Tenet Healthcare Agrees to Pay $215 Mln Settlement

By Geraldine Ryerson-Cruz
January 12, 2006

Jan. 12 (Bloomberg) -- Tenet Healthcare Corp., the second- largest U.S. hospital chain, agreed to settle shareholder suits accusing it of fraud by paying $215 million, including $1.5 million out of the pockets of two former executives.

The net cost to the company after insurance will be about $140 million, Dallas-based Tenet said today in a statement. The costs will be recorded in the fourth quarter ended Dec. 31. The class-action settlements are subject to approval by U.S. District courts in Los Angeles and Santa Barbara, California.

"Any litigation settlement is incremental good news for a company that has a lot of litigation outstanding,'' said Rob Mains, an analyst at Ryan Beck & Co. in Florham Park, New Jersey, in a voicemail message. "In the scheme of everything going on at Tenet, this is not a particularly major issue.''

Tenet still faces federal probes of accusations of misconduct in billing and physician recruitment. The company is trying to restore investor confidence and conclude government investigations over allegations it overcharged the government's Medicare health-insurance plan while under previous management.

Shares of Tenet rose 13 cents, or 1.7 percent, to $7.66 at 10:33 a.m. in New York Stock Exchange composite trading. The stock dropped 30 percent last year, the fourth straight annual decline.

Tenet has reported losses in the last 11 quarters and may post a fourth-quarter loss of 6 cents a share, based on the average estimate of 20 analysts in a Thomson Financial survey. The company in November said 2005 earnings would fall short of a previous breakeven projection, excluding potential legal payments or restructuring costs.

Executives' Share

In the past two years the company has cut costs and reduced its core holdings to 69 hospitals, selling all but two of the 27 hospitals it set out to divest in January 2004. Tenet last reported a profit in 2002. The chain is second in size to HCA Inc., which runs 182 hospitals.

Today's settlement covers a consolidated series of lawsuits filed against the company starting in late 2002 on behalf of people who bought Tenet securities between Jan. 11, 2000, and Nov. 7, 2002. The suits alleged that Tenet and some of its former officers and directors made or were responsible for false and misleading statements about Medicare payments and other issues.

Former Chairman and Chief Executive Officer Jeffrey C. Barbakow, who stepped down in May 2003, will contribute $1 million to the settlement, the statement said. Former Chief Operating Officer Thomas B. Mackey will contribute $500,000.

U.S. Probes

"This settlement is another significant step forward in our turnaround,'' said Peter Urbanowicz, Tenet's general counsel, in today's statement.

The U.S. Justice Department, the Securities and Exchange Commission and the Health and Human Services Department have been investigating charges of misconduct in billing and recruitment of doctors. Tenet said in regulatory filings that it is cooperating with all the probes.

A jury is deliberating in a retrial in the U.S. District Court in San Diego on charges Tenet's Alvarado Medical Center offered to pay relocation expenses for doctors to encourage them to refer patients under government programs. The first case ended in a mistrial.

The company has struggled to raise admissions from doctors who have been sending patients to competing hospitals. Company officials have repeatedly cited the lawsuits and investigations as discouraging admissions.

'Much More Significant'

"The physician relocation and other physician inducement issues, as well as Medicare outlier payment litigation, are much more significant'' than the shareholder suits Tenet settled, Ryan Beck analyst Mains said. Tenet faces greater liability "in terms of the potential dollar amount of the awards and in terms of the type of overhang affecting the company's ability to attract physician referrals,'' he said.

Tenet last year agreed to settle lawsuits brought by uninsured patients who claimed they were overcharged at the company's hospitals, setting aside $30 million to resolve the suits.

The cases involved in today's settlement agreement are: Re Tenet Healthcare Corporation Securities Litigation in the U.S. District Court in Los Angeles and In Re Tenet Healthcare Corporation Derivative Litigation in California Superior Court in Santa Barbara.

Copyright © 2006 by Bloomberg

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