Feudi Pandola knew how to game Medicare long before

Tenet

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allegedly perfected the sport.

Indeed, the former hospital controller claims he could "tell you 13 ways from Sunday" how to rip the government program off even before he entered the Wharton School of Economics two decades ago. But he also admits that he's learned more by studying Tenet -- for just one short year -- than he ever did in his entire health care career.

"Any system that sprawls out umpteen thousands of pages of mind-numbing regulations is bound to have loopholes in it," Pandola said. "Tenet found one and milked that fat cow ... as creatively as possible."

Pandola himself never participated in Tenet's alleged scheme. He got fired instead -- just weeks before Tenet snatched up his Philadelphia hospital -- for criticizing the company in a personal letter to

Modern Healthcare

.

"I've been in health care for over 30 years," Pandola said, "and I've never seen this level of greed, arrogance and unethical behavior."

Originally, Pandola felt most disturbed by the

notorious $111 million stock sale executed by former Tenet CEO Jeffrey Barbakow. But he now has bigger worries. Tenet bought the hospital two blocks from his house and, in fact, controls a number of other facilities in the Philadelphia market.

"I am suspicious -- and indeed fearful -- that the same ghoulish medical practices used at Tenet facilities in Redding and Modesto, Calif., found their way east to my neighborhood in Philadelphia," Pandola wrote in a recent letter to Sen. Finance Chairman Charles Grassley, the Iowa Republican who's

leading an investigation into Tenet's business practices. "How do I know I won't have my chest sliced open for the sake of a lousy bonus payment from my insurer?"

Tenet dismisses Pandola as a disgruntled ex-employee but otherwise refuses to discuss his allegations. On Friday, shares of the big hospital chain -- which fetched $50 just last fall -- rose 4 cents to $13.25.

Chorus Line

Still, Pandola has powerful company. The federal government has already accused Tenet of profiting from unnecessary surgeries. And California's largest insurer is

now making similar claims.

Last month, Blue Cross of California announced that an independent review had uncovered a huge percentage of unnecessary heart bypasses performed on its patients at Redding Medical Center and Doctors Medical Center of Modesto. Before then, Redding alone had been singled out for its suspicious heart procedures. But Doctors Medical -- which ranks as the most expensive hospital in the country -- has attracted new scrutiny since BCC claimed that 59% of the heart bypass cases it studied there were medically unwarranted.

Tenet immediately blasted the study as flawed and has since announced that its own independent review justified all the surgeries. But Blue Cross has already stopped authorizing elective bypasses at the hospital and plans to terminate its relationship with the facility altogether by the end of this month.

"The results of the study lead us to believe there are significant and serious health and safety concerns with

heart bypass procedures performed at this hospital," Blue Cross wrote in a recent letter to its customers. "In order to avoid substantial out-of-pocket charges, Blue Cross strongly encourages its members to use an alternate participating facility for their medical needs."

Peter Young, a business consultant at HealthCare Strategic Issues, believes Tenet could lose other customers as well.

"Is Blue Cross California likely to be the only insurance company to review Tenet billings?" he questioned. "Likely not ...

And how much of a decrease in revenue can Tenet stand?"

Already, BCC has announced plans to review past heart surgeries performed on its patients at every Tenet-owned hospital in the state. By now, the government has also started questioning cardiac procedures at other Tenet hospitals in California. In the meantime, the California Nurses Association has already published a huge study showing just how profitable Tenet's bustling hospitals had managed to become.

Before its billing games were finally exposed, the study found, Tenet had managed to hike its prices so much that it significantly raised health care costs nationwide. By 2001, the company's "gross charges" -- used to calculate bonus payments from public and private insurers -- were 476% higher than its actual costs. On average, the hospital industry in general charges about 200%, or double, what it pays out in costs.

"Tenet Healthcare Corporation dominated the Top 100 most expensive hospitals by an overwhelming degree," the study found, "placing 64 hospitals on the list and occupying the top 14 listings -- all but one of which were in California."

Redding, once celebrated as Tenet's most profitable facility, isn't even included on the list because it failed to file necessary cost reports with the government. Instead, Doctors Medical Center of Modesto -- the very facility under fire by Blue Cross -- ranks at the top of the list. Tarzana Encino Regional Medical Center, another Tenet facility fielding questions about its heart program, comes in at No. 10. And eight other Tenet hospitals occupy every slot in between.

Indeed, Tenet owns the most expensive hospital in virtually every state where it operates. And in Pennsylvania -- which is second only to California in hospital cost ratios -- the company has raised prices so much that they have literally fallen off the chart.

Off the Charts

Five years ago, Tenet paid $345 million for a big money-losing hospital network in Philadelphia.

Tenet pledged to sink huge sums of money into the system -- which had just exited the biggest nonprofit bankruptcy ever -- in an effort to turn the hospitals around. The company's success in Philadelphia was both immediate and profound.

The Pennsylvania Health Care Cost Containment Council couldn't even register the extraordinary revenue hikes at some Tenet-owned facilities. But manual calculations show big revenue increases -- ranging from 27% to 55% -- over the past three years. At several of the facilities, revenue nearly doubled in a single year just after Tenet took over.

"The increases in net patient revenue for the first full year of Tenet ownership ... range from a low of 176% ... to a high of 202%," Pandola said. "No other hospital even comes close to these rates of average annual increases."

Tenet itself points to "a lot of factors" -- particularly cost-saving efficiencies -- for its past success in Philadelphia. But others have cited Medicare "outlier" payments as the real driver behind that growth. And Pandola counts himself among that group.

Moreover, Pandola is now suspicious that Tenet collected big outlier checks for operating on Philadelphia patients who -- like those in Redding -- may have never needed surgery at all.

"I cannot say for a fact that people here were cut open just for the money," he said in a recent letter to the government. But "I am unaware of any dramatic change in the health of the residents of the city of Philadelphia that might provide a rational basis for these types of increases in patient revenue."

Pandola expects those same revenue figures to dive as Tenet's outlier payments disappear. For its part, Tenet refuses to say whether the hospitals are even profitable any more. But the company itself has already slid into the red since its outliers dried up. And the company's Philadelphia hospitals were apparently more outlier-dependent than most.

"Tenet made a number of asset buys predicated on manipulation of

Medicare codes to trigger outliers," Young said, pointing to acquisitions in Philadelphia -- as well as Florida and New Orleans -- in particular.

At least two of Tenet's Philadelphia-area hospitals have other headaches as well. Both Hahnemann University Hospital and Medical College of Pennsylvania shut down their trauma centers last week. The latter hospital also slashed its patient admissions because its nurses are on strike.

"They are not striking for higher pay," Pandola noted. "They are striking for a limit on stressful mandatory overtime and for a limit on the number of patients they can serve per shift."

Pandola, for one, says he's scared to go to any Tenet-owned hospital in the area.

"I am surrounded by hospitals all owned by Tenet Healthcare," he said. "How can I trust that I won't have my chest sliced open for no medically apparent reason if I go to one of these facilities?"