Stepping up its probe of Tenet Healthcare Corp., the Securities and Exchange Commission has launched a formal investigation and subpoenaed Medicare billing records and other documents dating to 1997, Tenet said Wednesday.
A spokesman said a civil subpoena from the SEC was served Tuesday afternoon.
"The inquiry has taken on a more formal tone," said the spokesman, Steve Campanini. "They have expanded the scope. They are looking at a broader range of items and issues."
The SEC began an informal investigation in November, looking into Santa Barbara-based Tenet's aggressive strategy of charging Medicare at rates well above the industry average in so-called outlier payments to cover costly hospital cases. The subpoena sought documents about the outlier payments, as well as about certain payments from health maintenance organizations and increases in Tenet's gross charges for hospital care, the company said.
The nation's second-largest for-profit hospital chain, Tenet is also under investigation by the Justice Department, which started a probe last fall of Tenet's practice of boosting profit with outlier payments.
Since October, Tenet's stock has lost more than three-quarters of its value. The shares hit a high of $52.50 in October. On Wednesday, they fell 5 cents to $12.10 on the New York Stock Exchange.
Tenet's problems have been mounting. Federal agents late last year raided the offices of two heart specialists suspected of conducting unnecessary surgeries at Tenet's hospital in Redding. In May, Tenet's chief executive, Jeffrey Barbakow -- then the highest-paid executive of a publicly traded company -- was forced to resign.
And last month, a federal grand jury indicted the CEO of Tenet's Alvarado Hospital Medical Center in San Diego on eight counts of violating anti-kickback laws by allegedly authorizing illegal payments to doctors.
Wall Street analysts disagreed Wednesday about the significance of the elevated SEC probe, but agreed that it was another blow to efforts to pull the company out of its tailspin.
"You could almost invest in a bank certificate of deposit and make as much money with far less risk" than investing now in Tenet's stock, said Nicholas Jones, a portfolio manager at Ashland Management Corp. in New York. Jones said he felt betrayed by Tenet's management after his firm was forced to sell its 400,000 shares of Tenet stock last year at about $30 a share.
"It was a bloodbath," Jones said.
Analyst Sheryl Skolnick of Fulcrum Global Partners said Tenet's problems could get worse because the SEC probe could delve into what the company's management knew about its billing problems last year. SEC spokesman John Nestor wouldn't comment on the probe.
Given that the SEC has informally been looking into Tenet's practices since fall, analyst Jeffrey Hoffman of Buckingham Research Group said he believed that the agency "hasn't found anything illegal."
"And this is how they punish you -- by adding to your legal costs with these demands," Hoffman said.
Tenet has slashed its profit estimates three times since November.
The company, which had booked $65 million a month in outlier payments, stopped billing Medicare for the controversial outlier fees earlier this year.
The change contributed to the company's first negative quarterly earnings in nearly four years. In the first quarter, Tenet's outlier revenue fell to $18 million, compared with $197 million a year earlier.
Tenet, which owns 114 hospitals in 16 states, also has been hit with lawsuits filed on behalf of shareholders, and an Internal Revenue Service demand for $269 million in back taxes and interest over the firm's deduction of a portion of a civil settlement that Tenet paid the federal government in June 1994.