Tenet Doctor Probe Widens
Melissa Davis
10/13/04 - 07:08 AM EDT
When
Tenet last month announced another federal
investigation of its business practices, it hardly seemed like news.
After all, the latest probe centers on the
hospital operator's financial arrangements with physicians at a
single, relatively small facility in Northern
California. And Tenet had long warned that
investigators seemed interested in its relationships
with physicians companywide.
But the stakes could prove higher this time
around. Until now, federal authorities have primarily
focused on Tenet's "relocation agreements" with newly
recruited physicians. Now, however, they are starting
to question medical directorships -- often filled by
powerful, established doctors -- at the company's San
Ramon Regional Medical Center as well.
Some health care analysts and attorneys view the
physician-related probes as the biggest threat to
the company. They believe the mounting scrutiny from
regulators has already hurt patient referrals,
and they fully expect the pain to intensify.
Mark Kleiman, a Los Angeles attorney who focuses
on health care fraud, says medical directors can be big
patient admitters who generate substantial revenue.
But much of that cash could be at risk, he says, if
the government proves that the directors have been
improperly rewarded for their patient referrals.
Kleiman says that prosecutors can force hospitals
to return any Medicare funds they have collected as a
result of referrals by physicians who pocketed illegal kickbacks.
"This should be alarming from an investor's
standpoint," Kleiman says. "I would be very nervous."
Tenet itself seems less concerned. Indeed, the
company portrays the latest investigation at San Ramon
as little different from other reviews previously
disclosed to investors. And the company's current
legal counsel -- once a high-level attorney for the
government -- has pledged to resolve the probes in the
end.
Tenet refused to answer questions about its
medical directors for this story. The company's stock,
once a $50 highflier, slipped a dime Tuesday to
$11.09.
Side Effects
Even before news of the latest probe, the San Ramon
facility was no stranger to trouble.
To be fair, the hospital once enjoyed a stellar
reputation, boasting everything from robot-assisted
surgeries to scenic views of the San Ramon valley. But three
years ago, nurses there complained about understaffing
and sought to unionize. Diane Ganzell, CEO of the hospital, failed to
calm the storm and departed after less than two years
on the job. Just weeks later, a powerful nurses union
alleged "massive care violations" at the facility.
The California Nurses Association claimed that health
officials had cited San Ramon for, among other things,
failure to both adequately staff operating rooms
and dispose of outdated or mislabeled drugs.
A subpoena from the government soon followed. The
Office of Inspector General, inside the Department of
Health and Human Services, requested documents about
arrangements between a group of physicians, San Ramon
and four other Tenet-owned hospitals in the region.
Then-general counsel Christi Sulzbach quickly downplayed the probe.
"Civil subpoenas for information from the OIG are
not uncommon in the highly regulated healthcare
industry," Sulzbach said. "And we will cooperate fully
so that the agency may complete its inquiry in a
timely fashion."
Instead, federal prosecutors have since stepped
in, seeking a broader range of information from San
Ramon. In addition to "a small number" of physician
relocation agreements, they have asked for documents
relating to medical directorships that date back to
January 2000.
While legal and often useful, medical
directorships can also be abused, observers say.
Hospitals have come under fire in the past for
illegally offering directorships in exchange for
patient referrals. If asked, they must supply the
government with evidence showing that directors have
been paid a reasonable amount for work performed.
"Doctors are supposed to keep track of their
activities and document what they're being paid to
do," Kleiman explains. "You can imagine how much
physicians like keeping time records. Unfortunately,
those are the rules of the game."
At least one industry source believes the
probe could eventually spread beyond San Ramon.
"I think it's the low-hanging fruit that's being
targeted right now," says Peter Young, a business
consultant at HealthCare Strategic Issues. "But it
doesn't mean that problems haven't been identified
elsewhere."
Record Fine
At another Tenet hospital, in fact, such
"problems" have already triggered punishment.
