Tenet

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insiders have been blessed with more luck thansome of the hospital chain's unfortunate patients.

A number of officers and directors at SantaBarbara, Calif.-based Tenet pulled off thestock market equivalent of a medical miracle this year, some of them selling their Tenet shares just weeks before the companytook a drastic turn for the worse. Moreover, theyclaim to have done so without noticing any troublingsymptoms at Tenet.

But by October's end, Tenet's ills would be ondisplay for all to see. Reports of unnecessarysurgeries at one Tenet hospital and aggressiveMedicare billing at others shocked Wall Street.Prominent executive departures and sharp analystdowngrades followed, amid rising concerns about whereTenet would find earnings growth. The company'sshares, which traded for $50 as recently as Halloween,have lost two-thirds of their market value in just twoweeks.

Lucky for insiders such as former Sen. Bob Kerrey,now a Tenet director, the fall hasn't been equallypainful for all Tenet investors. The Democrat from Nebraska netted $850,000 selling Tenet stockin transactions on Oct. 4 and Oct. 8 --and he wasn't even the biggest or the timeliestseller. Fellow director Maurice DeWald, a formerauditor and current chairman of a California investmentfirm, sold $382,500 worth of Tenet stock eight daysafter Kerrey's last transaction. And Tenet'soperating chief made millions selling stock just amonth before he left the company.

Despite their uncanny timing, the insiders stress that they were unaware of any problems when they made their sales. "My financialadviser said I should not hold any more than half ofmy options at any one time," said Kerrey. "So I lefthalf and sold half."

But now, with Tenet knee-deep in investigationsand investors questioning the credibility of a companythat has come under fire before, the insider salesgive investors yet another reason to turn their backs on this alreadystruggling stock.

Tarnished Brass

In some eyes the most jarring insider transactions cameOct. 4, the day of Kerrey's first stock sale. That waswhen then-Chief Operating Officer Thomas Mackeyunloaded 277,500 shares at $51.50 for a sweet gain ofjust under $10 million. Roughly a month later -- thestock nearly sliced in half by investigations anddowngrades -- Mackey abruptly ended his 17-year tenurewith Tenet, retiring from his $3 million-a-year job atthe age of 54.

Tenet CEO Jeffrey Barbakow explained the suddendeparture of Mackey and former CFO David Dennis, whofollowed Mackey out the door, by saying he'd lostconfidence in both men after learning about Tenet'sheavy dependence on aggressive Medicare pricing.

By this time, more than a month had passed sinceUBS Warburg analyst Ken Weakley first raised questionsabout Tenet's Medicare payments. Those questions,posed on Oct. 2, came two days before Mackey executedhis $9.9 million stock sale.

In Mackey's defense, Weakley has said hisquestions took on a specific nature only after thattransaction and that he never discussed the matterwith Mackey personally. Instead, Weakley said hebroached the subject roughly a week after Mackey'ssale with then-CFO Dennis -- one of only two insiderswho actually bought Tenet stock (in nonoptiontransactions) this year.

Analysts have expressed similar faith inBarbakow's innocence. They widely believe thatBarbakow, who stirred controversy with a $111 millionstock sale in January, was oblivious to Tenet'squestionable Medicare profits. Even so, they takelittle comfort in that conclusion.

"We are troubled by

Barbakow's apparent lack ofawareness of the inner workings of the company atwhich he is at the helm," Andreas Dirnagl, an analystat Gerard Klauer Mattison, said when slashing hisrecommendation for the stock from buy to sell lastweek. "We believe it raises questions as to Mr.Barbakow's accountability."

Outside Detectives

Some outsiders, without Barbakow's unlimitedaccess to company records, figured out plenty aboutTenet on their own. Researchers at Dartmouth MedicalSchool said they flagged the high surgery rate atTenet's Redding Medical Center -- now under federalinvestigation -- years ago. An ongoing study,conducted by Dartmouth's Center for the EvaluativeClinical Sciences, showed that Redding had the highestrate of heart bypass surgeries among Medicarebeneficiaries in the 1990s. The hospital now ranksthird in the nation, performing twice as many of thelucrative heart procedures as a similar-size rival inthe same area.

But a tip this summer from Catholic priest JohnCorapi, who escaped an unnecessary heart bypass byminutes, could send that surgery rate plunging.Building on Corapi's tip, the FBI recently launched afull-blown investigation of Redding and two of itsmost prominent heart surgeons. That investigation, iffruitful, could prove costly for America'ssecond-largest hospital chain.

More than 150 Redding patients have died frominvasive heart procedures like the one Corapi nearlyendured without reason. Already, up to 100 people havecontacted lawyers about joining Corapi in lawsuitsagainst Tenet that could seek more than $1 billion indamages.

So far, Tenet has attempted to downplay the matteras an isolated, if serious, problem limited toRedding. And even researchers at Dartmouth, who'velabeled Redding's high surgery rate as noteworthy, aregiving the company the benefit of the doubt.

Megan Cooper, co-author of Dartmouth's study, saidTenet also operates hospitals with sub-average surgeryrates.

"There's no clear pattern here," Cooper said thisweek. "I just don't think the evidence that Tenet isdriving this

high surgery rate is in the data."

Stark Reminder

Still, analysts are wary.

"We suspect that there may be other units withpowerful physicians who may have run the businessaggressively and might invite further scrutiny,"Fulcrum analyst Sheryl Skolnick wrote in a researchnote this week. "We see a very real risk that theinvestigation in Redding, Calif., could spread to thecompany itself."

The California Nurses Association has reportedthat Redding's "outlier" payments -- Medicarereimbursements for costly procedures such as heartsurgeries -- are eight times the state average. Tenetas a whole collects three times the national norm forsuch Medicare-funded procedures.

"Tenet is clearly far out of line with the nearly6,000 other hospitals in the U.S. and the other 500hospitals in California," said nurses group PresidentKay McVay.

The federal Health and Human Services Departmentis auditing Tenet for possible Medicare violations.And Tenet itself has already promised to back awayfrom its aggressive pricing policies.

To analysts, that means up to 50% of Tenet'searnings growth -- all attributable to outlierpayments -- is suddenly at risk. Given the expecteddive in earnings and the potential for billions ofdollars in liabilities, Skolnick now believes thatTenet's stock is worth only $11.60 a share, even less than its recent price of $15.

The stock hasn't traded that low since Tenet'sfraud-riddled era as National Medical Enterprisesnearly a decade ago.

Rep. Pete Stark, a Democrat from California,warned last week that history may be repeating itself.

"I fear that Tenet's relentless corporate strategyto increase profits by providing and billing for moreexpensive medical services has improperly influencedthe practice of medicine and resulted in unnecessaryand harmful surgeries," Stark said in a recent pressrelease. "I suspect that this audit is just the tip ofthe iceberg and will ultimately reveal that, despiteits new name, Tenet is up to its old tricks."