Tenet's Day in Court

"Lam is one of the nation's leading experts in health care fraud prosecution," the Tenet Shareholder Committee, a longstanding critic of Tenet management, recently noted on its Web site. "She literally wrote the book on chasing health care criminals," it added, referring to Prosecuting and Defending Health Care Fraud Cases, which she wrote with Michael Loucks. "Tenet has good reason to be worried."

Peter Young, a business consultant at HealthCare Strategic Issues, agrees.

"There are a lot of complex issues involved," he concedes. "But I think that Carol Lam probably did a pretty good job of defining them, more so than [her assistant did] in the first trial. ... So I think there will be a split decision" with some guilty verdicts in the end.

A guilty verdict could ban Alvarado from treating Medicare patients, threaten physician arrangements at other Tenet hospitals and further delay a comprehensive government settlement with the company.

For its part, Tenet portrays its physician contracts as common for the industry. The company hopes the jury will agree -- and return a favorable verdict -- but it plans to keep negotiating with the government regardless of what happens.  

"Discussions about a global settlement are independent of the Alvarado trial," says Tenet spokesman Steven Campanini. "Obviously, we hope the jury will reach a positive verdict. [But] we have legal strategies in place depending on the outcome."  

In the meantime, Tenet's stock -- once a $50 highflier -- continues to hover near multiyear lows. The shares, which bottomed out at $7.27 late last month, inched up a penny to $8.22 on Friday.

Young, for one, sees no good reason to touch the stock right now.

Although he remains bearish about the company's prospects, he questions whether investors can gain very much by shorting the stock at current levels. At the same time, he doubts that they can profit much by purchasing the stock here, either. Ultimately, he believes that a courtroom victory would be good for just a small and temporary rise in the troubled company's shares. He has no position in the stock himself.

Ransom feels cautious as well.

"Even in the event of a victory in San Diego, Tenet still faces a number of near-term operational challenges, including continued weakness in core patient volumes, struggles with bad debt and uninsured trends and material softness in free cash flow metrics," he says. So "as we await the verdict in San Diego, we would caution investors from assuming that the worst is behind Tenet, despite ongoing heroic efforts from its management team to restore operations to their former glory."