Tenet Healthcare Corp. said Thursday that it had agreed to pay $215 million to settle a swarm of shareholder lawsuits triggered by a 2002 Medicare billing scandal.
Former Chief Executive Jeffrey C. Barbakow and former Chief Operating Officer Thomas B. Mackey together would pay $1.5 million of the settlement cost out of their own pockets.
Investors applauded the news, sending Tenet stock up 1.5% to $7.64 on Thursday, but the nation's second-largest hospital chain still faces challenges.
Although the company abandoned the Medicare billing scheme that gave rise to the suits, a federal investigation into the matter continues. Also, a jury in San Diego is weighing kickback charges against the company, and Tenet's five New Orleans-area hospitals -- including two that are closed indefinitely -- are recovering from hurricane damage.
Disclosure of the Medicare billing scheme in 2002 was accompanied by news that authorities were investigating whether physicians at a Redding hospital then owned by Tenet had performed unnecessary heart surgeries.
The scandals threw Tenet into a financial tailspin. Since the scandals broke, the company's stock has dropped by more than 85% and it has reported losses for 11 quarters in a row.
To resolve the disputed surgeries in Redding, the company and the physicians involved made a series of deals to pay patients and the government more than $500 million.
The company also has sold 27 hospitals as part of a turnaround plan, leaving it with 69 facilities, including 18 in California. And several top executives, including Barbakow and Mackey, resigned under pressure.
The settlement announced Thursday would end a class-action lawsuit in U.S. District Court in Los Angeles that consolidated a series of suits filed in late 2002 by shareholders, who accused the company of misleading investors about Medicare revenues. It also would resolve related litigation in state court in Santa Barbara. Both courts must approve the deal.
"This settlement is another significant step forward in our turnaround," Peter Urbanowicz, Tenet's general counsel, said in a statement. After insurance, the net cost to the company would be $140 million, Tenet officials said.
Although the settlement clears up a significant chunk of Tenet's legal problems, the shareholder suits were not the biggest problem facing the company, analysts said.
The company remains embroiled in government investigations over several matters.
