases to generate higher profits?"

Gary Hopkins, a spokesman for Tenet, said Tenet has not looked closely at the figures released by the nurses association to is unable to comment on their accuracy.

News about the executive departures and the review of pricing strategies comes on the heels of a slew of negative announcements regarding Tenet that have sent its stock tumbling more than 70 percent over the past two weeks.

On Wednesday, Santa Barbara, California-based Tenet said it received an audit request from the Kansas City office of the Office of Audit Services of the U.S. Department of Health and Human Services.

The objective of the audit is to determine whether outlier payments to Tenet hospitals were paid in accordance with Medicare laws and regulations.

On Tuesday the company said it had received a request for more information from the Federal Trade Commission regarding the merger of two of its hospitals in Missouri.

And last week, the U.S. Department of Justice said it was investigating two physicians at one of Tenet's hospitals in Northern California for performing hundreds of possibly unnecessary heart procedures and billing the Medicare program for them.