Tenet's Mr. Outside Has Inside Game Too

Trevor Fetter took an important step -- out the door -- on his journey to the top echelons of Tenet ( THC).

In early 2000, Fetter resigned as Tenet's CFO to accept the top post at a technology start-up. The news blindsided some. After all, Fetter had made his name as a finance wizard at big companies such as Tenet, MGM ( MGM) and Merrill Lynch ( MER). He was now leaving, at the top of his game, to become CEO of an online purchasing venture that wouldn't even exist without seed money from Tenet.

"Trevor Fetter was a really, really good CFO," said one former Tenet executive. "When he went over to Broadlane, it shocked a lot of people."

Founded just months earlier with backing from Tenet, Broadlane was an upstart group purchasing organization that aimed to revolutionize the static industry with new technology. By the time Fetter was called back to Tenet on a rescue mission last year, Broadlane had signed up hundreds of hospitals -- starting with Tenet's own -- that had billions of dollars' worth of purchasing power. And Fetter had racked up three years' worth of CEO experience on his resume.

But Fetter's achievements away from Tenet may, in the end, prove less important than the fact that he left the company in the first place. The Tenet board, accused of massive failures in the past, must now hire a top-notch CEO to replace disgraced Jeffrey Barbakow and revive the ailing hospital chain. As an "outsider" during Tenet's rise and fall who has gone on to become a productive interim CEO, Fetter is seen as the one insider with an excellent shot at ascending to the throne.

Tenet said it plans to announce a new CEO in September but declined to answer other questions for this story.

Royal Bluff

While many people view Fetter as a frontrunner for the job, critics look at him and see the Barbakow regime.

For one thing, they say, Fetter shared the office of president with Thomas Mackey -- the company's ousted operating chief -- when Tenet adopted the aggressive business strategies that have since come back to haunt it. And besides, they add, Fetter never really left the company.

A "separation and continuing employment agreement," inked by Tenet in March 2000, promises Fetter a total of $273,000 -- or $6,500 a month -- for his continued assistance to the company. For Fetter, the side job meant helping Tenet with a lot more than contracts at Broadlane.

"During the term of this agreement, Mr. Fetter will cooperate fully with Tenet, upon request, to a maximum of 20 hours per month in relation to the defense, prosecution or other involvement in any continuing or future claims, lawsuits, charges and internal or external investigations which arise out of events or business matters which either have occurred, or will occur, during Mr. Fetter's employment by Tenet, and for which Mr. Fetter has or had knowledge and/or responsibility in his position as chief corporate officer and chief financial officer," the agreement states. "Such continuing duty of cooperation shall include making himself available to Tenet, upon reasonable notice, for depositions, interviews and appearance as a witness, and furnishing information to Tenet and its legal counsel upon request."

Within a few short years, Fetter would be staring at enough work to keep a whole crowd working overtime.

"Virtually every arm of the government -- with the possible exception of the Department of Fish and Game -- is investigating Tenet," Chuck Idelson, a spokesman for the California Nurses Association, said earlier this year. "It's pretty apparent that Tenet is in a world of trouble."

But when Fetter went part time, Tenet was on its way up. Less than a month after negotiating Fetter's new employment contract, Tenet reported the first in a long string of record-breaking quarters that would make the company a Wall Street darling.

Tenet shares slipped 17 cents to $16.03 Friday in light preholiday trading.

The Replacements

Tenet's turnaround, which ended years of erratic profits, came after major changes in 1999.

Between January and June of that year -- when a strict "corporate integrity agreement" with the government expired -- Tenet revamped its leadership team. In mid-January, just a week after disappointing Wall Street with poor quarterly results, Tenet announced that longtime President Michael Focht would be retiring early at the age of 56. In late February, the company promoted Christi Sulzbach -- regarded by some as "Ms. Cleanup" because of her focus on compliance -- to chief counsel. In March, the company hired a new person to head up its ethics training. Then in May, when Focht officially departed, Fetter and Mackey stepped in to share the role of president.

Mackey arrived on the job with some baggage. During Tenet's previous life as National Medical Enterprises, or NME, Mackey had overseen the psychiatric division that nearly put the company out of business. In the mid-'90s, Tenet agreed to pay a record-breaking fine -- and sell what was then the second-largest psychiatric chain -- after government authorities found substantial evidence that Tenet had been locking juveniles in mental hospitals just to loot their insurance policies.

Tenet ultimately signed a corporate integrity agreement, drafted with help from Sulzbach, promising to behave for the next five years. Afterwards, Sulzbach would earn a reputation for tough compliance that critics believe she never deserved. Even some of her early supporters now say she shirked her role as compliance chief after accepting the bigger job as lead counsel -- charged with cleaning up messes instead of preventing them -- just months before the government agreement expired.

