Tuesday, April 3, 2007
Tenet Healthcare Corp. settled an SEC civil enforcement action by agreeing to an injunction and payment of a $10 million penalty for inflating its earnings by exploiting a loophole in the Medicare and Medicaid regulations called "outlier payments." According to the Litigation Release (here):
The Commission’s complaint alleges that between 1999 and 2002, Tenet engaged in an unsustainable strategy to reach its earnings targets by deliberately exploiting the Medicare reimbursement system. Tenet’s scheme involved a loophole in the Medicare reimbursement system related to “outlier payments,” which are designed to compensate hospitals for caring for extraordinarily sick Medicare patients. Tenet’s management realized that Tenet could inflate its revenue from outlier payments by simply increasing the gross charges set by its hospitals. From 1999 to 2002, Tenet’s outlier revenue more than tripled and Tenet’s earnings goals were surpassed year after year. Tenet’s outlier growth from fiscal 1999 to fiscal 2002 accounted for over 54% of its cumulative growth in earnings per share from operations. Similarly, by fiscal 2002, Tenet’s outlier revenue comprised over 40% of its earnings per share.
In addition to the company, the complaint names four individual officers as defendants: Thomas B. Mackey, former chief operating officer and co-president; Christi R. Sulzbach, former general counsel and chief compliance officer; David L. Dennis, former CFO and co-president; and Raymond L. Mathiasen, former chief accounting officer. Dennis and Mathiasen settled the case by agreeing to pay $150,000 and $240,000 civil penalties respectively, and Mathiasen agreed to a Rule 102(e) bar from practicing before the Commission as an accountant. .