Part Two - Tenet Shareholder Committee

Greed, Scandal & Wrongful Deaths
at Tenet Healthcare Corp.

A multi part series from the Tenet Shareholder Committee

As the Tenet Shareholder Committee finishes its fifth year, we have prepared a summary of what, from our point of view, went wrong at Tenet and a history of our longstanding effort to reform this company. We are publishing this multi part series on our web site.

Today (02/09/2005):
Part 2 – Empty Suits in the Boardroom
Find below a brief description of each section in Part 2.
Click here to see Part 2 in full (PDF file 500KB).

A Conflicted & Captive Board, Disregarding Shareholders

Year after year, Tenet’s Board of Directors ignored shareholder demands for reform
Board finally forced to adopt some reforms, but with loopholes and recycled executives
Barbakow’s Board – a corporate governance outlier
Board criticized by California pension fund. Comments on “low qualifications of the current Board”
Board criticized by corporate governance reform group. Comments on “brazen indifference” toward shareholders
Promises made, but not kept, by Tenet during 2000 proxy contest
Five conflicted Board members: Biondi, Cloud, Honeycutt, Loop and Lozano
Conclusion of 2000 proxy contest; Tenet Shareholder Committee pledge to remain vigilant on issues of quality care, prevention of fraud and abuse

A Dysfunctional Board Failed to Protect Patients

Director Van B. Honeycutt

As an experienced corporate CEO, did he ever ask management how Tenet went from a negative cash flow in FY98 and FY99 to test .22 billion in FY2001?
As a member of the Tenet Board compensation committee, why did he approve lavish compensation, bonuses and retirement plans for a CEO (Barbakow), who claimed he was unaware of a major source of revenue for the company…Medicare outliers?
Was Honeycutt, who later made another list of the 25 most overpaid CEO’s, incapable of restraining the greed of a fellow CEO?
Did Honeycutt demand that Barbakow return his excessive compensation?
Did Honeycutt turn a blind eye toward Tenet’s abusive practices that led to unnecessary patient deaths and injuries and a .4 billion loss to shareholders?

Director Lawrence Biondi, S.J.

As the chairman of the Board’s Quality, Compliance and Ethics committee, what did Biondi do to check on Tenet’s compliance with all applicable laws and regulations?
Why did Biondi allow such an obvious conflict of interest of having the corporate counsel also serve as the chief compliance officer?
Biondi once wrote that “patient safety is serious business.” “…the visible error – the one that ‘harmed’ a patient – often is a result of a string of errors deep within the organization.” Did he even attempt to discover the errors deep within Tenet that led to patient abuse? Or, were his comments about patient safety just so much hot air?

Director Floyd Loop, M.D.

Dr. Loop was the chairman and CEO of the Cleveland Clinic, renowned for cardiology and cardiovascular surgery. He was an internationally recognized cardiac surgeon
Why did he fail to first recognize and then speak out on the Tenet scandals…particularly those related to allegations of unnecessary invasive heart procedures at Redding Medical Center?
When Dr. Pearce, TSC chairman, wrote to Dr. Loop, urging him to take a leadership role to address quality issues at Tenet, why did Dr. Loop fail to respond?

Director J. Robert Kerrey

Did Kerrey ever question how Tenet’s earnings went from a sow’s ear to a silk purse almost overnight?
Did he care, as long as he was able to pocket 0,000 by cashing in Tenet stock options weeks before the stock price collapsed, but just after the first inquiry that eventually led to that collapse?
As a former U.S. Senator and as co-chairman of Concord Coalition, Kerrey talks about ensuring that Social Security, Medicare, and Medicaid are secure for all generations. What was he doing while Tenet was ripping off Medicare for nearly billion?

Déjŕ vu All Over Again – A Crisis of Leadership

Financially, we’ve come full circle from 1999 to 2004, only now Tenet’s financial condition is significantly worse
As in 1999, Tenet is once again last among its competitors in numerous financial measures
The only apparent growth segment for the company is legal services, but only as a client
Tenet’s cash flow is now substantially worse than it was in FY1999
From a quality assurance perspective, history is also repeating itself, only now worse, when we compare the NME scandals to the Tenet scandals. Patient lives have been damaged, or destroyed and loves ones left angry, grieving, or both
In our opinion, Board members failed to direct this company with a moral compass
The Board now has only 9 members, another abdication of promised change, in this case the promise made in 2000 to expand the Board to at least 12 members

By Any Standard of Measurement – The Tenet Board Failed

The Board failed to discharge its duty of care to the company and its shareholders
The Board failed to form an independent committee to investigate scandals
The Board failed to remedy obvious conflicts of interest in the reporting structure
The Board failed to exercise its fiduciary responsibility of oversight
As Senator Charles Grassley (R-IA) commented: “For too long Tenet’s board appears to have sat idly on the sidelines and tacitly, or perhaps, expressly allowed Mr. Barbakow and Tenet to profit at the expense of innocent victims and America’s taxpayers”

Board Fails to Consider Superior Offer for Hospital

TSC Chairman, in his separate capacity as chairman of a Florida professional corporation, twice offered to purchase one of Tenet’s deteriorating South Florida hospitals (North Ridge Medical Center.)
Calculated in the same way Tenet has valued other hospital sales, this offer was worth 3,000 per licensed bed. By comparison, in other recent sales, Tenet has received an average of about 4,000 per licensed bed
Pearce only asked that the company submit the offer to the Board. He also said that if the Board could sell this financially bleeding hospital to anyone else for a better price, they had a fiduciary duty to do so.
Chairman Edward Kangas and the company, angrily rejected the Pearce, P.A. offers without due consideration and, purportedly, without even submitting them to the full Board
Aware of that management was purportedly keeping his offer from the Board, in December 2004 Dr. Pearce forwarded, to the individual Board members, copies of the written offers, which the Board has continued to ignore
As they have in the past, Tenet’s Board continues to abdicate its fiduciary responsibility