The bills keep piling up at troubled Tenet ( THC).

The struggling hospital chain faces a new tax bill -- on top of a big parachute for its ousted CEO -- even as its cash flow is eroding. And the liabilities, stemming from government investigations and patient lawsuits, could just keep on coming.

"Our sense is that the government is a long way from resolving its investigations," said Stephens analyst Nancy Weaver, who rates the stock a hold. "Tenet's issues will not succumb to a quick fix."

Already, the company has lost one big round with the feds. Tenet revealed Monday that it has come up short in its battle with Uncle Sam. The company has been ordered to repay $269 million in back taxes and penalties to satisfy alleged deficiencies dating back to 1995. That amount, equal to double the cash on Tenet's balance sheet, far exceeds the potential $100-million tax liability Tenet projected in past regulatory filings.

In a new filing issued Monday, Tenet said it will fight the ruling, which was handed down late last week by the Internal Revenue Service.

The ruling "contains several adjustments with which we disagree," Tenet stated. "We plan to appeal each of these disputed adjustments, and no payment will be due during the appeals process."

But interest, which already accounts for $112 million of Tenet's tax bill, could swell in the meantime. Interest on the disputed taxes will jump from 5% to 7% by the end of this month. That rate will then be subject to quarterly revisions as Tenet moves through an appeals process that could stretch for more than a year.

The IRS has taken exception to a tax deduction related to Tenet's old psychiatric division. Tenet exited the psychiatric business after being charged with locking up juvenile patients for treatment they didn't need. Roughly a decade later, Tenet is once again accused of providing unnecessary medical treatment and bilking federal agencies.

Currently, Tenet is under multiple investigations and could face penalties and legal bills that, some believe, will total several billion dollars. The company has consistently denied any wrongdoing -- and continued to do so Monday when releasing news of the IRS verdict.

"We believe our original deductions and methods of accounting were appropriate," Tenet stated. But "we are currently not able to estimate the total amount that could be paid upon the ultimate resolution of all of the issues" in the IRS case.

Tenet investors, already numbed by bad news, shrugged off the IRS ruling Monday. The stock slipped 2 cents to close at $16.67. But Tenet stock is still off from the highs set last week, when investors rushed to celebrate the exit of embattled CEO Jeffrey Barbakow. Following news of Barbakow's departure, Tenet briefly jumped above $17 for the first time in months.

"Barbakow was the chief architect and practitioner of short-term 'Wall Street medicine' at Tenet," said M. Lee Pearce, a Florida doctor and Tenet shareholder who recently dropped plans for a second proxy fight against the company. "Barbakow had to go."

Changing of the Guard

Angry shareholders had been calling for Barbakow's ouster for some time. They complained that he collected huge sums -- including $111 million from insider sales -- while failing to properly oversee the company. Although he managed to rebuild Tenet once, following the psychiatric scandal, Barbakow went on to lead Tenet through an era of rapid growth that was heavily dependent on controversial Medicare payments that are no longer coming in.

Barbakow immediately fired his top two assistants when the Medicare scandal broke. Claiming he had no knowledge of the strategy, he managed to cling to his job until last week.

"He managed to survive longer than I anticipated," Weaver said. "But my bottom line is that this management change just delays the turnaround."

Fulcrum analyst Sheryl Skolnick agrees.

"Many investors ... will likely view this as the beginning of a new era at the company," said Skolnick, who also has a hold rating on the stock. "We view it as a period of uncertainty for the company."

For now, President Trevor Fetter has taken over as acting CEO. While popular with some on Wall Street, Fetter is still viewed as a protege of Barbakow. He is being considered, along with outside candidates, for the top job at Tenet.

But Weaver, for one, believes Tenet will have a tough time finding somebody who can turn the company around.

"We know of no strong candidate in the industry," Weaver wrote last week. "The Tenet board may need to go outside the industry to find" a new CEO.

Smooth Sailing

In the meantime, Tenet's old CEO will continue to pick up a big paycheck. For the next three years, Barbakow will collect salary and bonuses equal to the average he earned over the past five years. Barbakow collected $727,592 for the last seven months of 2002 and nearly eight times that amount in 2001. His stock sales -- which totaled more than $100 million -- made him the best-paid CEO in the nation last year.

When his severance pay runs out, Barbakow will begin collecting retirement benefits that continue for the rest of his life. He is entitled to an office and a secretary, paid for by Tenet, until the year his retirement kicks in.

Pearce has loudly protested that package as far too rich.

"He may go out the door with an outrageous golden parachute approved in January of this year, some two months after the scandals broke," Pearce said. "Departing management should be forced to forgo this additional, unconscionable waste of shareholders' assets."

Barbakow stands to profit even more if his replacement can turn the company, and its stock, back around. Right now, Barbakow owns 1.8 million Tenet shares and has options to buy 6.48 million more. In comparison, Fetter -- the next largest inside holder -- owns fewer than 340,000 shares with options to buy 100,000 more.

"We do not yet know what will become of his stock or options," Skolnick wrote last week. But "we wish Barbakow the best in his future endeavors."

Weaver is less enthusiastic. Although Tenet has yet to put an exact price tag on Barbakow's parachute, Weaver has already rendered her verdict.

"For someone who oversaw a $700 million ethics breach," Weaver said, "he probably got more than he should have -- whatever he got."

Weaver described Barbakow's firing as "altogether proper" and expressed hope that Tenet's board -- now free of executives -- will do a better job for shareholders going forward.

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