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Tenet Underpayments and Overpayments Yield Settlements with HHS, DOJ

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Tenet Healthcare Corp. (NYSE: THC), which operates 50 hospitals, over 100 free-standing outpatient centers and Conifer Health Solutions, announced that it has entered into an agreement as part of a settlement agreement with the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) which will result in approximate net cash proceeds to Tenet of what it said is a total of $84 million.

The settlement corrects underpayments from the Medicare inpatient prospective payment system during a number of prior years.

On April 5, the CMS said it entered into three settlement agreements, each of which involved several hundreds of hospitals as parties to resolve potential liability associated with an alleged error in calculating inpatient hospital rates under the inpatient prospective payment system. 

In Cape Cod v. Sebelius (D.C. Cir. 2011), several hospitals alleged that the CMS had incorrectly applied the budget neutrality requirement to a provision of the Medicare statute which sets a state’s rural wage index as a floor for all hospitals in that state. After the D.C. Circuit decided in favor of the plaintiffs, Cape Cod and several other lawsuits brought by numerous hospitals raising the same issue were remanded back to CMS.

These settlements resolve most of the lawsuits as well as a number of administrative appeals before the agency by agreeing upon a methodology for calculating payments due to hospitals for deflated rates between fiscal years 2007 and 2011. They also resolve a potential liability for timely appealed claims that the rates were deflated between fical years 1999 and 2006 by agreeing upon a methodology for making discounted payments. 

Of that amount, $77 million is expected to relate to continuing operations. The cash proceeds related to this settlement are expected to be received on or about June 30, 2012.

However, Tenet announced at the beginning of the week that it had entered into a voluntary civil settlement with the U.S. Attorney’s Office, Northern District of Georgia,  the U.S. Department of Justice and HHS for a total of  $42.75 million that it must pay. That settlement relates to a inpatient rehabilitation admissions at 25 Tenet inpatient rehabilitation units from 2005 to 2007. 

The company’s compliance department identified overpayments related to inpatient rehabilitation unit at one facility. The overpayments resulted from Medicare patients having been admitted to the inpatient rehabilitation unit at a hospital in Georgia when those patients could have been treated at a lower level of care. In accordance with the Office of Inspector General’s (OIG) self disclosure protocol Tenet said it  promptly notified the OIG of its findings. This settlement is the result of dialogue between the United States and Tenet arising from that disclosure. 

The amount of the settlement was fully reserved by the company as of Dec. 31, 2011. The cash payment for the settlement will be paid in Tenet’s second quarter 2012.

Tenet  intends to update its 2012 outlook as part of its release of first quarter earnings on May 8, 2012 for the reimbursement-type payments it received.

In an additional item related to federal government reimbursement, Tenet said it expects to record a $2 million unfavorable Medicare disproportionate share hospital Supplemental Security Income (SSI) adjustment in the quarter ended March 31, 2012 related to CMS’s recently released SSI ratios. The Company accrued $49 million in reserves for potential SSI adjustments in prior reporting periods, including $6 million in 2011.

Tenet has a short but colorful history, most recently punctuated by awards and recognition. The company notes on its website that in late 2002, Tenet was faced with a number of investigations brought by the DOJ and various state and federal agencies.  Tenet’s board asked Trevor Fetter, former CFO, to return to the company as president.  The board then replaced virtually all of its own members, fired the Chairman and CEO, appointed a non-executive Chairman, and appointed Fetter as CEO to resolve these investigations and lead Tenet’s turnaround.  

Tenet closed the chapter on the most significant of its legacy issues in 2006 when the company announced a $900 million dollar settlement with the DOJ, entering into a five-year corporate integrity agreement, which expired on Sept. 27, 2011, it noted on its website.