Calif. Jury Deadlocks in Tenet Case

A federal kickback case results in a second mistrial.
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Tenet's

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latest stay in the waiting room has ended in yet another mistrial.

After seven months of testimony -- and more than 60 days of deliberations -- a San Diego jury has found itself unable to agree on whether Tenet-owned Alvarado Hospital Medical Center illegally bribed physicians in exchange for patient referrals. The federal judge presiding over the complex case has declared a mistrial as a result.

After two mistrials, Tenet hopes that federal prosecutors will now abandon the case and ink a long-awaited global settlement with the company. Tenet investors have already started celebrating in the meantime. They sent the company's stock rocketing 8.4% to $7.90 immediately after the news.

Even the Tenet Shareholder Committee, a group long critical of company management, portrayed Tuesday as "a good day for Tenet." Previously, the committee had suggested that the lengthy deliberations could signal some guilty verdicts in the end.

Three parties -- a Tenet subsidiary, Alvarado Hospital Medical Center and former Alvarado CEO Barry Weinbaum -- faced multiple criminal charges. Any guilty verdicts could have stripped Alvarado of its Medicare privileges and sent Weinbaum to jail.

"There was always a lot of smoke around this case," said Micah Morrison, executive director of the Tenet Shareholder Committee. "But two juries couldn't agree on how much fire" there was.

For its part, Tenet has suggested that a new trial would end in similar fashion and should therefore be avoided.

"Like the two juries that have deadlocked in February 2005 and now April 2006, Tenet and the prosecutors disagree over whether anyone at Alvarado Hospital Medical Center intended to break the law when they recruited physicians to the fast-growing eastern part of San Diego County," Tenet general counsel Peter Urbanowicz said on Tuesday. "Because there is no reason to believe any other jury would produce a different result, we earnestly hope that the prosecutors will decide not to retry this case a third time. It's time for all of us now to devote our full energies to resolving the broader issues."

To be sure, plenty of issues remain. As Morrison pointed out, Tenet continues to face serious government allegations all across the country. Perhaps most notably, the company has been accused of overcharging Medicare and bilking the government out of more than $1 billion in the process. It has spent more than three years trying to ink a settlement and move on.

With the latest Alvarado trial now over, investors hope that a deal could finally be near. But Sheryl Skolnick, a veteran hospital analyst at CRT Capital, sounded cautious even after the recent mistrial.

"Uncertainty remains," noted Skolnick, who currently has no rating on Tenet's stock. "And that's not good."