Tenet Looks for Way to ‘Cure Itself’

Tenet Healthcare Corp. didn’t admit any wrongdoing when it reached a civil settlement with the government earlier this year over alleged Medicare fraud. But the company voluntarily made a significant number of personnel changes, an apparent acknowledgment that not everything was right at the Dallas-based hospital chain. In addition to bringing on several new executives and directors, about 80 of the 97 vice presidents who were at Tenet prior to January 2003 are now gone. The shake-up was one of several major reforms that the company has implemented over the last few years.

The sweeping personnel overhaul at Tenet was “uncommon,” says Peter Henning, a former lawyer in the criminal division of the U.S. Department of Justice. Now a law professor at Wayne State University, Henning adds, “When you get down a couple of levels into management, that’s a substantial change” — and one that rarely happens.

Still, despite the employee shake-up, Tenet managed to avoid criminal charges, and that was what was most important for GC Peter Urbanowicz. Tenet’s settlement, which was announced June 29, comes at a time when other companies under investigation for alleged criminal violations have had to enter into more severe deferred and nonprosecution agreements with the government. On Sept. 28 Tenet also signed a “corporate integrity agreement” with the U.S. Department of Health and Human Services, which administers Medicare.

Urbanowicz supported the decision made by Tenet CEO Trevor Fetter to settle with the government. A former deputy general counsel at Health and Human Services, Urbanowicz became Tenet’s legal chief at the end of 2003. “When I joined the company, I let them know we couldn’t afford to have a bad relationship with the government,” Urbanowicz says. But, he adds, “you don’t want to agree to [settle claims] just for the sake of expediency,” and Tenet fiercely defended itself against any accusations of criminal wrongdoing.

Tenet’s problems started in October 2002 when nearly a dozen whistleblower suits were filed against the company, alleging it had inflated Medicare claims to increase payments for the sickest patients in its hospitals nationwide. By the end of that month, the FBI was looking into additional claims that two doctors in one of Tenet’s San Diego hospitals were performing medically unnecessary surgeries. The Justice Department quickly jumped in with its own investigation of the claims against Tenet.

In November 2002 Fetter was hired as the company’s new CEO. A new CFO and COO also came on at that time. The hires were part of the company’s attempts at changing its reputation with the government. Amid these changes, Tenet had to contend with the criminal trials of both San Diego doctors, which twice resulted in a hung jury.

This summer Tenet finally reached a settlement with the office of the U.S. attorney in Los Angeles and the civil division at the Justice Department’s headquarters in Washington, D.C., which shared the lead on the probe of the company. Tenet agreed to pay $725 million over a four-year period, plus interest, to the government for restitution of excessive Medicare payments. The company also agreed to fork over $47 million to resolve claims that it paid kickbacks to physicians who patients referred to its clinics. In addition, Tenet will pay $46 million for “upcoding” payments, which caused already costly procedures to be billed at an even higher rate. The settlement also put an end to the whistleblower suits.

In a prepared statement released after Tenet signed the deal with the DOJ, CEO Fetter said, “Some of the company’s past actions did not measure up to the high standards that we have imposed on ourselves since these issues first arose.”

The settlement with the DOJ was followed by the corporate integrity agreement with Health and Human Services’s inspector general. The agreement formalizes several changes that Tenet had already put into place, such as creating a compliance program headed by a chief compliance officer. Under the agreement, which will last for five years, the company must create a database to track patients, services, and activities. The stated aim of the agreement is to avoid violations of two federal statutes: one that bars a physician from referring patients to products or services in which he has an interest, and one that imposes criminal penalties on anyone in the Medicare system who accepts bribes.

Urbanowicz, 42, was charged with negotiating the settlement with the government. He says that his experience at Health and Human Services was one of the reasons he was hired at Tenet: “I think the board wanted … someone who knew the rules [at HHS], and knew them very clearly.”

After he arrived at Tenet, Urbanowicz made sweeping changes to the legal department. He streamlined the staff, reducing the number of lawyers from about 60 to around 40 today. He also severed relationships with several outside counsel in a quest for a “fresh viewpoint,” and hired a defense team headed by Latham & Watkins.

David Schindler, a Latham partner who worked on the agreement, says that the biggest challenge for Tenet was establishing trust with the government prior to and during the negotiations. The government was “particularly skeptical,” he says. Tenet’s lawyers had to “persuade [the government's lawyers] that the company that lives today bears no resemblance … to the old one.”

But the organizational changes weren’t the only steps Tenet took. Urbanowicz also moved the corporation’s compliance program outside the legal department to encourage transparency. He helped develop a new position — independent compliance officer — who reports directly to the board. At Urbanowicz’s urging, Tenet’s compliance department has grown from just three staffers to more than 100 full-time employees (there’s one in almost every one of the company’s hospitals).

In Urbanowicz’s view, it was especially important for Tenet to figure out a way to cure itself. “It’s not like a number of other companies [in other fields] where someone else could pick up the slack,” he explains. “In many cases we [operate] the only hospital in town.” Thanks to the settlement, those hospitals are staying in business.

Leave a comment

Your comment:

Subscribe without commenting