Hospital chain Tenet Helathcare Corp, a publically-traded health care company, announced a deal to settle class-action lawsuits for $215 million, mostly regarding unnecessary surgeries occurring at one of its California hospitals.
There are “bigger fish still to fry,” said Ryan Beck analyst Robert Mains. “The securities litigation, in our view, was a relatively small item.”
The deal, which awaits court approval, would settle lawsuits pending in the U.S. District Court in Los Angeles and California Superior Court in Santa Barbara, the Dallas-based company said. Of the $215 million payout, insurance will cover $75 million.
The lawsuits arose amid alleged difficulties at the company beginning in 2002, including probes into overbilling to Medicare. Tenet also is under investigation by the U.S. Securities and Exchange Commission, which claims the company allegedly mislead investors about the Medicare probe and other woes.
The company is also facing continued financial difficulties after Hurricane Katrina destroyed six of its hospitals. Even excluding the hurricanes though, lower patient volume and steep bad debt led to a third-quarter operating loss of $385 million, according to a Reuter’s report.
Excluding the cost of insurance, Tenet reportedly expects the net cost of the legal settlement to be $140 million, which it will record as a charge for the fourth quarter.
Tenet still faces potential criminal charges involving its physician recruiting practices in San Diego.
This type of settlement and related criminal charges is particularly ironic in light of recent tort reform in many states across the country, which have negatively impacted the rights of citizens to recover for medical malpractice. Insurance companies lobbied diligently in order to have citizens believe that an increasing number of lawsuits by victims of medical malpractice are to blame for the rising cost of their own health care. However, as this settlement clearly demonstrates, nine-figure settlements due to alleged fraudulent acts have a huge impact on this healthcare company’s bottom line.