Hidden Valley

Tenet Healthcare discovers Blackstone Valley, a lucrative, untapped hospital market from Providence to Worcester. But critics warn the for-profit is still a NME of the patients

by Neil Miller

WHEN TENET HEALTHCARE acquired Worcester's St. Vincent Hospital a year and a half ago, the nurses began to notice changes in small things. The gels that they use as skin barriers, for instance. Nurses had applied a thick gel to patients to protect them from bacteria. But now the hospital began to purchase a "thinner, rougher, cheaper lotion," according to veteran nurse Debora Rigiero. The nurses noted a decline in the quality of dressings, as well. They now had to use "a cheaper, clear plastic type of bandage that comes off all the time," increasing the risk of infection, says Rigiero.

Then, there was the matter of the blankets. Every patient at St. V's receives a thermal blanket. Previously, if patients complained of being cold, they were given a second thermal blanket. But no longer. Now, if patients complain, Rigiero says, the nurses are under orders to give them a lighter "bath" blanket instead. The reason: the bath blankets weigh half as much and therefore are cheaper to wash.

There are more serious issues at St. V's, too: the nurse-to-patient ratio, for example, now 1 to 8 during the day and 1 to 10 at night. The Massachusetts Nurses Association, which successfully unionized the hospital's registered nurses in February, says anything greater than 1 to 6 can be unsafe. (St. Vincent spokeswoman Paula Green declined to address the issue of the ratio, only saying, "We stand by our quality standards.")

Some of the patient-care issues -- like the nurse-patient ratio -- were contentious ones before Tenet came on the scene. But, as longtime surgical nurse and union organizer Anne Spellane says, "When Tenet arrived, it compounded the problems."

Wander into the lobby at St. V's, though, and you'd never guess anything has changed. There is no indication that you are in a hospital owned by the nation's second-largest for-profit hospital chain (after Columbia/HCA). The name Tenet is conspicuously absent. On a lobby wall are paintings of the pope and Cardinal Bernard Law, although the Sisters of Providence, who founded the hospital in 1893, departed long ago. It is friendly, folksy, right down to the absence of air conditioning on a blisteringly hot summer day.

That's the way Tenet likes it -- operating in the background, keeping the local flavor and, often, local management. However, the folksy image belies corporate realities. The Santa Barbara, California-based chain is big and getting bigger, with 1997 net operating revenues totaling $8.7 billion. It owns 123 acute-care hospitals nationwide, two-thirds of them in the lucrative California, Texas, and Florida markets. And now New England has emerged as a focus of Tenet's latest round of acquisition activity.

Tenet is a for-profit corporation in a business where for-profit has been synonymous with slashing money-losing services, cutting care for the poor, and concentrating on the corporate balance sheet instead of on the patient. It also has been synonymous with the high-profile, aggressive -- and now beleaguered -- Columbia/HCA that attempted to buy Roger Williams Medical Center in Providence only to be derailed by strong community opposition last year. In fact, Tenet has a corporate history far more dubious than Columbia's -- a history marred by federal probes, patient horror stories, and some of the largest fines ever paid in the hospital industry. Tenet insists that it isn't the same kind of company it used to be. But activists and industry observers wonder if its newly minted image (including a new name) is really just that -- image.

On the face of it, by moving into New England, Tenet is simply following in the footsteps of other hospital networks that have been carving up the Massachusetts and Rhode Island markets in the past few years -- networks like Boston's Partners HealthCare System and Rhode Island's Lifespan and Care New England. At a time when hospitals are trying to create mass and muscle in order to cut cost-saving deals with the increasingly powerful HMOs, another network shouldn't attract too much attention. Many health-care analysts would argue that these days, not-for-profit hospitals are acting a lot like for-profits, anyway.

