Tenet Tangles With Locals on Cutback Plans
Melissa Davis
04/02/04 - 07:05 AM EST
The hospital closest to Los Angeles International
Airport -- labeled California's No. 1 terrorist target by government officials -- has already suffered a near-death experience of its own.
Before
Tenet THC bought it, Daniel Freeman Marina
Hospital enjoyed celebrity status as the rehab center
of choice for movie stars such as Melanie Griffith and
Robert Downey Jr. The hospital's plastic surgeons
lifted decades from superstar faces. Its emergency
staff treated bloody victims hurt during the riots
that followed the beating of Rodney King.
These days, however, the hospital itself seems
lifeless. The wards that once housed movie stars have
fallen silent, bare floors and empty filing cabinets
visible through dimly lit windows. The rest of the
facility, forced to remain open because of public outcry,
treats just a few dozen patients in acute-care units
dominated by vacant hospital beds.
Ambulance sirens sound almost foreign in the warm
Marina air.
Tenet has a long history of buying, and then
closing, hospitals just like Marina. In the past, the
company has frequently eliminated its competition
so it could dominate the markets -- and raise the
prices -- in the areas where it operates. And it has
executed its strategy right under the noses of
government authorities charged with protecting the
public.
In Los Angeles, where Tenet owns nearly half the
hospitals in one section of town, community activists
last year warned of serious risks.
"We are becoming increasingly concerned about the
financial stability of the corporation, possible
violations of the asset sale agreement in the purchase
of area hospitals and the impact of any reduction of
hospital services in our community," the Los Angeles
Community Health Councils wrote in a November letter
to the state attorney general -- who approved Tenet
acquisitions -- and to some other government agencies as
well. "Our communities rely heavily on access to these
Tenet facilities."
The council urged government officials to host a
meeting, with senior Tenet executives present, to
address its concerns before the end of the year.
"We got no response," marveled Laurie Sobel, a
staff attorney at the watchdog group Consumers Union,
who signed off on the letter.
The attorney general's office says it did, in fact, intervene by preserving cardiac services offered at Marina's sister hospital. But that victory would soon look hollow. The following month, Tenet laid out plans to shed 19 Southern California hospitals -- including both Daniel Freeman facilities -- in a desperate attempt to regain profitability.
Sobel, for one, worries that Tenet will struggle to find takers for some of the Los Angeles hospitals and wind up closing
them instead. If so, entire neighborhoods could be left
scrambling for ready access to health care. And the
government may have little power to intervene.
"Tenet doesn't believe they can be touched," one
L.A. physician noted. "Their feeling about the
government is: 'You can investigate us, interrogate
us, regulate us -- but you can't make us stay in
business.'"
Tenet failed to respond to questions for this
story. The company's stock, hammered for more than a
year over allegations of corporate fraud, slipped 14
cents Thursday to $11.02.
Con Game
Tenet wound up with Marina, together with sister
hospital Daniel Freeman Memorial, after a competing
bid fell through three years ago.
Local doctors, worried about Tenet dominating the
area, had sought to buy the hospitals for themselves
instead. But they unknowingly hired a con artist --
working for a firm with past ties to Tenet -- as a
lead negotiator.
Jon Craig had racked up 15 criminal charges when
he surfaced in Southern California with a "plan" to
save the Daniel Freeman hospitals in the spring of
2001. In his bio for MedSector, a start-up health care
acquisition company, Craig portrayed himself as a
world-renowned man of finance who had negotiated major
transactions on at least three different continents.
But a documentary later aired by the
Discovery
Channel exposed Craig as a charismatic crook who
stole large sums from his wife, her foreign
grandmother and several other relatives. Craig
ultimately pleaded guilty to three charges of
securities fraud -- and landed in a Utah jail -- just
months after collecting $5,000 checks from Marina
doctors who pinned their hopes on his firm.
But Craig's background is simply the most
troubling of the lot. MedSector CEO Garth Hogan
portrayed his first start-up, Medical Realty
Corporation, as "the leading medical real estate
company in the state of California" in a cached Web
page that seems to be the only remnant of the
corporation. He also pointed to Tenet, MedSector's
rival bidder, as one of his recent clients.
