Florida Probes Tenet Hospital

Critics of the hospital chain say the allegations hark back to a dark day in its history.
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New complaints against

Tenet Healthcare

(THC) - Get Report

carry a familiar ring.

The Florida Department of Children and Families has cracked down on the psychiatric unit of Florida Medical Center, a Tenet-owned facility in Lauderdale Lakes, for improperly admitting patients -- particularly the elderly -- against their will. In a letter sent to the hospital Monday and obtained by

TheStreet.com

, the agency officially barred the unit from future involuntary admissions. The department said it was investigating the hospital for Medicare and Medicaid fraud, violation of patient rights and "unacceptable clinical practices."

Neither Tenet nor Florida Medical Center immediately returned telephone calls Tuesday seeking comment. But hospital spokeswoman Sue Baron told the

South Florida Sun-Sentinel

the hospital is cooperating and plans to seek reinstatement of involuntary psychiatric admissions when the problems are corrected.

Although Tenet has repeatedly pledged to turn itself around, new problems continue to surface at the company and stir doubts among worried investors. The Florida probe is simply the latest facing Tenet as it once again seeks to resolve allegations and rebuild its reputation.

"The Florida developments are clearly a negative for the repositioning/recovery story at THC," wrote Fulcrum analyst Sheryl Skolnick, who has a neutral rating on the stock. "This is more than an embarrassment, in our view."

Roughly a decade ago, Tenet faced similar charges when it operated as National Medical Enterprises. The company paid big settlements for allegedly locking juveniles in its psychiatric hospitals just to bilk their insurance policies. It ultimately wound up shedding its psychiatric division -- then a core unit -- as part of a government deal.

The Tenet Shareholder Committee, a group long critical of company management, expressed a sense of deja vu.

"A government agency reviewing psychiatric admissions at a Tenet facility!" the group declared on its Web site,

www.tenetshareholdercommittee.org. "Anyone who knows the scandal-plagued history of Tenet, operating under its earlier name, NME, will find this item a disturbing reminder of the company's dark past."

Shares of Tenet slipped 6 cents Wednesday to $10.40.

Booming Business

Hints about the Florida probe first surfaced late last month.

On Jan. 26, the

Miami Herald

reported that state officials had begun examining allegations that Florida Medical Center had "routinely violated the rights of psychiatric patients -- some of them frail elderly people -- by holding them against their will." The newspaper went on to say that critics had even accused the psychiatric unit of admitting one elderly patient directly from hospice care.

In its letter this week, the Department of Children and Families expressed particular concern about the unit's elderly patients. It noted that the unit's admissions among that age group were roughly twice the state average. And it cited numbers showing that most admissions throughout the unit were conducted on an involuntary basis.

Moreover, the agency raised questions about the involuntary admission of patients who were simply "confused," "paranoid" or "agitated."

Since then, Skolnick has identified the unit as a clear moneymaker. Based on information from the Ingenix health care database, she calculated that both admissions and prices at the hospital's psychiatric unit were more than double the state's average. Thus, she called the unit a "very busy" place.

"We actually are rather shocked that management would have permitted such high utilization rates, in such a vulnerable high-cost unit, to go 'uninvestigated,'" Skolnick wrote. "Vestiges of the previous management's 'don't ask, don't tell' policy? We certainly hope not."

The

Herald

also said that business has been "booming" in the hospital's psychiatric ward. After closing the children's unit and adding those beds to the adult program four years ago, the

Herald

reported, occupancy in the psychiatric ward jumped from 72% to 104% as admissions overflowed during the first half of 2004. The state contends that the unit was still improperly admitting elderly patients as recently as last month, according to Fulcrum's report.

Donna Cohen, a professor of aging and mental health at the University of South Florida, told the

Herald

that she considers such behavior to be "heartless and cruel." But a local attorney went a step further.

"If they were taking somebody from a nursing home knowing that they have no legal justification to do so, and they were doing it to make a profit, that's kidnapping," Howard Finkelstein, a public defender who represents psychiatric patients, told the

Sun-Sentinel

on Tuesday. "It's that simple."

Peter Young, a business consultant at HealthCare Strategic Issues, worries that the situation could grow even worse. He believes that other Tenet-owned hospitals may have referred patients to the psychiatric unit in order to maximize company profits. Thus, he sees the possibility of an "intentional organized scheme" that extends far beyond a single facility.

As a result, Young questions whether Tenet can really put its past behind it this time around.

"The situation leads one to conclude there is an apparent culture ethics crisis within Tenet that now, two years into a turnaround, the company finds itself again facing Medicare and Medicaid fraud issues and a new issue -- civil rights violations," Young said. "The board of directors needs to conduct a soul-searching analysis of what went wrong."

Assessing the Blame

The Tenet Shareholder Committee has already placed some blame. Earlier this month, the group singled out Don Steigman -- a senior vice president who has presided over the Florida region since 1995 -- for some harsh criticism. The group holds Steigman responsible for problems at multiple Florida facilities.

For starters, the committee says that the Florida region -- "once called the crown jewel" of the company -- now suffers from negative operating margins. Moreover, it says that many of the facilities have become targets of controversy.

The group ranks the questionable psychiatric admissions as an especially grave concern. But it also lists a number of local headlines, all published over the past couple of months, when making its case as well. They include:

  • "U.S. Warns St. Mary's on Possible Loss of Medicare" -- Palm Beach Post
  • "Tenet Settles Suits for $31 Million; Cases Stem from Severe Infections in Center's Cardiac Unit" -- Sun-Sentinel
  • "Wyett to Hospital: 'Shape up or Ship out.' Town Council President Wants Investigation of Good Samaritan's Operations, Calls for Sale of Facility if Recommendations Ignored" -- Palm Beach Post

Citing such problems, the shareholder committee has called for Steigman's immediate dismissal.

"When Tenet ticks off claimed reforms, one item on their list is the elimination or replacement of 40 executives," the group recently stated. "We believe they should quickly increase that number -- by at least one."