Tenet Feels the Heat From the Feds

"He agree[d] to advertise for and hire an associate doctor," the doctor's attorney later noted. "The hospital would pay $25,000 for recruiting expenses and pay $3,916 per month salary for [his] new associate. But [he] was told ... that he need not really hire a new associate and that [he] could use the money for any purpose he chose."

The doctor, who reportedly assumed the arrangement was legal, later ended such dealings after Medicare cracked down on Tenet in 1994. But he told his attorney five years later that kickbacks to other doctors were continuing.

The attorney noted that his client "knows the names of numerous doctors receiving suspicious incentives or holding duplicative or fictitious paid posts or otherwise involved in various kickback and incentive schemes. ... [He] revealed that there were continuing kickback and incentive schemes similar to the one [he] personally experienced, which were still in existence in at least five hospitals."

One of those five hospitals -- Encino/Tarzana Regional Medical Center of Los Angeles -- has already been swept up in the new DoJ kickback probe.

Wheels of Justice

Young expects more Tenet hospitals to follow. Overall, he's forecasting a "huge" investigation that leaves Tenet a far different -- and weaker -- company than it is today. Of course, Tenet stock has lost more than three-quarters of its value over the last year.

Specifically, Young believes Tenet will shed a number of hospitals that cannot perform under tighter Medicare guidelines. He also predicts that Tenet's relationship with doctors will suffer under DoJ scrutiny. And he thinks that Tenet executives -- in addition to Tenet itself -- could pay a high price in the end.

"People have tended to expect 'checkbook justice' because very few people have been charged before," Young said. "But I think the climate -- post-Enron, WorldCom and ImClone(IMCL Quote - Cramer on IMCL - Stock Picks) -- is entirely different today."

Ruggio has also felt a shift. And he warns that big health care probes will probably begin, rather than end, with Tenet.

"Tenet is the beginning of a whole new era," he said. "This is the next frontier."