Trends in the health-care industry aside, Tenet has been reaping the benefits from Columbia's recent legal troubles. (Columbia's president was forced to resign and four high-level officials have been indicted since spring 1997 for allegedly defrauding federal health-care programs.) As Columbia receives all the attention -- and the media scrutiny -- Tenet has been gobbling up the Blackstone Valley from Worcester south into Rhode Island. Its first foothold was St. Vincent, acquired as part of a larger corporate deal in early 1997. Since then, Tenet has announced the purchase of the not-for-profit Landmark Medical Center in Woonsocket, as well as an agreement to buy 80 percent of MetroWest Medical Center in Framingham and Natick from its rival, Columbia/HCA. And these three hospitals may represent only the beginning of Tenet's New England empire-building. As Ellen Lutch Trager, director of healthcare strategies at the Boston law firm of Brown Rudnick, says, "A triangle may soon become at least a diamond."

Tenet insists that it is no Columbia. It is kinder, gentler, it says, promising autonomy to its hospitals and catering to, if not co-opting, community groups. (Forbes recently dubbed it "Mr. Nice Guy Inc.") Tenet's profit margins are lower than Columbia's, and its public-relations machine is as smooth as cotton candy. Yet, this benign approach may make it more dangerous than its brash and brawny rival. If it has lower profit margins than Columbia's, it still is in business to enrich its shareholders. And while some in Worcester and Woonsocket hail Tenet as a "white knight," others wonder if the company is targeting economically depressed areas where community groups are weak and public officials are desperate for the tax revenues for-profits provide. All of this makes health-care activists suspicious. As Kate Coyne-McCoy, executive director of the Rhode Island chapter of the National Association of Social Workers, says of Tenet, "If you put frosting on a pile of garbage, you still have garbage."

IN 1986, DAVID SCHILDMEIER signed on as director of marketing and public relations at two south Florida hospitals -- Delray Community Hospital in Delray Beach and West Boca Medical Center in Boca Raton. The hospitals were owned by National Medical Enterprises (NME), a company that, several years later, would change its name to Tenet Healthcare. NME was an extremely profitable corporation, moving in the 1980s from acute-care hospitals, like the ones where Schildmeier worked, into more lucrative reimbursement areas such as psychiatric facilities and substance abuse. And Schildmeier -- now a Tenet critic -- quickly learned that, in order to maintain profitability, the national management expected its hospitals to encourage certain kinds of patients and to discourage others.

Schildmeier's job was to develop "product lines," as they were called, aimed at people who could pay. Back-injury programs fit the bill perfectly; back injuries tended to happen to men in their 30s and 40s, many of whom had insurance. At the same time, he says, NME would cut deals with various physicians to encourage them to send patients to its hospitals. "You couldn't say, `We will pay you for giving us all your patients,' " Schildmeier notes. "But you could say, `We'll build you an office and furnish it.' The unspoken deal was that all the doctor's young, insured patients would go to us."

Then, there were the patients NME didn't want to treat. Every year, as part of the budget process, Schildmeier says, headquarters would issue a printout, based on patients' zip codes, specifying which procedures they received in the hospital. "We would go through and pick out those who were the most expensive to treat and see how we could get them to go to the county hospital," says Schildmeier, who, in an ironic twist, is currently the communications director for the Massachusetts Nurses Association, organizers of the St. V's nurses.

At NME, patient care was almost always secondary, Schildmeier found. "Those guys who ran the hospital didn't get their jollies because they provided good patient care," he says. "They got their jollies because they met budget."

What Schildmeier observed was only part of the story. On August 26, 1993, after a two-year investigation, 600 federal agents raided 20 NME facilities, including the company's Santa Monica, California, headquarters. The reason: between 1985 and 1990, NME paid $30 million in kickbacks to clergy, parole officers, and corporate benefit managers in order to obtain patient referrals, later revealed in court testimony. And once it got patients inside, NME, in many cases, did everything in its power to make sure they stayed there: the company's psychiatric division maintained its high occupancy rate by keeping patients -- often teenagers -- in its facilities until their insurance ran out. That was particularly true at NME's Texas facilities. A 1997 New York Times story recounts how a 17-year-old girl was admitted to NME's Brookhaven Psychiatric Pavilion in Dallas after problems with her family, only to remain there for 309 days, her arms and legs strapped down for months at a time. At the same hospital, a 15-year-old boy went for a two-week evaluation but stayed 345 days; his treatment included seven months of "chair therapy," which consisted of sitting in a chair facing a wall for up to 12 hours a day. Texas Lawyer reports that, in a court deposition, a former senior NME vice-president stated that the head of the company's psychiatric division had told him, "Fill the beds at any cost. Hire sleazeballs, anything it takes."