Ron Messenger, listed as Craig's fellow "managing
director" at MedSector, actually spent time as a top
executive -- pursuing hospital acquisitions -- at
Tenet predecessor National Medical Enterprises. Even a
competing firm, seeking to replace MedSector at the
time, wound up with ties to Tenet as well.
And Tenet, as the only viable bidder left
standing, got both hospitals for a song.
Property Dispute
A flashy brochure, printed just a few months after
the acquisition, advertised the Marina hospital as an
"excellent" real estate investment. "Ideal for
high-rise, multifamily, office or mixed-use
development," it suggested.
The company could have spewed obscenities and
offended some people less. Tenet had just broken a big
promise in the wrong community. After swooping in to
save the hospital -- and assuming control of the only
emergency room for miles -- Tenet seemed to be killing
the facility instead.
Local strategist Julie Inouye went straight to
work. Early in her career, before landing roles in the
Rocky and
Free Willy sequels, Inouye had
trained under senior executives on the cutthroat
business side of the entertainment industry. She later
used her corporate smarts to help win a
multimillion-dollar land dispute -- blocking a housing
development on the Marina wetlands -- against top Wall
Street banks. But she now faced her toughest fight
ever.
Tenet planned to shut the Marina hospital in a
matter of weeks and accept final bids on the building
just four days later. The company portrayed Marina as
an underused facility that was bleeding incurably. But
Save Our Marina Hospital, a huge activist group
founded by Inouye, soon diagnosed the wounds as
self-inflicted.
"They moved lucrative units to another Tenet
hospital," Inouye determined. "They began to refuse
contracts with private insurance companies like Blue
Cross and Blue Shield to show a loss on their books.
They even revoked their state Medi-Cal license."
For the record, state documents show that Marina's
Medi-Cal revenue strangely rocketed, tripling historic
levels, shortly after Tenet took over. But revenue
across the board had plunged -- pushing Medi-Cal
business into the red -- by the third quarter of 2002,
when the hospital was slated to close.
| Daniel Freeman Timeline |
| 1954 |
Daniel Freeman Memorial opens as a Catholic hospital. |
| 1980 |
Daniel Freeman expands by acquiring a second hospital in Marina del Rey. |
| January 1997 |
Tenet becomes a dominant force in Southern California by purchasing OrNda in its second-largest acquisition ever. |
| 1997 |
The Daniel Freeman hospitals post losses that begin to grow significantly following Medicare cuts in the late 1990s. |
| Early 2001 |
Both Daniel Freeman Hospitals go up for sale. |
| Spring 2001 |
Local doctors try, but fail, to purchase the Daniel Freeman hospitals in an effort to block a Tenet monopoly in the area. |
| December 2001 |
After paying $55 million for both Daniel Freeman hospitals, Tenet controls more than 40% of the hospital beds in southwest Los Angeles. |
| 2002 |
Tenet begins directing lucrative cardiac business away from Daniel Freeman Memorial to its nearby Centinela Hospital Medical Center in Inglewood. Daniel Freeman, once a far busier cardiac hospital than Centinela, performs 93% fewer catherizations than Centinela that year. |
| May 2002 |
Tenet announces plans to close the Marina hospital and seeks bidders for the valuable property. |
| Fall 2002 |
Occupancy at the Marina hospital plummets to half the rate posted when Tenet first took over. |
| Year-end 2002 |
Tenet's stock has tanked following a raid of its Redding Medical Center -- later fined for performing unnecessary heart surgeries -- and exposure of the company's aggressive pricing strategy. |
| April 2003 |
After months of public outcry, a scandalized Tenet agrees to keep the Marina hospital open. |
| December 2003 |
Tenet starts cutting additional heart programs at Daniel Freeman Memorial. Since acquiring the facility in 2001, the company has yet to file a single state-mandated utilization report summarizing care provided at the hospital. |
| January 2004 |
Tenet announces plans to shed 19 California hospitals -- including both Freeman facilities -- in an attempt to pare underperforming assets and return to profitability. Nearly half of the hospitals are former OrNda facilities. |
| February 2004 |
Los Angeles doctors, led by a busy cardiac group under possible investigation, reportedly hatch plans to buy five Tenet-owned hospitals. Tenet, meanwhile, fails to acknowledge a bid submitted by community activists for the Marina hospital they helped save. |
| March 2004 |
Tenet says buyers have expressed interest in all 27 of its hospitals up for sale, including underperformers in California, but has yet to announce any sales. It expects to collect just $600 million -- much of it in tax benefits -- by trimming its asset base by nearly one-third. |
After operating Marina in the black for just one
quarter, Inouye said, Tenet had a losing hospital on
its hands.
