Tenet's Barbakow Turns Tables in WorldCom Loss

"Squawk Box" anchor Bill Griffeth sounded almost apologetic -- saying, "I'm not criticizing" -- when asking Barbakow questions about Tenet's business strategies. One quarter later, among the last when Tenet's results would go unchallenged, an analyst also stopped short of pressing the company.

Frank Morgan of Jeffries asked whether "prior-year settlements" had affected Tenet's revenue. Negative settlements can occur when Medicare determines that it has been overbilled and demands repayment. Tenet executives, long-winded through much of that April 2002 conference call, suddenly had little to say.

"Nothing unusual there, Frank," one said.

"I think he hung up," said another.

"Oh. Well, hopefully he heard that," one said. "No. The answer's nothing."

The company took one more question and then ended the call. But UBS analyst Kenneth Weakley exposed Tenet's aggressive Medicare billing just six months later. And the tough questions kept on coming after that.

By January 2003, the Tenet Shareholder Committee had asked the Securities and Exchange Commission to step up its investigation of the company and its leaders for allegedly misleading investors. Specifically, the group complained that Tenet had failed to disclose its unusual dependence on special Medicare "outlier" payments and that its audit committee -- also silent -- wasn't nearly as independent as the company claimed.

"Medicare outlier payments comprised 45% of Tenet's total earnings in fiscal 2001 and 41% in fiscal 2002," the committee wrote. "Yet nowhere in Tenet's public disclosures for those periods is the significance of this revenue stream even mentioned."

Instead, the committee said, Tenet simply reassured investors that proposed changes in outlier rules would not significantly impact the company. By addressing this issue at all, the committee claims, Tenet had to know about the outlier revenue that supposedly took some company leaders -- including Barbakow -- by surprise.