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Unhealthy Push for Profit

November 22, 2002

What's behind the huge jumps in the cost of U.S. medical care, increases occurring even as the economy stagnates? Tenet Healthcare Chairman and Chief Executive Jeffrey C. Barbakow might have part of the answer. He presided over aggressive price increases that allowed the hospital company to glean a windfall from the Medicare system. After getting caught, he acknowledged a problem -- sort of: "While this approach is legal, it is not the way I want to run this company, and it reflects poorly on our hospitals in the communities we serve."

Federal investigators will decide whether Tenet, the nation's second-largest hospital operator, broke any laws with its pricing "strategy." But pricing is just one of Tenet's lapses. Barbakow, who earned $4.2 million in salary and bonuses last year and soon will qualify for $1.89 million in annual retirement pay, recently cashed in stock options valued at $111 million. A second top executive in October cashed in options worth about $10 million.

To modify Barbakow's own words: "While this compensation approach is legal, it's not the way Tenet's board of directors should run this company, and it reflects poorly on hospitals in the communities Tenet serves."

Tenet's high reliance on Medicare payments, plus a separate investigation into whether doctors at a Tenet hospital in Redding, Calif., performed costly but unnecessary coronary procedures, has raised red flags among patients and taxpayers, not to mention shareholders.

Barbakow did revive a company that a decade ago was awash in scandal and a heartbeat away from Bankruptcy Court. And for-profit companies clearly must produce a financial return for shareholders. What's missing is a sense of balance.

Tenet says it encourages a corporate culture in which physicians and employees strive for higher standards, a noble goal in a profession that exists to ease pain and improve the human condition. However, pressure to increase profits at patients' expense is all too common on Wall Street, which is drooling at the prospect of aging boomers' need for medical care.

Health-care companies' quarterly profits and compensation packages are funded by the very patients who are being priced out of the medical coverage needed to get radiation therapy, coronary care and other treatments. The system is broken if what makes health-care executives and investors happy comes at the expense of patients who can't afford to get sick and employers who can't afford to offer decent health insurance.

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