November 7, 2002
Tenet Faces Agency Audit of Payments for Medicare
By REED ABELSON
Federal regulators are planning a comprehensive review of Medicare reimbursements to Tenet Healthcare, one of the nation's largest chains of for-profit hospitals, the company said yesterday. The review will focus on payments for cases that are unusually costly and therefore qualify for special reimbursement under Medicare rules.
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. "We are pleased to cooperate with this audit, as we are confident that it will demonstrate that our hospitals did, in fact, obey the rules," Jeffrey C. Barbakow, Tenet's chairman and chief executive, said in a statement.
Tenet also said it would hold a conference call with analysts this afternoon to provide investors with additional information about these payments.
While the issue of what are known as outlier payments was raised on Oct. 28 by an analyst at UBS Warburg, the federal inquiry was prompted by concerns raised in mid-October by an insurance company that handles Medicare payments for Tenet, said Judy Holtz, a spokeswoman for the Office of the Inspector General at the department. The inquiry is "a national review" of Tenet-owned hospitals, she said.
Although a regulator contacted Tenet the same day as the analyst's report was issued, Ms. Holtz described the timing as a coincidence. Regulators sent a formal letter seeking the audit on Tuesday.
While Tenet acknowledged being called by a regulator, the company did not have enough specific information about what officials might do to inform investors, Harry Anderson, a company spokesman, said.
At issue for regulators, and investors, is the complicated set of rules that govern the exceptions to the usual payments from the government for specific cases. The rules were an attempt by federal officials to reduce the losses hospitals might face in treating complicated cases, said Bruce C. Vladeck, a former Medicare administrator who now teaches health care policy at the Mount Sinai School of Medicine. If the cost to treat a case surpasses a threshold set by the government, the hospital is reimbursed using a special formula that takes into account those much higher costs.
Over the last several weeks, investors have tried to understand the importance of these payments to Tenet and to what extent they may have contributed to the company's strong earnings growth in recent years. The issue surfaced after Kenneth R. Weakley, the analyst with UBS Warburg, estimated that these payments had risen to roughly a quarter of the company's inpatient payments from Medicare. He recommended investors reduce their holdings in Tenet because of concerns that the company could not sustain its recent growth and because of possible regulatory scrutiny.
The company has acknowledged that it has more of these payments than some other hospitals, and analysts estimate that they could account for $700 million to $800 million in annual patient revenue. Tenet, which points to the number of urban hospitals and academic medical centers it owns, says they account for no more than 5 percent of its total inpatient revenue for the current fiscal year, which it declined to estimate.
After one of its hospitals in California was raided by federal agents last week as they sought information about the possibility of unnecessary surgeries by two heart doctors, Tenet has struggled to reassure investors. The stock has lost roughly half of its value in the last two weeks. But investors appeared to have little reaction to the government's inquiry made public yesterday. The stock closed at $26.28 yesterday, up 6 cents.
But some analysts expressed concern over the latest development. While acknowledging that the government's inquiry could be "a tempest in a teapot," Sheryl R. Skolnick, an analyst with Fulcrum Global Partners, said she considered it serious. "This audit is not going to be resolved anytime soon," she said.
In addition to answering questions from analysts and investors today about these payments, Tenet emphasized that it looked forward to cooperating with regulators in order to put to rest any concerns that it did not follow the rules. "We welcome a complete airing of this issue," said Mr. Anderson, the Tenet spokesman
Tenet Healthcare target of audit on Medicare billing issue
U.S. to Audit Tenet Hospital Bills
Focus will be on large Medicare payments. Meanwhile, state seeks to curb Redding doctors.
"Ken Weakley, the UBS Warburg analyst who first raised the outlier issue, calculated that about 23% of Tenet's Medicare reimbursements come from outlier payments, compared with an average of about 6% for other comparable hospitals."
Tenet hires a medical auditor to review doctors' treatments
Tenet Healthcare Corp. has hired an outside medical auditor and dispatched a team of investigators to look into allegations that two heart doctors at its Redding, Calif., hospital performed unnecessary surgeries.
Wall Street Journal (subscription required), Nov. 5, 2002