Tenet leader: woes caused by executives, not hospitals

Gary Gentile

Wednesday, Nov. 12, 2003 | 10:58 a.m.

LOS ANGELES -- The new chief executive of Tenet Healthcare Inc. acknowledged Tuesday that "something had gone very wrong" at the company, but said Tenet's troubles were caused by its former executives, not the company's hospitals.

Speaking to financial analysts after Tenet released disappointing third quarter earnings, Trevor Fetter said that in recent years, the company "confused what is legal for what is right," and was arrogant in its dealings with regulators, unions and insurers.

"This is a troubled company," Fetter said during the conference call. "But at its core, it's an organization that has a great number of good and caring people."

Fetter made his remarks a day after the nation's second-largest for-profit hospital chain announced it had swung to a loss in the latest quarter as it significantly increased its reserve for bad debts, including medical bills that aren't paid by uninsured patients.

Tenet reported a net loss of $308 million, or 66 cents per share, for the quarter ended Sept. 30, compared to net income of $328 million, or 66 cents per share, in the same period last year.

Revenue fell 6 percent to $3.297 billion, compared to $3.521 billion in the same period last year.

Analysts surveyed by Thomson First Call had been expecting net income of 5 cents per share.

Revenue from supplemental Medicare payments, called "outliers," fell to $16 million in the quarter, compared with $261 million in the same period last year.

Tenet adopted a new policy in January to reduce reliance on the payments, which are made by Medicare for costs that exceed standard reimbursements for hospital procedures. Last year, federal authorities conducted an audit of the company, triggered by Tenet's dependence on the payments. The investigation is pending.

Tenet, owner of Lake Mead Hospital in North Las Vegas, is facing a number of lawsuits as well as government investigations into its billing practices as well as charges of unnecessary surgeries and alleged kickback schemes designed to reward physicians for patient referrals at some hospitals.

Earlier this year, Tenet paid a $54 million settlement to the U.S. Justice Department for allegedly performing unnecessary cardiac procedures and surgeries at Redding Medical Center in California.

Blue Cross of California recently accused another California Tenet hospital of performing unnecessary cardiac surgeries and said it would drop its contract with the hospital.

On Tuesday, Fetter said that while Tenet would work to aggressively address past wrongdoing, it would also fight unfair charges. Tenet said the Blue Cross allegations are based on outdated criteria and were part of a larger billing dispute with Blue Cross's parent, Wellpoint Health Networks.

"This company will acknowledge responsibility for its past mistakes," Fetter said. "But we will also resist those who seek to use our current vulnerability to their advantage."

Fetter became chief executive two months ago after serving as acting CEO. He replaced former CEO Jeffrey Barbakow, who resigned in May.

During the quarter, the company's provision for doubtful accounts rose to $522 million from $260 million in the same quarter last year.

Tenet said the significant increase came as admissions of uninsured patients rose sharply. Tenet said the increase was a trend that resulted from higher unemployment and an increase in patient co-payments.