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Two Tenet Executives Ousted

Nov 8, 2002 | USA Today

Tenet Healthcare hit with investigations over Medicare payments, a hospital merger and a pair of California doctors ousted two top executives Thursday as it sought to reassure investors who have seen the firm's stock fall dramatically in recent days.

Chief Operating Officer Thomas Mackey, 54, retired and Chief Financial Officer David Dennis, 53, resigned, the company said. Former CFO Trevor Fetter will rejoin the company to fill a newly created position of president.

The moves come a day after Tenet acknowledged that federal investigators will audit the hospital chain over a type of Medicare payments called ''outliers,'' which brought Tenet $763 million in the fiscal year that ended in May.

Government investigators want to determine why Tenet was far above the national average in qualifying for such payments, which are meant to compensate hospitals for treating costlier-than-average patients.

During a two-hour conference call, CEO Jeffrey Barbakow said ''aggressive'' pricing strategies particularly in California were partly responsible for above-average payments from Medicare. He said the company has done nothing wrong.

Barbakow and other senior managers sought to reassure investors that Tenet remains strong despite a series of investigations by federal and state officials.

Before the conference call, Tenet stock closed at $27.95, up $1.67. That is well below the more than $49 the stock was trading at on Oct. 25. In after-hours trading Thursday, the stock fell below $20

Despite the troubles, executives said they stand by estimates for next year: earnings per share are expected to grow 25% over this year's figure of $2.34 a share.

But they also said about 50 cents of those expected earnings are tied to the fastest-growing component of those Medicare outlier payments now under scrutiny by the federal Office of the Inspector General.

The hospital system was able to garner those additional payments because it treats sicker patients and because it had raised prices aggressively in recent months, Barbakow said.

Analysts said the conference call answered some questions but raised many others.

''They say they were aggressive in pricing but there was no wrongdoing, but 'Oh, by the way, we just fired two top guys.' If nothing was wrong, why fire the two guys?'' asked Andy Bressler at Bank of America.

Other problems facing Tenet include a probe of the actions of two doctors at its Redding, Calif., hospital. Federal and state agencies are investigating allegations that the doctors performed unnecessary heart surgeries. The Federal Trade Commission is also investigating a 1999 merger of Tenet hospitals in Poplar Bluff, Mo., to see if the merger resulted in anti-competitive prices.

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