Tenet Doctor Probe Widens

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.