"The loss suddenly increased from $3 million to
$13 million," she said. "And this was Tenet. This was
a multibillion-dollar company that knew how to make
money."
Heart Failure
By the time local activists won their fight in
early 2003, securing Tenet's promise to keep Marina
open "indefinitely," the hospital looked to some eyes like a clear victim
of neglect.
Over the course of nearly two years, state records
show, Tenet invested just $50,000 in the Marina
hospital. It went entire quarters without spending a
dime on hospital upgrades. In contrast, the
cash-strapped nuns who ran Marina previously allotted
$400,000 for improvements during the hospital's final
year under Catholic ownership.
"Tenet bought the Daniel Freeman Marina Hospital
intending to sell it for land value," Inouye explained
simply. "They never put their name up anywhere on the
hospital -- only a banner for a short time."
Tenet finally shelled out some real money to
repair Marina's damaged roof late last year. But the
company had already pulled a knife on Marina's sister
hospital in nearby Inglewood. It was slashing the popular cardiac program at Daniel Freeman Memorial and sending the lucrative business to another Tenet-owned hospital just a few blocks away.
It pulled the plug on Memorial's thriving
congestive heart failure clinic altogether.
"It was very successful at keeping people out of
the hospital," one physician said of the clinic. "And
preventive medicine is not what Tenet's in the game
for."
Tenet also laid out plans to shut Memorial's
cardiac rehab program -- shown to have lower death rates
among heart attack victims -- along with a unique
fitness center utilized by hundreds of area residents.
But an outraged public managed to save the latter
program.
"People in wheelchairs and walkers use this
fitness center," Elaine Modieste said in a December
press release issued by the Community Health Councils.
"It's not like going to the Y. ... This is the only
place I can get care like this."
Days after the health council published its
release, urging the state attorney general to
intervene, Tenet dropped plans to close the fitness
center and agreed to accommodate cardiac rehab
patients at its booming hospital down the road.
Favored Few
For years, Tenet has been pumping huge sums of
money into nearby Centinela Hospital Medical Center in
Inglewood. State records show the company regularly
spending millions -- sometimes in a single quarter --
on improvements at the facility.
But some insiders claim that Tenet's generosity
doesn't end there. At least one local doctor claims
that Tenet rewards Centinela's busiest physicians --
through paid directorships and lucrative relocation
agreements -- as well.
"If you dig a little deeper, you'll see that these
are little more than kickbacks," he said. "And the
expectation of those doctors is: 'You better be doing
a hell of a lot of procedures.'"
The doctor went on to say that a hospital
administrator blew him off when he raised concerns
about the favored physicians.
"I asked, 'Why are you crowning these guys kings?
Their utilization is off the wall,'" the doctor
stated. "And I was told: 'That's how Tenet likes to do
things.'"
Tenet has already paid a record-breaking fine to
settle allegations that the company profited from
unnecessary surgeries, carried out by its busiest
doctors, at Redding Medical Center in Northern
California. It has also seen its Alvarado Hospital
Medical Center in San Diego indicted for allegedly
negotiating more than 100 doctor kickbacks since 1992. The hospital has pleaded innocent to the charges and is headed for trial in October.
