In Business This Week
Edited by Monica Roman
HEADLINER
Jeffrey Barbakow: The Auditor Is in
The storm engulfing Tenet Healthcare (THC
) CEO Jeffrey Barbakow is growing nastier. On Nov. 6, the Santa Barbara (Calif.) hospital operator disclosed that the U.S. Health & Human Services Dept. is launching an audit of its billing for Medicare outlier payments--reimbursements for treatments that cost more than standard procedures. The audit is a response to a UBS Warburg report questioning how Tenet's outlier payments could have tripled in three years when the industry average has declined.
The news came just one week after the FBI said it was investigating whether two doctors performed unnecessary heart procedures, some of them billed to Medicare, at a Tenet hospital. Barbakow is no stranger to scandal: When he took over nine years ago, he overhauled ethics policies at Tenet, then facing allegations of billing fraud. He says the company is cooperating with authorities and launching its own internal probe. Still, Tenet's stock has dropped 43%, to $26.80, since the concerns came to light on Oct. 28.
By Arlene Weintraub
One Cingular Sensation?
Cingular Wireless, the no. 2 cell-phone operator, named Stan Sigman president and CEO on Nov. 6. A veteran of SBC Communications (SBC
), which co-owns Cingular along with Bell South, Sigman built SBC Wireless into a regional power with about 11 million subscribers, in part through acquisitions. As COO of SBC, he was instrumental in improving the once-shabby network's service quality in the Midwest. Now, as the wireless industry copes with sluggish growth, investors are pressing operators to turn a profit. Sigman's strong operations background makes him well-equipped for such demands.
The Fog Lifts for United
UAL (UAL
) has bought some time in its struggle to fend off bankruptcy. On Nov. 5, the parent of United Airlines said it had reached a deal with German bank Kreditanstalt to roll over $500 million in debt due on Nov. 17 and Dec. 2. Furthermore, Lufthansa, a marketing partner with United, says it might help UAL with a loan or an investment. UAL has said it doesn't have the cash to pay its debt and will have to file Chapter 11 unless it gets $1.8 billion in government-guaranteed loans. UAL isn't in the clear yet: It still must win wage cuts from unions to secure the government-backed loans.
WorldCom: The Rot Keeps Spreading
The largest case of accounting fraud in U.S. history keeps growing. WorldCom admitted on Nov. 5 that it may have misreported profits since 1999 by as much as $9 billion--$2 billion more than it admitted earlier this year. The higher figure was reported as part of the Securities & Exchange Commission's amended complaint against the telecommunications giant, which is now trying to reorganize in bankruptcy court. Such disclosures are likely to further spook the company's customers and creditors. Confidence has also been shaken by revelations that government investigators are trying to determine whether WorldCom founder Bernard Ebbers illegally used some of the $415 million he borrowed from the company for his personal use.
Now, FASB May Get Tough on Options
The decade-long war over whether to reduce corporate earnings for the cost of issuing stock options is heating up again. The Financial Accounting Standards Board will review the issue early next year, FASB Chairman Robert Herz told a conference of corporate financial executives on Nov. 4. FASB backed down nearly a decade ago from requiring expensing, after leading members of Congress responded to heavy industry lobbying by threatening to gut FASB's rulemaking authority. The board will reconsider its stance now that the International Accounting Standards Board in London has decided to make expensing options one of its requirements. FASB and IASB have pledged to work together to fashion consistent global accounting practices.
Isn't It Funny, How an Heir Likes Money?
Winnie-the-Pooh is turning into one hot honey pot. The Bear, Piglet, and Eeyore produce an estimated $1 billion a year in video, DVD, and other sales for Walt Disney (DIS
). On Nov. 6, Disney asked a court effectively to invalidate a 72-year-old pact that gives U.S. rights to the heirs of Stephen Slesinger, a literary agent who bought the rights from Pooh author A.A. Milne in 1930. Slesinger's widow and daughter have been fighting Disney since 1991, claiming that their royalties haven't been fully paid. Disney wants a U.S. court in Los Angeles to validate a new agreement that it says it signed with Milne's granddaughter, who Disney claims can "recapture" the rights and sign a new agreement with the media company.
Et Cetera...
-- Cisco Systems (CSCO
) had quarterly earnings of $618 million, vs. a year-ago loss of $268 million.
-- Enron ex-CFO Andrew Fastow pleaded not guilty to financial wrongdoing.
-- State Street (STT
) will buy Deutsche Bank's (DB
) global custody business for $1.5 billion.
CLOSING BELL
Short Circuit
Circuit City Stores (CC
) shares fell 13% on Nov. 5, to $8.85, after warning earnings would drop. The retailer had expected a small profit in its third quarter ending Nov. 30 but now projects a loss due to slowing sales of high-margin items such as digital satellite systems. Consumer jitters may also mean a weak Christmas.
CLOSING BELL
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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