In 1994, NME pled guilty to eight federal criminal counts, primarily related to kickback payments, and was fined $379 million. As part of the settlement, it agreed to sell off its psychiatric subsidiary and not to own any new psychiatric facilities for five years. In still another settlement, it paid out close to $100 million to former patients and their families to settle some 700 claims of abuse and neglect in its Texas psychiatric facilities.

The following year, NME bought the for-profit hospital chain American Medical Holdings (AMH). This purchase doubled NME's size from 35 acute-care hospitals to 70. In the aftermath of the merger, the company changed its name -- to Tenet Healthcare. The name Tenet was chosen out of 1600 suggestions.

The name change -- particularly to a name that seemed to suggest ethical and moral probity -- was part of NME/Tenet's attempt to reinvent itself. If the company were to survive at all, it would have to change the way it did business. But whether this reinvention was anything more than just window-dressing still remains a subject of controversy.

The first major change came earlier, in 1993, when Richard Eamer, the company's founder and CEO, resigned, taking with him a retirement package of $822,670 a year, plus a lump sum of $2.6 million, according to Modern Healthcare magazine. Jeffrey Barbakow, a Southern California investment banker who served on Tenet's board of directors, was named to replace him. In the late '80s, Barbakow had served as head of Metro Goldwyn Mayer (MGM). There, he brokered the sale of the Hollywood studio to an Italian wheeler-dealer who eventually defaulted on hundreds of millions of dollars in loans, resulting in the collapse of the studio.

If Barbakow stumbled badly in the MGM deal, he did a more effective job at Tenet. Under his leadership, Tenet sold off its 70 psychiatric hospitals -- as required by the terms of its settlement with the government. It got rid of its international division and moved its corporate headquarters to Santa Barbara, where Barbakow lives. By buying up AMH, it made acute-care hospitals its focus. Tenet's timing was fortuitous. With the rise of cost-cutting HMOs, there wasn't much money to be made in psychiatric facilities any longer. The money was now in acute-care hospitals, particularly Medicare patients, for whom reimbursements were growing as reimbursements for patients of private insurers declined. That is where Tenet headed.

And, as part of its deal with the government, it also instituted a strict ethics program, mandatory once a year for each of its 112,000 employees. It set up a toll-free "ethics line" and linked corporate bonuses to participation in ethics programs. Tenet media director Lance Ignon insists that the company takes all this "very, very seriously." Tenet's ethics action line received 600 phone calls in June, he says. "We have gone to extraordinary lengths to make sure those mistakes are not repeated," he adds.

Critics are not convinced, however. They note that many of the high-level officials at Tenet are the same people who were running NME just a few years ago. As recently as 1997, the membership of the board of directors was identical to what it had been in the old NME days. "It is the same corporation," says Dr. Steffie Woolhandler, a Cambridge, Massachusetts, physician active in the Ad Hoc Committee to Defend Health Care, which opposes for-profits. "They had a pattern of criminal activity that went on for years. There is no evidence that they ever abandoned criminal activity voluntarily. They were prosecuted and forced to do so."

However, Tenet spokesman Ignon contends that the company has undergone a genuine internal revolution. The founding members who were senior management have been replaced, he notes. "The people in charge of this company are different people," he says. "If you no longer have the division [the psychiatric subsidiary] that was the subject of the complaints, if you no longer have the senior managers who were in control at the time of the complaints, what more is there to change? Do you fire every person in the company?"

