Tenet Selling Redding Hospital - TheStreet

Tenet

(THC) - Get Report

has agreed to sell its most embattled -- and once most profitable -- hospital.

Threatened with the loss of federal funding, Tenet's hospital in Redding, Calif., is now up for sale. The Redding facility, once prized for its profitable cardiac business, has been ailing for more than a year since it came under fire for allegedly performing hundreds of unnecessary heart surgeries. The hospital has already paid a record-setting $54 million fine to end a probe by the federal government. But it still faced exclusion from crucial government insurance programs, such as Medicare and Medicaid, if it remained under the Tenet umbrella.

In a deal reached this week with the government, Tenet committed to sell the Redding facility to a new owner within the next six months.

"Tenet has made the decision to sell the 269-bed Redding, Calif., hospital as part of an agreement with the Office of Inspector General in the U.S. Department of Health and Human Services, which has been considering a possible exclusion of Redding Medical Center from federal health programs," Tenet announced after the market closed on Thursday. "The company believes that, under these circumstances, a sale would be in the best interests of the hospital's employees, patients, physicians and the Redding community."

Thrilling

Fulcrum analyst Sheryl Skolnick has already predicted that Tenet, under fire from multiple government agencies, will have to sell all of its hospitals in the end. In the meantime, Jim Moriarty -- a Houston attorney who represents hundreds of Redding heart patients and survivors -- was quick to applaud the Redding deal.

"Our clients are going to be thrilled," said Moriarty, who scored a big settlement on behalf of Tenet's psychiatric patients during a similar scandal a decade ago. "Tenet could never regain the trust of the people in northern California. This will create more good faith than anything else Tenet could have done."

Tenet's problems at Redding have not ended, however. Moriarty estimates that Tenet still faces $1 billion in liabilities stemming from lawsuits filed against the hospital. But Tenet itself is denying responsibility for any wrongdoing that might have taken place at the facility.

In a packed courtroom on Monday, the local

Redding Searchlight

reported, Tenet attorney Susan Marcella argued that the corporation should not be held accountable for any unnecessary surgeries performed by Redding's former doctors. Tenet faces roughly 1,200 lawsuits from Redding patients and survivors who accuse the company of profiting from unnecessary procedures at their expense.

"Tenet did not owe a duty to the plaintiffs," the

Searchlight

quoted Marcella as saying. "Tenet Healthcare does not operate this hospital, does not run this hospital. ... There are no facts sufficient to justify dragging my client into the proceedings."

Tenet has consistently maintained that its problems at Redding should be blamed entirely on rogue physicians over which it has no control. However, one of the company's hospital CEOs recently claimed that executives are in fact responsible for the practices carried out inside Tenet facilities.

Earlier this month, Tim Joslin -- the CEO of Tenet-owned Doctors Medical Center of Modesto, Calif. -- sued Blue Cross of California after the insurer, which ranks as the state's largest, accused the hospital of carrying out a number of unnecessary heart surgeries like those alleged at Redding. After studying a sample of heart bypasses performed by DMC on its customers, Blue Cross declared that 59% of them were medically unjustified.

Tenet soon commissioned its own independent review that validated all of the procedures, and Blue Cross backed off its threat to end its relationship with DMC. However, Joslin went on to file a defamation lawsuit against Blue Cross after the matter was resolved.

In that complaint, Joslin assumes ultimate responsibility for the practices at his facility.

"Plaintiff, as CEO of DMC, is directly and ultimately responsible for ensuring that quality-assurance and peer-review systems are in place at DMC, as well as ensuring that DMC continues to meet the highest medical and ethical standards of care," the lawsuit states. "Defendants, and each of them, acted despicably, willfully and in reckless disregard of the damage to the reputation of the plaintiff, as well as that of DMC, its physicians, nurses, employees and all other affected persons and entities."

Blue Cross abandoned plans to terminate its contract with DMC after Tenet accused the insurer -- which still owes the company $50 million in overdue bills -- of using outdated standards and a biased sample to skew the results of its study. Blue Cross stood by the results even after ending its feud with the hospital chain.

Nationwide

But Tenet faces problems outside its home state of California as well. The company has also been flooded with patient lawsuits in its major market of Florida. There, more than 100 former patients and survivors have accused Tenet-owned Palm Beach Gardens Medical Center of cost-cutting measures that led to unsanitary conditions triggering serious -- and sometimes fatal -- postoperative infections.

Last month, the

Philadelphia Daily News

reported, even a Philadelphia city official joined labor unions in striking out against the hospital. Nurses employed by Tenet's Medical College of Pennsylvania Hospital walked out a month ago after the hospital refused to stop making them work up to 16 hours at a time when they were already fatigued.

"Those bastards!" the newspaper quoted Controller Jonathan Saidel as saying. "Those pigs! I'll go wherever nurses need me, any time."

Saidel credits local nurses with delivering extended, life-saving care to his newborn daughter two decades ago. His support, however, has failed to resolve the current dispute. Just today, local news radio station KYW reported that the Philadelphia hospital is now on the verge of laying off 200 employees -- outside the nursing staff -- because the strike has essentially cut the hospital's patient count in half.

By now, Tenet's entire operation is under scrutiny. Sen. Finance Committee Chairman Chuck Grassley -- an Iowa Republican who's leading the most public investigation of the company -- said on Thursday that he will continue to seek answers from Tenet.

"I applaud the inspector general's unprecedented action," Grassley said upon news of the pending Redding sale. "This sale won't be the end of my investigation, however. ... We have to expose the terrible things that happened there so they never happen again."

Moriarty, in turn, applauded those who have pursued the company.

"Pearce has been a breath of fresh air," he said, referring to M. Lee Pearce, a Florida physician who chairs the Tenet Shareholder Committee. "He and Grassley have been the real heroes of this whole ordeal."

Tenet's stock climbed 1.7% to $14.74 ahead of Thursday's news.