Old wounds continue to fester at
The ailing hospital chain on Wednesday blamed potential accounting irregularities dating back years ago for a delay in filing its second-quarter report. At the request of the
Securities and Exchange Commission
, Tenet is investigating the possibility that the company improperly reported certain hospital revenue in the past.
"Tenet, with the assistance of its outside counsel, is investigating allegations made by a former employee that inappropriate contractual allowances for managed care contracts may have been established at three California hospitals through at least fiscal 2001," the company explained. And "the independent outside counsel has retained the Huron Consulting Group to conduct a forensic accounting review of the allegations, including an examination of whether similar issues might have affected other Tenet hospitals."
If the employee's claims are found to be true, Tenet said, the company's net operating revenue for the periods involved could have been understated and the net revenue for the periods afterward could have been overstated when the improper allowances were reversed. The company said it does not believe any findings will materially affect the more recent financial results for 2004 and 2005.
Regardless, Caymus Partners analyst Jeff Villwock suggested that Tenet's past financial reports could have been materially misstated if the alleged behavior proves to involve more hospitals than the company currently thinks.
"If they were understating and then overstating their revenue, then their growth rate would be dramatically overstated -- and a higher growth rate means a higher stock price," said Villwock, who conducts research on behalf of the Tenet Shareholder Committee, a group long critical of company management. "Depending on materiality, the argument could be made that this activity lined the pockets of the management team that sold stock" when it was still on the rise.
For its part, Tenet continues to blame past leaders for its problems. The company linked the filing delay to a previously disclosed, ongoing SEC investigation. And its new CFO, Robert Shapard, portrayed the latest problem as yet another "legacy issue" that now ranks as a high priority for the company.
Still, Villwock feels like Tenet is constantly dealing with one crisis after another.
"Every time you turn around, Tenet has found a new way to do something inappropriately," Villwock said. "Whether that's in current time ... or in 2001, it's just incredible how many different ways Tenet can mess things up."
Tenet is expected to report another quarterly loss when it releases preliminary second-quarter results next month. Nevertheless, the company's stock jumped 1.5% to $12.40 on Wednesday and has weathered only a slight loss over the past year.