Interestingly, both Centinela and Daniel Freeman
Memorial -- now under government scrutiny for their
own physician contracts -- employ CEOs who held top
positions at Alvarado when some of the alleged
kickbacks took place. Genevieve Clavreul, a hospital
consultant with long ties to Tenet, claims that even
corporate-level executives have engaged in such
practices.
Before signing on as a consultant for Tenet in the
early '90s, Clavreul made a name for herself by
negotiating a major settlement between AIDS
researchers in France and the U.S. Tenet then hired
Clavreul to help lure two world-renowned AIDS doctors
from France to its teaching hospital at the University
of Southern California. But the deal started to
unravel, Clavreul says, when current Vice Chairman
Barry Schochet got involved.
"From the beginning, I told Schochet that I did
not want the physicians to get kickbacks," Clavreul
said. "And he kept saying they should. ... They always
offer them."
Despite her track record, Clavreul suddenly found
herself stripped of the power to negotiate two simple
physician contracts. The AIDS project ultimately fell
through, she said, and Tenet refused to pay her. A
frustrated Clavreul then took her complaints to
Christi Sulzbach, who resigned last year as the
company's lead counsel. While meeting with Sulzbach,
Clavreul says she threatened to take her labor case to
state authorities and mentioned the doctor kickbacks
as well.
"Of all the group, she was the smartest," Clavreul
said. "Within 24 hours, I got my check."
Sulzbach could not be located for comment. But the federal government has already singled out Tenet's USC hospital -- together with Centinela and Daniel Freeman Memorial -- for a fresh round of
questioning. The company said in October that federal
authorities are primarily interested in "certain
cardiac physician arrangements, coronary procedures
and billing practices" at the three Los Angeles
hospitals.
Booming Business
One Centinela practice, in particular, has
publicly boasted about its booming cardiac business.
During a public hearing in late 2001, held as
Tenet negotiated to buy the two Daniel Freeman
hospitals, cardiologist Philip Frankel stressed the
prominence of both himself and his partners. He held
himself up not only as a board member of Centinela but
also as a leader -- and former chief of staff -- at
one of the Daniel Freeman hospitals Tenet hoped to
buy. He then showcased his entire practice as a
powerful group that endorsed the Tenet deal.
"When Tenet acquired Centinela Hospital, my group
and I were asked to come over to enhance the program,"
Frankel explained. "Before that, it was a very small
cardiology department doing very few cases. ...
Centinela has completely revitalized the cardiology
department."
State records confirm that Centinela's cardiac
business has, in fact, rocketed. Five years ago, the
hospital performed just 75 bypasses and 550 catherization procedures. Those numbers had jumped to
179 and 1,802, respectively, the year Frankel offered
his testimony. Catherization numbers have since continued to climb.
Back in 2001, Frankel pointed to his own group as
the driver behind that new business.
"My group and I have been responsible for the
majority of the cardiac cases being done at both"
Centinela and Daniel Freeman Memorial, he explained.
Two weeks ago, the
Los Angeles Business Journal reported that federal prosecutors had launched an official probe of the high-profile cardiac practice. But the group, known as Apex Cardiology Consultants, could be aiming still higher. A local physician
last month pointed to the Apex cardiologists as the
"lead investors" hoping to buy Centinela, both Freeman
hospitals and two other Tenet-owned facilities.
Another physician, who practices primarily at
Daniel Freeman Memorial, isn't necessarily counting on
conditions to improve.
"Change brings opportunity," he admitted. "But it
depends on who comes in and purchases the hospitals."
If the buyer takes the same view as Tenet, he
added, things will remain the same.
The Marina hospital, at least, has attracted an
alternative bidder. The same group that saved Marina
-- and now operates as We CAHRE, short for Community Action for
Healthcare Reform and Education -- is trying to
acquire the facility and transform it into a nonprofit
resource for the community. But We CAHRE's leader is
still waiting for Tenet to even acknowledge the bid.
In the meantime, she marvels at all that has
transpired.
"Hospitals are supposed to save people," Inouye
stated. "Instead, we've got people saving hospitals.
Tenet has a way of turning everything upside-down."