Ending a lengthy kickback investigation, the
Justice Department announced in March that it had
levied a multimillion-dollar fine against Tenet's
North Ridge Medical Center in Fort Lauderdale, Fla.
The government had accused North Ridge of improperly
rewarding a number of doctors -- including three
medical directors -- for their patient referrals.
For example, the government's complaint stated,
North Ridge agreed to pay one of the doctors $25,000
to replace a director who had received nothing for
filling the same post previously. The complaint went on to say
that the hospital paid another doctor the same amount
-- on top of a $225,000 salary -- to serve as
"director of international marketing" for promoting
the hospital's services in the Caribbean islands.
Young recalls worse. In the past, he says,
companies have offered such frivolous directorships
that some people used to joke that hospitals would
"appoint someone director of the ingrown toenail
center" if it meant boosting patient referrals.
In the end, the feds singled out just one of the
North Ridge directorships as improper. But the
government spotted problems with 10 other physician
contracts and secured a $22.5 million fine -- the
highest of its kind -- from the hospital.
Some former Tenet employees foresee bigger penalties to come.
Specifically, they view Century City Hospital -- among
the first of many California facilities Tenet recently
shed -- as a source of major exposure.
Gil Mileikowsky, a fertility specialist who
practiced at the hospital for years, claims that
Century City paid some of his competitors $5,000 a
month for "totally phony" directorships. Indeed, he
says that the vast majority of the physicians
practicing in a building adjacent to Century City
received some kind of financial assistance "in
exchange for bringing in patients."
Joel Bergenfeld, who once steered the hospital for Tenet,
is now running Century City for its new owners. Bergenfeld did not
return a phone call seeking comment for this story.
To be fair, Mileikowsy is embroiled in a legal
battle with Tenet. Still, in July of 2003, the feds
began investigating physician contracts at Century
City and six other Tenet-owned hospitals in Southern California.
Four months later -- even before laying out plans to sell a number
of California hospitals -- Tenet decided against renewing its
lease at Century City.
"The Department of Justice clearly knows about the
medical directorships at Century City," Mileikowsky
says. "They have known for many years."
Power Struggle
Very soon, Tenet will test the government's powers.
In a criminal trial set to begin on Wednesday, the
company's Alvarado Hospital Medical Center will seek to show
that it offered lucrative contracts to physicians in
order to relieve doctor shortages in San Diego. The
feds are trying to prove that Alvarado inked the deals to reward
established doctors with high referral rates.
If the government succeeds, Alvarado could face
both monetary penalties and exclusion from the
Medicare program. In addition, two hospital executives
charged with arranging the contracts could wind up in
jail.
But Tenet expects to win.
"Tenet has not attempted to settle this case,"
says company spokesman Steven Campanini, "because we
believe strongly that these are unjustified
allegations, and we intend to vigorously defend
ourselves."
So far, all defendants involved have proclaimed
their innocence. But the government has nevertheless
identified a number of contracts that it views as
questionable. In court documents, it describes a
$435,000 income guarantee for a brand-new
ophthalmologist -- joining his brother's existing
practice -- as just one example.
Alvarado CEO Barry Weinbaum "signed this
relocation agreement despite data that revealed a
surplus of ophthalmologists in the Alvarado service
area," the court filing states. "Weinbaum also was
responsible for obtaining corporate approval of this
huge relocation agreement from Tenet's corporate
offices."
The government claims that Weinbaum arranged such
deals to satisfy existing practices that pocketed most
of the funds.
The government's Tenet probe has ranged on for a few years, as
noted in previous stories in TheStreet.com, and is especially complex -- involving
far more than physician contracts. The federal
government is also seeking to discover whether Tenet
used an aggressive pricing strategy to bilk Medicare.
In addition, the government wonders if the company
charged Medicare for procedures that were unnecessary
in the first place.
Young, for one, sees a long wait ahead.
"It is very premature to talk about a settlement
when the government is still handing out subpoenas,"
Young says. "Recent activity by the government shows
that this isn't anywhere near over."
