The ailing hospital chain will pay $395 million to settle hundreds of lawsuits that accuse its former Redding Medical Center of profiting from unnecessary heart surgeries. The settlement brings closure to an open wound that has been festering for more than two years.
However, the deal also may trigger some unpleasant side effects. The company has now violated its bank agreement and, given its deteriorating condition, could find capital harder to come by in the future.
Peter Young, a business consultant at HealthCare Strategic Issues, foresees "less funding availability and significantly changed terms" -- along with the possibility of a formal restructuring -- ahead.By now, Tenet has already paid a record $54 million government fine to settle allegations that Redding performed unnecessary surgeries on Medicare patients. It also sold the hospital, once among its most profitable, for just $55 million after Medicare threatened to stop doing business with the facility. Now, Tenet can use those proceeds along with some of its $1.2 billion in cash on hand to settle the 750-plus lawsuits at Redding. But the company still faces significant liabilities that, some say, its remaining $850 million will not even begin to cover. The company -- which hopes to break even, at best, next year -- may need around $1.5 billion to settle numerous government investigations into its business practices, says Caymus Partners analyst Jeff Villwock, who conducts research on behalf of the Tenet Shareholder Committee. It also faces hundreds of millions of dollars of legal exposure at hospitals outside of Redding, he adds. "Unless Tenet can borrow some more money, it seems to me the writing is on the wall," Villwock says. "There will be a liquidity problem at some point."