But even if Tenet's management has changed, other aspects of its business practices come in for criticism. If a hospital or a patient service isn't profitable, critics contend, Tenet will simply get rid of it. "Tenet is a very lean machine," says Julio Matteo, staff attorney for the San Francisco-based Consumer's Union who has done battle with Tenet. "What they try to do is to consolidate services to cut costs."

Last summer, for example, Tenet bought the deteriorating 326-bed Brookside hospital in San Pablo, California. Tenet already owned another facility, Doctors Hospital, some seven miles away. So the company decided to consolidate services, turning the old Doctors into a long-term care facility, while concentrating in-patient care at the newly acquired (and spruced-up) Brookside. The first step was to close the emergency room at Doctors.

Faced with the loss of emergency and acute-care services, a community group organized. Called the West County Coalition to Save Health Care, it circulated petitions, held community meetings, picketed the hospitals, and even established a telephone number called the "Tenet Tipline" to monitor care at Brookside. "We forced Tenet into the sunlight," says Susan Prather, one of the organizers. In the end, Tenet reversed course and agreed to keep Doctors open for another year, until March 1999.

As part of its penchant for cost-cutting and streamlining, Tenet also has a reputation for being tough on unions. The nurses' battle for union recognition at both Worcester's St. Vincent Hospital and at Certified Nursing Services (CNS), the Tenet-owned homecare service affiliated with St. V's, has been acrimonious. "They waged quite an anti-union campaign at St. Vincent and they are still waging it while we are negotiating the first contract," says Eileen Norton, Massachusetts Nurses Association union organizer and business agent at St. V's. "Most hospitals will try and do this. But Tenet does it more aggressively." Although the 90 homecare nurses at CNS approved the union last December by a single vote, the two leaders of the union drive complain of continued harassment, including "arbitrary warnings for bogus things," according to coleader Joyce Dechenes. The two have filed harassment charges against CNS with the National Labor Relations Board.

In all, to people like California activist Prather, the new Tenet is not very different from the old. "They will promise anything," she says. "They are smooth and they have money. The only thing that means anything to them is the bottom line."

AS YOU APPROACH DOWNTOWN Worcester from Route 290, you can see the future home of St. Vincent Hospital taking shape. The steel superstructure is up. The boilers, the generator, and the water tower are all in place. The atrium, the size of a football field, is emerging from the rubble of the construction site. Still known to most Worcester residents as Medical City (its official name is now Worcester Medical Center), the 770,000 square-foot complex will house not only the 299-bed hospital but also outpatient clinics, doctor's offices, restaurants, and shops. It's a $215 million project that won't be completed until the year 2000.

In January 1997, when Tenet bought OrNda HealthCorp, another large for-profit chain with 50 hospitals nationwide, one of the hospitals that came into its possession was St. Vincent. That was when Tenet discovered New England and decided to make Medical City the cornerstone of a New England network.

New England seemed the ideal laboratory for the born-again Tenet, the Tenet that courts community groups and loves Medicare patients. The Boston and Providence markets were saturated, but no matter. "Building a network isn't dependent on one particular hospital or another," explains Harry Anderson, Tenet's senior director of strategic communications. "It is dependent over time on adding facilities to the network. You need enough mass to be successful." And the region offered its share of economically depressed communities that might be susceptible to the blandishments of a tax-paying hospital chain. New England looked good to Tenet. It still does. But some bumps in the road remain. And what Tenet eventually plans to do with the hospitals that will make up its network isn't entirely clear either.

It all started smoothly enough in Worcester. In buying OrNda, Tenet inherited OrNda's promise to build Medical City and the city's promise to defer taxes for several years (in the form of a tax increment financing deal). Worcester needed Medical City and therefore it needed Tenet. Located across from the Centrum and the Worcester Common Outlets, Medical City is a crucial element in Worcester's much-touted downtown revival. In a city that, in 15 years, has seen eight acute-care hospitals dwindle to only two -- St. Vincent and the recently merged, not-for-profit UMass/Memorial -- Medical City promised hospital beds and some competition, too.

