Saturday, June 6, 2015

Tenet's Two Tales: Financial Machinations, Ethics Drought

Two Tenet Healthcare stories show the sad state of deform in U.S. healthcare.  The first involves financial machinations encouraged by PPACA:

Tenet Healthcare Corporation (NYSE: THC) and Welsh, Carson, Anderson & Stowe have signed a definitive agreement under which Tenet and United Surgical Partners International (USPI) will combine their short-stay surgery and imaging center assets into a new joint venture. The Tenet and USPI joint venture will be the largest provider of ambulatory surgery in the United States.

Under the terms of the agreement, Tenet will initially own 50.1% of the joint venture and will consolidate its financial results. Welsh Carson and the other existing investors in USPI will initially own the remaining 49.9%. Tenet will have a path to full ownership of USPI over the next five years through a put/call structure
Tenet expects to raise $2. 2 billion of debt related to these transactions , to be used principally to refinance $ 1. 5 billion in existing debt of USPI , make the $0.6 billion in cash payments to Welsh Carson for USPI and Aspen, and for related transaction expenses.

Welsh Carson is a private equity underwriter (PEU).  Consider the distortions greed placed on our health care system through the second story.  Bloomberg reported:

Four Tenet Healthcare Corp. hospitals are the target of a federal criminal probe into allegations executives paid kickbacks to obstetric clinics for patient referrals, the company said in securities filings.

The investigation arose from a 2009 whistle-blower lawsuit accusing Tenet’s hospitals of paying local clinics to send pregnant, undocumented Hispanic women to their facilities for deliveries covered by Medicaid.
The illegal behavior began as early as 2000 and continued to the time of the complaint being filed.  Tenet Healthcare's board had Jeb Bush on it from 2007 to 2014.

Tenet, the third-largest publicly traded hospital chain, has been dogged by fraud allegations over the years and agreed to a $900 million settlement with the government in 2006 to resolve claims it cheated Medicare through overbilling.
The eight count civil complaint cited a 2007 e-mail from Tenet's Southern Regional Corporate office describing the arrangement as part of the "Georgia inventory."  Also, Tenet hospital cost reports failed to show disallowed costs paid for referrals of Medicaid patient.  One Tenet hospital paid a "management fee" to the OB clinic based on Tenet's net collections.  Tenet tried to defend the scheme as supporting its OB Residency which lost its accreditation in 2008.

Board member Bush should've been aware of this case as a member of the Quality, Compliance and Ethics Committee from 2008 to his resignation.

Tenet is a serial ethics violator, even settling with the state of Florida while Jeb was Governor.  That didn't prevent Jeb from joining the board and being personally enriched with $2 million in cash and stock. 

Welsh Carson has Tom Scully, former Medicare/Medicaid Chief as General Partner.  Scully led the implementation of Medicare Prescription Drug Program (Part D).  United Surgical Partners grew in part to its joint ventures with Baylor Health System.

There's a new joint venture in town between Tenet and United Surgical.

Based on the respective valuation multiples and the expected EBITDA less NCI at the joint venture over the next year, the enterprise value of the joint venture approximates 12.5x forward EBITDA less NCI, based on an equity value of approximately $2.6 billion. The agreement contains a put/call structure, under which Tenet can acquire the remaining Welsh Carson investment in USPI over the next five years at a fixed multiple of 9.5x forward EBITDA less NCI.
It's about financial machinations, a common meme in our PEU world.  I expressly don't want my surgery performed in a center acquired by a put/call structure. 

Update 6-6-15:  Tenet made the news for a third story, one about high infant mortality at a Florida hospital's NICU   The article's title is "9th Baby Dies After Heart Surgery at Florida hospital".