Cash-strapped

Tenet

(THC) - Get Report

continues on what increasingly looks like a long march to the poorhouse.

The giant hospital chain has lost a big court battle that will soon wipe out a quarter of the money in its bank account. Meanwhile, the company faces yet another legal challenge as it tries -- against huge opposition -- to shutter a landmark Philadelphia hospital that's losing $5 million a month.

Tenet shares slipped 16 cents to $12.51 on Thursday.

"Reality is now setting in," said Jeff Villwock, a health care analyst at Caymus Partners. "They're on their way to having a real cash crisis."

Tenet announced on Thursday that the California Supreme Court had refused to examine a lower court's order for the company to pay $148 million to one of its original founders. John Bedrosian, who helped launch Tenet predecessor National Medical Enterprises, scored the huge judgment after battling the company for 10 years. Bedrosian left NME after it came under fire for locking healthy juveniles in mental hospitals just to loot their insurance policies. He then sued the company for breach of contract in an effort to collect $9 million in stock-based compensation that he claims he was owed.

Instead, Tenet fought back. And over time, damages in the case -- which swelled along with the company's stock price -- soared past $250 million. Even with $100 million in interest shaved from that award, Tenet still faces a huge legal bill at a time when it has only $600 million in the bank.

Moreover, Tenet's remaining liquidity -- a $1 billion credit line -- could be vulnerable.

"Tenet indicated that it expects to generate negative cash flow from operations after capital expenditures, and to be in violation of its bank covenants," reminded Goldman Sachs analyst Andrew Bhak, who reiterated his underperform rating on Tenet Thursday. "As a result, we would expect not only a reduction in the size of its revolving credit facility but also an increasing amount drawn against that facility as the company funds working capital needs of the business through this means."

Meanwhile, big liabilities loom. The company is scheduled to pay a $275 million tax penalty before the end of the year. And hundreds of civil lawsuits -- accusing the company's Redding, Calif., hospital of profiting from unnecessary heart surgeries -- will begin heading to trial in November.

"Things are degrading rapidly for Tenet in Redding," said Jim Moriarty, a Houston attorney representing many of the patients.

Moriarty has scored big against Tenet -- landing a huge settlement for NME patients -- in the past. As a result, he remembers Bedrosian well. He blames the NME founder for the infamous "heads-in-the-beds" strategy that damaged his young clients. And he insists the former executive "would not be entitled to a dime if there was any equity, fairness or honesty in the world."

Still, he says that Tenet dug its own hole by stalling -- and choosing to "litigate, litigate, litigate" -- until Bedrosian finally won big.

"They're doing exactly the same thing with us right now," he said. "Except instead of $150 million at the end of the day, it's going to be billions of dollars" the company owes.

Tenet has already paid a record-breaking $54 million fine to settle government complaints against the Redding facility. It has also put Redding up for sale because Medicare threatened to cut off payments to the hospital. All told, it is in the process of shedding nearly a third of its hospitals in a desperate attempt to recover.

But it faces huge opposition in one of its toughest markets. The company had hoped to close down Medical College of Pennsylvania by the end of next month. But hundreds of MCP supporters -- from the state governor on down -- have joined forces to save the Philadelphia hospital that began 153 years ago as the nation's first medical school for women.

Tenet already weathered a setback when state officials ordered the company to keep MCP open until it supplies a mandatory 90-day closure plan. But that plan won't even kick in until Tenet addresses a court injunction -- temporarily blocking the closure -- at a hearing scheduled for Monday. Meanwhile, the hospital continues to lose more than $1 million a week.

Of course, Tenet hasn't scored much sympathy in Philadelphia.

"Their own hand caused this problem," insists Philadelphia Councilman Ralph Wynder, whose ward includes MCP. "And people in this community become outraged when they feel like they've been stepped on and taken advantage of."

Tenet acquired eight Philadelphia hospitals, including MCP, from the bankrupt Allegheny chain several years ago. But it has since closed two of the hospitals and sold another. In the meantime, Wynder said, the company has stripped MCP of vital services that have forced patients to seek care elsewhere.

"I think they wanted the hospital to close," Wynder said. "They systematically began to find -- or create -- reasons for it to happen."

But the company has met its match in a city known as much for its fight as its sense of brotherly love. The "Save MCP Hospital" coalition -- once again -- called its members to arms on Thursday.

"This is where David meets Goliath," registered nurse Ginny Holzworth said in a recent email blast. "I need you to get mad and stay mad. This is not one person's battle. It's all of ours."