Tenet was also determined to win over the grassroots Central Mass. Community Healthcare Coalition. When it bought St. Vincent, which had changed hands once already the year before, local activists expected the worst. But Tenet was determined to "go the extra mile" in its relationship with the community, according to Ray Demers, cofounder of the coalition. One thing Tenet did was to appoint a member of the coalition as a member of the 11-person St. Vincent board and to chair the board's community-relations subcommittee. And when the coalition asked Tenet (and UMass/Memorial, as well) for a donation to help the coalition to do its work, Tenet came up with a "no strings" donation of $40,000 a year for two years.

Earlier this year, when Tenet put in its bid to buy 80 percent of MetroWest Medical Center, in nearby Framingham and Natick, from Columbia/HCA (eventual price tag: $60 million), it adopted a similar strategy. Company representatives spent six months talking to various community groups and tailoring their proposal to what they heard. "Tenet made a concerted effort to `work' this community," says Nicci Meadow, chairman of the MetroWest Community Health Care Coalition. "They came and asked, `What are your needs?' Nobody else did that."

Although, as the owner of MetroWest, Columbia had the last word on the sale, the health-care coalition was perceived as representing public opinion in Framingham and Natick. In the end, Meadow says, two bidders were in the running for the coalition's backing: the not-for-profit CareGroup Inc. (parent company of Boston's Beth Israel Deaconess Medical Center) and Tenet. Both entities "passed a sufficient threshold," according to Meadow. Both agreed to a package of 13 "community benefits," which ranged from maintaining the level of free care to providing free transportation between the hospital's Framingham and Natick campuses. As a result, the coalition didn't endorse one over the other. In fact, at the last moment, when CareGroup wrote a letter implying that it might have to leverage the $50 million charitable foundation left over from the hospital's sale to Columbia/HCA three years before, suddenly the for-profit had the edge over the not-for-profit.

In September 1997, several months before the Framingham deal was completed, Tenet announced the purchase of Landmark Medical Center, just across the Rhode Island line in the aging industrial city of Woonsocket. The price was $32.5 million. Landmark -- and Woonsocket -- seemed perfectly tailored for Tenet. A product of a merger of the old Woonsocket Hospital and Fogarty Hospital in North Smithfield, the 223-bed Landmark serves an economically depressed part of the state with a large elderly population; Medicare and Medicaid patients made up two-thirds of Landmark's admissions last year. In 1997, the hospital made a healthy $3 million on $70 million in patient revenue -- a 4.72 percent profit margin.

Despite the rosy short-term financial picture, the hospital's administration has been convinced that if it didn't become part of a larger network within a few years, Landmark would be "out on a limb," in the words of CEO Robert D. Walker. Beginning in 1994 -- a year in which the hospital had lost money -- Landmark administrators engaged in detailed discussions with 12 hospital networks, ranging from Lifespan to Columbia/HCA. One of the companies they talked to was OrNda. As in Worcester, the OrNda connection led eventually to Tenet.

"In looking for a partner, we had specific objectives that we stayed with -- charity care, free care, not wanting to be closed out," explains chief financial officer Gary Gaube. "We were naive at first to think there was a difference between for-profits and nonprofits. But finally it gets down to people."

As part of its offer, Tenet promised to continue the hospital's independence and autonomy. The current Landmark administration would remain in place. The existing nurses' union contract with the hospital would be honored. There would be no change in the hospital's services for at least three years, "a tremendous window" in the current volatile health-care environment, according to Walker.

Then came what Walker viewed as "the icing on the cake" -- a $36.5 million charitable foundation that combined the purchase price plus another $4 million in hospital assets. The foundation would award health-care grants throughout northern Rhode Island. Foundations of this kind, in which the charitable assets of a nonprofit hospital are earmarked to continue the hospital's traditional "good works," typically are one-time windfalls in not-for-profit to for-profit conversions.

Landmark liked what it saw. "It was an easy vanilla deal," says Walker.

