U.S. Probing Tenet in St. Louis

Tenet's (THC) problems continue to spread.

The company announced on Friday that federal prosecutors are now seeking information about its financial arrangements with physicians in St. Louis. By now, the company has already disclosed that government officials are examining its "physician relocation agreements" at a number of its hospitals in other parts of the country.

Critics have described some of the agreements as little more than illegal kickbacks offered to doctors in exchange for patient referrals. For its part, Tenet has pledged to cooperate with authorities while, at the same time, defending its business practices.

"We are sensitive to the concerns that regulatory agencies have with physician relocation arrangements," Peter Urbanowicz, Tenet's general counsel, said in a press release Friday. "And Tenet's policies reflect the most recent guidance issued on this subject in March of this year by the U.S. Department of Health and Human Services."

The U.S. attorney's office in St. Louis has requested information from five hospitals currently operated by Tenet in that city. The same office is also seeking documents related to a hospital that Tenet sold in Kennett, Mo. The company originally disclosed in a quarterly report this week that the Kennett hospital was under investigation.

That quarterly update -- revealing a decline in admissions as well as new government probes -- took a bite of the company's stock this week. Shares of Tenet, which briefly fell below $10 on Friday, have spiraled more than 10% since last Friday. They ended the week's final session down 2.9% at $10.01.

Kenneth Weakley, the analyst at UBS who first exposed Tenet's aggressive business strategies, expects the stock to fall to $7. Meanwhile, Fulcrum analyst Sheryl Skolnick has estimated that Tenet's stock may actually be worth between $8.04 and $9.42 instead. But she certainly saw no good reason to buy the stock -- when it was trading near $11 -- after Tenet's latest earnings report.

"Despite the positive spin that management put on the quarter, we just didn't see the hard evidence of the situation becoming more stable, more predictable or more profitable," wrote Skolnick, who has a neutral rating on the stock. "We have said before that there might be a price at which we would be tempted to recommend purchase of THC shares. But based on our terminal value calculations and our concerns about the company's ability to turn this leviathan in an unpleasant and unforgiving economic environment, all we know is $10.81 isn't it."

>To order reprints of this article, click here: Reprints