Tenet's Dallas Dash May Leave Some Behind

The hospital chain is moving its headquarters, but one back-office group won't be making the trip.
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Updated from 7:24 a.m.

One

Tenet

(THC) - Get Report

office -- intimately familiar with the company's Medicare practices -- could escape a widely heralded corporate relocation.

Last week, Tenet announced plans to move its headquarters from the coastal resort town of Santa Barbara, Calif., and consolidate it with the rest of the company's administrative offices in more affordable Dallas. Tenet formalized its decision, released just minutes ahead of last Thursday's annual meeting, after fielding criticism for years about its fancy home base.

"As we build the new Tenet ... it is clear that our effectiveness as an organization will be enhanced if we have our corporate staff together in one central location," CEO Trevor Fetter stated. "The consolidation of our corporate offices is part of our overall effort to make Tenet a more effective and efficient company."

Tenet plans to transfer all corporate functions to Dallas within a year and then sell its current headquarters. When questioned by

TheStreet.com

, Tenet could not say how many of its 115 corporate staffers the company would actually keep.

Nor would it elaborate on the plans for -- or purpose of -- a separate business office that has been operating in Los Angeles for years.

"The Los Angeles office is small, about 30 people, and specializes in cost reporting," Tenet spokesman Steven Campanini said. "No decision has been made about its future."

Former Tenet insiders have far more to say about the Los Angeles office, however. They claim the business unit was actually supposed to relocate to Dallas, along with other administrative offices, nearly a decade ago. But they say that Los Angeles employees protested and, in the end, simply moved into their current home -- located on two floors of the company's original headquarters.

Quite simply, they say, Tenet could not afford to estrange the very employees who carried out the company's controversial Medicare policies, which have been under formal government scrutiny for a year and a half.

"So there's an office in L.A. solely for their convenience," one former insider said. "That's how much clout they had. ... They have the company by the tail."

Another former insider explained the functions carried out by the Los Angeles division. He said Tenet's "government services department" handles virtually everything -- from cost reports to policies and procedures to audits and compliance -- related to the company's Medicare business. He also said that staffers there would "absolutely" know about the aggressive Medicare billing that made Tenet so profitable in the past. And he went on to say that there is "no logistical, logical reason" for the office to be isolated away from the rest of Tenet's business functions.

Instead, the other insider said, the office must regularly rely on services that are provided off-site, half a continent away.

"Everything they really need is down in Dallas," he said.

Tenet itself has portrayed Dallas as the company's "largest corporate site" and, therefore, suitable for its administrative headquarters. It has also pledged to stop catering to employees -- at least those at the top.

In a March memo to corporate employees, which foreshadowed the move to Dallas, Fetter promised cultural change.

"I think it's clear to everyone that the Santa Barbara headquarters location was originally created for the personal convenience of the top executives of this company," Fetter wrote. "Unfortunately, this company and its predecessors had a tradition of self-indulgence at the top. One of my top priorities has been to do away with that tradition."

But former insiders say the Los Angeles employees are, once again, poised to get their way. Moreover, a staffer there told

TheStreet.com

this week that the unit is not moving to Dallas. And a real estate article, published a couple of years ago by the

Los Angeles Business Journal

, states that Tenet signed a 10-year lease for its local office there in 2002.

The newspaper pegged the total value of that lease at $11.3 million. That means that Tenet is paying nearly $40,000 annually -- per employee -- to rent space for the tiny, but important, Los Angeles division.

In comparison, Tenet spends only $65,000 on annual retainers for each of its directors. It does, however, pad those retainers with generous stock option awards and additional payments for meetings and committee service.

Still, the company has seen its board shrink -- with even a newcomer resigning -- as allegations of corporate wrongdoing continue to rock the company. Shareholders did overwhelmingly approve every nominee up for election at last week's annual meeting, however.

Two newcomers, health care veterans John Kane and Richard Pettingill, scored the biggest victories. But two holdovers failed to snag approval from more than 5% of the voters.

Investors withheld 5.5% of the vote for Robert Kerrey. Kerrey is a university president and former U.S. senator who is perhaps best known at the moment for serving on the commission appointed to investigate the 9/11 terrorist attacks.

Van Honeycutt, the longtime chief of

Computer Sciences

(CSC)

, failed to garner a slightly higher 5.8% of the vote. As

TheStreet.com

detailed late last year, Honeycutt has been compared to the so-called imperial CEO that Tenet finally booted last year.

Both Kerrey and Honeycutt sit on the compensation committee that approved huge paychecks -- topped by a generous severance package -- for ousted CEO Jeffrey Barbakow. Barbakow, a former movie executive who moved Tenet to luxurious Santa Barbara nearly 10 years ago,

scored $111 million by selling high-priced Tenet stock before scandal engulfed the company 18 months ago.

Tenet stands accused of, among other things, performing unnecessary surgeries and bilking Medicare in the process. It is hoping to secure a global settlement with the government that, some believe, could be as little as 60 days away. But the Tenet Shareholder Committee -- a group long critical of the company -- warned the government this week against settling for "checkbook justice" in its massive case against a "chronic repeat offender."

"Writing large checks, drawn on shareholder assets, haven't yet put the fear of God in the executives and board members who have been running this company," committee Chairman M. Lee Pearce stated. "The government should hold top executives and board members responsible for what this health care company did. ... Another cookie-cutter global settlement will not stop the endless cycle of scandal, settlement and more scandal at Tenet."

Tenet quickly swung back. The company essentially accused Pearce of attempted blackmail and said he has his own -- rather than shareholders' -- interests at heart.

"To our knowledge," Tenet announced, "no Tenet shareholders are associated with Dr. Pearce's shareholder committee."

Instead, Tenet said, Pearce formed the committee -- and hired some big-name consultants -- to serve his own purposes. Tenet said that Pearce simply wants the company to buy two medical buildings from him at "significantly above fair-market value" or, alternatively, sell him the Tenet-owned hospital located next to his Florida properties at a bargain price. It went on to say that Pearce made his most recent request -- coupled with a threat -- just last week.

"Shortly before Tenet's annual meeting on May 6, 2004, Dr. Pearce informed Tenet that unless the company met his demands regarding the Florida property, the Tenet Shareholder Committee would run a new series of attack advertisements and news releases aimed at further disparaging and hindering the company's efforts to resolve its issues with the federal government," Tenet stated. "Dr. Pearce further made it clear that the ads would not run and the Tenet Shareholder Committee would cease its activities if Tenet agreed to his demands. ... Tenet immediately notified Dr. Pearce that it would not accede to his demand."

The ads ran Wednesday in the

Wall Street Journal

-- and Tenet immediately cried foul.

"As we have said before, Dr. Pearce's Tenet Shareholder Committee serves no shareholder's purpose but his own," the company stated. "His latest attack will not dissuade the company from continuing its focused efforts to enhance patient care, rebuild its reputation and resolve its outstanding issues."

Tenet's stock -- a $50 highflier before its 2002 collapse -- climbed 2.1% to $12.15 on Thursday.