If Tenet wooed community groups in Worcester and Framingham, in insular and economically disenfranchised Woonsocket it hasn't had to bother. Although statewide organizations such as the Coalition for Consumer Justice and Ocean State Action oppose the sale, the local community is unorganized and the opposition weak. What opposition exists is being led by Ray Carriere, a retired military man and upholsterer. Carriere has launched a petition drive that he hopes will gather 10,000 signatures. Although involved in a number of community and charitable organizations, he has little experience in organizing of this sort. It appears very much to be a battle of David versus Goliath.

For their part, local politicians are cautious. Tenet offers cash-starved Woonsocket something that is difficult to turn down -- $1 million a year in taxes that Landmark, as a not-for-profit, never had to pay. Although the city's mayor, Susan Menard, welcomes the financial benefits, she is concerned about whether the hospital's commitment to indigent care -- close to $5 million last year -- will continue. (Tenet insists it will.)"We are watching and waiting," she says.

What she is watching and waiting for is the laborious workings of Rhode Island's recently enacted Hospitals Conversions Act. The law, believed to be the toughest in the US, was enacted in the aftermath of Columbia's attempt to buy Roger Williams hospital. Among the law's provisions is a requirement that the attorney general and the state Health Department approve any hospital conversion, taking into consideration a number of strict criteria. Once the application is pronounced complete, the AG has 120 days to review it; if he approves the transaction, the Health Department takes up the case. Although Tenet presented Attorney General Jeffrey Pine with some 3000 pages of documents back in February, Pine still has not deemed the application complete, creating "a nightmare of management" for Landmark, according to CEO Walker.

A final decision on the sale may not come until early next year. However, Pine's recent decision to reject the attempt of the Boston-based not-for-profit Care Group Inc. to affiliate with three Rhode Island hospitals may not bode well for Tenet.

Assuming the sale is approved, Tenet's intentions regarding Landmark after that three-year "window" remain unknown. Will some of the hospital's services eventually be shut down and patients shunted off to Worcester once Medical City is built? Or to Providence, should a hospital there ever show up on Tenet's radar screen? Tenet's Harry Anderson says no. "Other entities who wanted to acquire Landmark, I am told, are entities that wanted to make Landmark a feeder to bigger providers," he notes. "That is not something Tenet wanted. It is our intent to keep Landmark a strong, healthy, independent hospital." Maybe so. But at least some people in Woonsocket are watching and waiting -- and wondering how long the hospital and the hospital services they take for granted will remain intact.

Meanwhile, over at Worcester's St. Vincent Hospital, the registered nurses and hospital management are in the early stages of negotiations over the nurse's first union contract. Staffing and the nurse-to-patient ratio are expected to be major issues. And it is already getting acrimonious. Paula Green, the hospital spokeswoman, is critical of the nurses for talking to the media; doing so, she says, "eats away at what we are as an institution." And when a group of veteran nurses -- all active in the union -- is asked if anything has changed for the better since Tenet took over St. V's, they don't hesitate. "No, absolutely not," they reply in unison. "Nothing has gotten better!"

When it comes to Tenet, there is no shortage of opinions on both sides. Boston health-care analyst Trager, who claims to be no fan of investor-owned hospitals, notes that, "We all get used to patterns of behavior in business practices. It is the visionary who knows how to restructure how they do business, how to reformat their business to meet changes in the economy and in the marketplace. Tenet has been very effective in doing that. I've been very impressed with their conduct and their commitment."

J. Duncan Moore, a reporter at Modern Healthcare, which is close to the hospital industry, contends that Tenet "has a reputation for running their hospitals pretty well." And he describes Tenet CEO Barbakow as someone of "natural refined brilliance" who comes across as "a man of the highest integrity."

But the Consumer's Union's Matteo remains unconvinced that the bad, old NME has suddenly metamorphasized into Mr. Nice Guy, Inc. "I am a former prosecutor and I see these guys convicted for health-care fraud only a few years ago," he says. "There is a real question mark about their good citizenship. The burden is on them to show that they can be good corporate citizens and provide for the communities that they wish to move into."

Has that happened yet? "As far as we are concerned, the jury is still out," says Matteo.