Florida Sues Tenet
Tenet's
(THC) - Get Report
recovery could now be complicated by racketeering charges.
Florida Attorney General Charlie Crist sued the company on Wednesday, claiming it engaged in a pattern of behavior that violates the state's Racketeer Influenced Corrupt Organizations, or RICO, act. Crist has accused the for-profit hospital chain of repeatedly gaming Medicare and collecting at least $1 billion worth of payments that should have gone to non-Tenet hospitals instead.
More specifically, Crist claims that Tenet engaged in an aggressive pricing scheme that improperly boosted its own so-called outlier checks while reducing legitimate outlier payments for others. He is seeking damages on behalf of the state of Florida and a number of public hospitals that he feels have been shortchanged.
"It's a very interesting argument," says Jeff Villwock, an analyst for Caymus Partners who conducts research on behalf of the Tenet Shareholder Committee, a group long critical of the company. "In essence, it's like stealing from the poor to give to the rich."
Medicare places a limited amount of money in an outlier pool to compensate hospitals for unusually expensive cases. By raising its prices well above its costs, Crist says, Tenet found a way to bill Medicare for cases that never should have qualified as outliers in the first place. At the same time, Crist says, the company's strategy left less money in the outlier pool for hospitals that truly deserved it.
Crist accuses Tenet of engaging in "multiple predicate acts" -- including illegally receiving and transporting stolen money -- that deliberately caused harm to others. He also portrays the company as a known repeat offender.
"The pattern of racketeering activity described in this count is but one more example in Tenet's long history of fraud, corruption and other criminal acts," the 43-page complaint states. "Tenet has reached the pinnacle of corporate wrongdoing, with ongoing criminal activity spanning at least 14 years."
Tenet, which didn't immediately return a phone call from
TheStreet.com
seeking comment, rejected the charges as baseless.
"This civil lawsuit makes some very strong allegations that are unwarranted, and we will defend ourselves vigorously," said general counsel E. Peter Urbanowicz. "Frankly, we are surprised that the plaintiffs would bring this suit, more than two years after Tenet voluntarily reduced the amount of outlier payments we received from the Medicare program and adopted stringent new policies governing such payments well before federal regulators promulgated such policies for the entire hospital industry."
Meanwhile, Tenet shareholders -- by now immune to bad news -- shrugged off the RICO case. The company's stock gained 1.4% to end Wednesday at $11.43 a share.
'Day of Reckoning'
Of course, the federal government started investigating Tenet's outlier charges long before Florida took action. But two years into that probe, the company has yet to face penalties as a result of the charges and continues to hope for a global settlement resolving a number of outstanding investigations.
The Tenet Shareholder Committee on Wednesday applauded Florida's move as a welcome step toward justice.
"It appears to us that Florida A.G. Charlie Crist is doing what the federal government should have done much earlier to protect and recover Medicare dollars," said Paul Brickman, a spokesman for the group. "The day of reckoning for the Tenet Medicare outlier scandal has just moved a little nearer."
Florida has accused Tenet of serious abuses carried out on a widespread scale. In its complaint, the state explains that Medicare sets aside about 5% of Medicare funds to cover outlier payments. It notes that a Tenet-owned hospital in Texas, for example, generated 4.6% of its Medicare payments from outliers before the company allegedly devised a scheme to boost its outlier revenue. Within four years, the complaint indicates, the hospital was actually collecting more money from outliers than it was from regular Medicare reimbursements themselves.
Other Tenet-owned hospitals allegedly booked big gains as well. After 2000, the state claims, more than one-third of Tenet's hospitals saw "dramatic increases" in their outlier checks.
Crist claims that Tenet deprived others in the process. He says he is seeking damages, which can be tripled under the RICO law, for the victims that resulted.
"We are taking this action today because the deck has been stacked against the taxpayers in Florida and other states around the country," Crist said in a press release on Wednesday. "When public hospitals lose, both the taxpayers who support them and the patients who depend on them are victims."
Peter Young, a business consultant at HealthCare Strategic Issues, doubts that Florida will be the last state to pursue the ailing hospital chain. The company also operates a significant number of hospitals in big states such as California and Texas.
Thus, he warns of more trouble ahead.
"How long is the tunnel?" he mused. "Well, much longer after this action!"