Investors have been rooting for the hospital chain to shake its legal headaches. But they got bad news Monday, when the government threatened to bar a Tenet hospital from federal insurance payments.
The Office of Inspector General on Monday laid out plans to bar Tenet's Alvarado Hospital Medical Center in San Diego from treating patients covered by Medicare and other federal insurance programs. The rare threat, if carried out, would be a virtual death sentence for Alvarado.
The Justice Department has accused Alvarado of paying illegal kickbacks to physicians in exchange for patient referrals. The agency continues to investigate other Tenet facilities suspected of similar misconduct. Tenet has denied any wrongdoing, and two federal criminal kickback trials involving Alvarado and its former execs have ended in mistrials.Many investors had assumed that the latest courtroom battle -- which dragged on for nearly a year before ending last month in a mistrial -- would finally wear the government down and pave the way for a global settlement as early as the first half of this year. But now hopes for any near-term deal have started to fade. CRT Capital analyst Sheryl Skolnick promptly downgraded Tenet to sell from fair value as a result. "The move by the OIG is a clear signal to us that the federal government ... is unwilling to cut THC even a little bit of slack," Skolnick wrote on Tuesday. "This development could mean that the Justice Department and the OIG are intent to take THC to task every and any way they can. ... This is clearly a setback for the global settlement, the turnaround and the stock, in our view." Skolnick now estimates the breakup value of the company between $4.42 and $9.97 a share. She has set her 12-month target price on the stock at $6.43, just below the midpoint of that range.