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SEC Opens Informal Investigation of Tenet

Nov 19, 2002 | USA Today Tenet Healthcare said Monday that the Securities and Exchange Commission has opened an informal probe into some of its Medicare payments and the unusually high volume of trading in Tenet stock during the past few weeks.

In a letter to shareholders, CEO Jeffrey Barbakow said Tenet met with the SEC last week to discuss those issues and ''whether the company knew of any unusual trading by third parties.'' Tenet did not identify the third parties.

The SEC's probe is the fourth inquiry by a government agency to hit Tenet since late October.

''We do not know whether the SEC intends to launch a formal investigation,'' Barbakow said.

The SEC would not comment.

Share prices in the nation's second-largest hospital chain have plunged in recent weeks. Under review are Tenet's higher-than-average Medicare payments, allegations that two doctors in a California hospital may have performed unnecessary surgeries and a merger of two facilities in Poplar Bluff, Mo.

Several insiders sold stock in early October, nearly a month before the troubles came to light, according to's report of SEC filings. Thomas Mackey, the former chief operating officer, sold $14 million in stock on Oct. 4. On Oct. 8, former Nebraska senator Robert Kerrey, a director of the company, sold $2.9 million. Tenet Director Maurice DeWald sold $382,500 on Oct. 16.

In early October, shares were trading at slightly more than $50. Tenet shares closed Monday at $18.75, up 15%.

Mackey ''exercised his vested options at the first window of opportunity'' after quarterly results were posted, says Tenet spokesman Steven Campanini, who would not comment on the other sales. A spokesman for Kerrey, now president of New York University, says Kerrey would not comment. DeWald could not be reached.

News of the inquiry adds Tenet's name to a growing list of companies under SEC scrutiny.

In his letter, Barbakow said Tenet's balance sheet remains strong.

Since the troubles emerged, Tenet has reshaped its executive team, ousting Mackey and chief financial officer David Dennis. It launched a review of quality controls at Tenet hospitals in light of the allegations against the two doctors in Redding, Calif., and is re-examining its pricing practices.

Barbakow said last week that ''aggressive pricing'' strategies helped the company get higher-than-average Medicare ''outlier payments,'' which compensate hospitals with costlier-than-average patients.

On Monday, he said the ouster of two executives does not mean the company knows of deeper problems.

''Once I became fully aware of the aggressiveness of pricing strategies in certain markets and of the corollary impact of outlier payments, I realized that the company's credibility would be shattered,'' Barbakow said. ''While this approach is legal, it is not the way I want to run this company.''

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