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Neither the blazing sun nor the rush-hour traffic could deter the angry knot of nurses who gathered on July 23 at the Skirball Cultural Center in Los Angeles, site of Tenet Healthcare's (THC
) annual shareholder meeting. The nurses -- some wearing black bandanas across their mouths -- were protesting Tenet's efforts to prevent the California Nurses Assn. from unionizing some of its hospitals. "We're California nurses!" they chanted. "Mighty, mighty nurses! We will not be silenced!"
One speaker after another blasted Tenet for cutting costs by understaffing hospital wards and not providing adequate wages and benefits. Supportive motorists tooted their horns as they passed the noisy demonstration.
If Tenet execs were hoping to take refuge inside the meeting hall, they were out of luck. Shareholders of the embattled hospital chain based in Santa Barbara, Calif., were just as vocal and unforgiving, as they questioned whether executives are doing enough to regain their trust in the face of a massive legal mess.
"UNACCEPTABLE." The Securities & Exchange Commission is investigating Tenet for its Medicare billing practices. The FBI is looking into allegations that two doctors who practiced at a Tenet hospital in Redding, Calif., performed unnecessary heart surgeries. The U.S. Attorney's office in Los Angeles has launched an investigation of Tenet's physician-recruitment practices. And on July 18, Tenet's Alvarado Hospital Medical Center in San Diego was indicted for allegedly awarding kickbacks to doctors who referred patients to the hospital.
The sheer number of investigations "is unacceptable to all of us," said President and interim CEO Trevor Fetter in a speech to investors. He stepped into the chief executive spot in May, when former CEO Jeffrey Barbakow resigned.
Not that Tenet hasn't been trying to restore shareholder confidence. On July 22, the board appointed a nonexecutive chairman, Edward Kangas, former CEO of Deloitte Touche Tohmatsu. And at the July 23 annual meeting, the company elected three new directors and declassified the board, so directors will serve terms of just one year.
LOSING HOPE. A proposal by disgruntled shareholder Dr. M. Lee Pearce to require even more independence by board members was rejected, however. "I don't believe this company has turned the corner," grumbled Pearce after the meeting. He urged the board to make a "clean sweep" and dismiss any top executive who was associated with Barbakow's reign. "I'll know this company has changed when the corrupt senior management is gone," declared Pearce, who owns about 25,000 shares of Tenet's stock.
Pearce isn't the only shareholder looking for the broom. Tenet's stock has fallen 75%, to around $12, since October, when the SEC investigation first came to light. Barbakow's departure and multiple announcements regarding restructuring and cost-cutting plans have done little to move the stock. Some investors are losing hope. "The best thing the board could do is sell the company to someone who can run it right," says Jake Bennett, who represents a group of private investors holding 10,000 shares.
Part of the problem is that Tenet is suffering from more than just legal woes. On June 23, it announced that earnings for the year ending July, 2004, would come in at least 30% lower than analysts expected -- and not because of litigation expenses. It cited a host of unexpected industry pressures, including increased labor costs brought on by a nursing shortage and heat from labor unions to increase salaries and benefits. What's more, Tenet is facing protests from private health plans and looming Medicare reform, which is causing it to lose much of the pricing power it once enjoyed.
"LIP SERVICE"? During the meeting, Fetter reiterated Tenet's plans for $200 million a year in cost-cutting, including streamlining accounting systems and divesting 14 of its 114 hospitals. And he emphasized its newfound focus on providing quality care.
After his speech, one of the many Tenet nurses who wandered into the meeting from the protest outside stepped up to the microphone, looked Fetter in the eye, and said, "We have been unable to provide quality care because we're constantly told we're facing budget cuts. So many of your words sound good. But as I see it, it's lip service."
Tenet may have to do even more major surgery before employees -- and investors -- will be ready to give it a healthy prognosis.
Weintraub is a correspondent for BusinessWeek in Los Angeles Edited by Douglas Harbrecht
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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