"When they promoted Christi to general counsel, it appeared to be such a raging conflict of interest," said one former executive. "Now, she was wearing two hats -- and they were such important ones."

Ethics 101

To be fair, Tenet never abandoned its ethics program. It just adopted a new one.

In July of 1999, the month after Tenet's corporate integrity agreement expired and its aggressive business strategies apparently kicked in, more than 100 Tenet hospital CEOs sat mesmerized through a presentation by ethics guru Quint Studer. By early 2000, Studer -- who made a name for himself by turning a Florida hospital around -- had branched out on his own and landed Tenet as his first big client. He helped fashion Tenet's "Target 100" program, seeking 100% patient satisfaction, that the company still touts today. And within two years, he was already declaring the program a resounding success.

But in an interview with Fast Company magazine, he pointed to some odd supporting evidence.

"I took on Tenet Healthcare as my first client and rolled out the Nine Principles of Service Excellence to Tenet's 110 hospitals nationwide to successfully create a world-class service culture for this multibillion-dollar company," he told the magazine. "Tenet's work with Studer Group helped drive quarterly earnings on Wall Street to an all-time high."

In reality, aggressive Medicare billing -- based on price hikes now viewed as unethical or even illegal -- was fueling much of that growth. And Tenet nurses, a large and crucial segment of the company's staff, weren't nearly as happy as Studer's training was supposed to make them. Nurses have long complained that Tenet regularly places corporate profits ahead of patient care. Those complaints, supporting claims of unnecessary surgeries and lax infection control, continue to flood in even today.

"The greatest new policy is this: 'All patient call lights will be answered promptly by all hospital employees," said a veteran nurse, who works in the neonatal intensive care unit at Tenet's Sierra Vista Regional Medical Center in California. "This means the janitor will go into your room and ask you what you need. 'Gee, can he get me off the bedpan?' The maintenance man can assist with 'personal needs.' And it's all in the name of 'patient satisfaction.'"

Taking Stock

That nurse is among many represented by CNA, a powerful union that ranks as one of Tenet's harshest critics. In a direct snub to CNA, Fetter forged agreements with two competing unions that angered CNA but nevertheless pleased the market. More recently, he's scored even bigger points with investors for settling a major case with the government -- tied to suspicious surgeries at Tenet's hospital in Redding, Calif. -- and snaring a generous price for five of the company's noncore hospitals.

By now, many believe, Fetter probably has enough feathers in his cap to snare the Tenet crown. But Tenet critics, who've pushed for sweeping changes, cringe at the idea.

M. Lee Pearce, a Florida physician who leads the Tenet Shareholder Committee, has repeatedly called for incumbent executives -- including Sulzbach and the returning duo of Fetter and Focht -- to follow Barbakow out the door.

"This remaining triumvirate helped cause the problem and can never be part of the solution," Pearce stated in a recent letter to Tenet's board. "Tenet ... cannot begin to heal until the old NME management team, and its corporate culture have been purged."

But Fetter's old job at Broadlane is no longer waiting. Although it kept Fetter as chairman of the board, Broadlane recently hired an emergency room physician -- hailing from troubled Electronic Data Systems ( EDS) -- to fill the CEO seat Fetter vacated last year to rejoin Tenet.

Still, Tenet executives have a vested interest in seeing that now-profitable Broadlane ultimately succeeds. Just weeks after pouring seed money into Broadlane, Tenet turned around and offered company employees a piece of the pie. Tenet executives -- including Barbakow, Dennis, Fetter, Mackey and Sulzbach -- gobbled up thousands of cheap shares in anticipation of an initial public offering. While Broadlane remains private, with continued plans to go public, Tenet pegged the value of Broadlane shares at $5.71 -- or nearly four times what its executives paid -- just six months after the company was hatched.

Since then, Broadlane has leaned heavily on Tenet for both financing and business. But the company, which recently lured outside funding and made Tenet a minority holder, is moving closer to an IPO that could reap hundreds of millions of dollars for Tenet executives.

Institutional Shareholder Services, which supported Pearce's dissident group in a proxy fight three years ago, blasted the arrangement.

"ISS takes a dim view of the participation of Tenet officers in the stock sale," ISS wrote. "This transaction galvanizes our conviction that the Tenet board could benefit from directors who may be more critical of such actions."

Instead, the incumbents rode Tenet's rocketing stock price to victory. Three years later, Tenet's board -- still dominated by incumbents -- is charged with selecting a CEO that can lead the company out of the mess that piled up under its watch.

"We've come full circle from 1999 to 2003," Pearce said. "Once again ... the company is last amongst its competitors in numerous financial measures. The only apparent growth segment for the company is legal services -- but only as a client."

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