A big legal headache continues to bug

Tenet Healthcare

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A criminal trial, focusing on the company's financial relationship with physicians at a San Diego hospital, ended Thursday in a hung jury. Jurors listened to testimony for four months and debated a verdict for nearly two weeks before finally giving up.

Investors were clearly pleased that the company escaped a damaging guilty verdict, sending the stock up 3% Thursday. Still, Tenet could yet face another trial on the matter -- unless a judge dismisses the case or prosecutors decline to pursue it. The uncertainty could continue to hinder the hospital chain as it pursues settlements of other government probes.

"The fact that the jury struggled with this case demonstrates how much confusion there is regarding the laws that govern physician relocation agreements," said Peter Urbanowicz, general counsel for the company. "It's time now for all of us to devote our full energies to resolving broader issues."

Tenet shares added 36 cents to $10.88 on news of the deadlock.

Prosecutors had accused the chain's Alvarado Hospital Medical Center of illegally bribing physicians in exchange for patient referrals. During a 10-year period, they claimed, the hospital spent millions of dollars on bogus relocation agreements meant to increase admissions from existing physicians rather than to lure needed doctors to the popular San Diego area. Federal law prohibits relocation packages that are overly generous and tied to patient referrals.

Facing charges were a Tenet subsidiary that owns Alvarado, Alvarado itself and Alvarado CEO Barry Weinbaum. A former Alvarado administrator, Mina Nazaryan, was also charged but -- in an unexpected move during the middle of the trial -- agreed to testify against the remaining defendants in exchange for leniency.

The trial was the first in years to challenge physician relocation agreements, which rank as a popular recruiting tool throughout the hospital industry. In addition, a guilty verdict would have meant that Alvarado faced the loss of Medicare business and a possible fire sale.

As a result, many health care experts were monitoring the case with keen interest.

Vic Simon, editor of the trade newsletter

Physician Compensation Report

, was among them. Simon said that hospitals pay relocation expenses for at least 95% of the physicians they recruit. He also said that hospitals routinely offer income guarantees for incoming physicians, especially those moving to small cities or rural areas.

Thus, he said, both compensation arrangements can be fully legitimate. However, prosecutors claimed that Alvarado offered roughly 100 physicians more than $10 million to practice in the San Diego area.

"That's about $100,000 a doctor," Simon said ahead of the verdict. "If they prove that, the jury should find them guilty."

By all signs, though, Tenet was clearly banking on a victory.

In a surprise twist late last month, Tenet lawyers rested their case without calling a single witness to the stand. They insisted that the government had failed to prove criminal wrongdoing and asked the judge to dismiss the case instead of letting it go to the jury.

Although the judge declined to intervene at that point, some applauded Tenet's decision to rest its case so quickly. Fulcrum analyst Sheryl Skolnick called the strategy a "gutsy" one that, if successful, would look brilliant in the end.

Skolnick noted that jurors had already spent several months listening to complicated arguments and would probably appreciate a sudden end to the trial. At the same time, she said, the company had already spent a lot of money on lawyers and could save about $1 million a month by resting the case early.

Moreover, she added, Tenet's surprise move left the government with little time to prepare a "bang-up set of closing arguments" needed to sway the jury and convict the defendants.

Now, all the parties face the prospect of going through the whole grueling process again.

"There's part of me that's thinking, 'Would the defendants be that stupid to go to trial if they aren't right?'" Simon said before the verdict. "But who knows?"