A Medial Device Daily

Tenet Healthcare (Dallas) yesterday reported reaching a settlement agreement with the U.S. Department of Justice (DoJ) and other federal agencies closing investigations by the department and a number of U.S. attorneys across the country into Tenet's receipt of Medicare outlier payments before 2003, its financial arrangements with physicians and Medicare coding issues.

Tenet will pay $725 million over four years, plus interest, as restitution for Medicare outlier payments and to settle other Medicare billing matters. It also agreed to waive its right to pursue receipt of $175 million in certain outlier and disproportionate share payments by the company, noting, it said, “uncertainty that they would ever be received.”

The company also reported that it will divest a group of hospitals during the current year and in 2007 (see sidebar, p. 4).

Tenet acknowledged in December 2002 that between 2000 and 2002 it received a large amount of Medicare “outlier” revenues, additional payments made to hospitals for treating the costliest Medicare cases.

It said that because Medicare policies at that time set the amount of outlier payments as a percentage of a hospital's gross charges, as charges increased at approximately 50 Tenet hospitals between 2000 and 2002, significant outlier payments were made to these hospitals by the Medicare program.

In late 2002, Tenet's new management team froze charges at all its hospitals and adopted a new method of calculating Medicare outlier payments that cut the payments by 90%, effective Jan. 1, 2003.

Tenet also has disclosed that, since at least late 2002, it had been under heightened scrutiny with respect to relocation agreements with physicians that it said “are used throughout the hospital industry to attract new physicians who are needed by a community.”

Noting that the settlement requires no finding that it had engaged in illegal behavior, Tenet will take a 2Q charge for the settlement

Trevor Fetter, Tenet president and CEO, acknowledged “mistakes” by the company before 2003, and “past actions [that] did not measure up to the high standards that we have imposed on ourselves since these issues first arose. The government is both our largest customer and most important regulator, and it is vital for Tenet to be recognized for doing the right thing.”

He said that Tenet had put in place a variety of initiatives to improve compliances and is now “a stronger and better company.”

The company said that the settlement also concludes civil litigation regarding Medicare coding that the DoJ filed against the company in 2003. But it said it does not resolve issues being investigated by the Securities and Exchange Commission (SEC) – described as “Medicare outlier payments and stop-loss payments under managed care contracts” – and that it is working with the commission to resolve these.

It said it also has reached an agreement with the Office of Inspector General (OIG) in the U.S. Department of Health and Human Services to enter a corporate integrity agreement, including the provision that the OIG will not exclude Tenet hospitals from federal healthcare programs. Tenet said it will have that integrity agreement in place within 90 days.

Tenet said it has revised its 2006 outlook to include the following: net revenues from continuing operations of approximately $8.7 billion; depreciation and amortization expense of about $360 million; interest expense net of investment earnings and minority interest of about $385 million, resulting in an outlook for free cash flow in a range of negative $275 million to negative $375 million. The revised 2006 outlook excludes all announced payments to be made this year to settle litigation and investigations, which total $643 million (including the $470 million, principle and interest, to be paid in 2006 on the DoJ settlement), as well as any future settlements.

In other legalities: AngioDynamics (Queensbury, New York) reported that the summary judgment hearing in the patent litigation vs. Diomed (Andover, Massachusetts) in the federal district court in Massachusetts has been postponed due to an order of recusal by Judge Richard Stearns.

Eamonn Hobbs, president and CEO of AngioDynamics, expressed disappointment in the delay, saying: “We have the highest respect for Judge Stearns and how he has handled the case to date. Nevertheless, given the importance of expert testimony in this matter, we expressed our concerns about his being treated by Diomed's expert with apparently the very procedure at issue in the case.

“We were ultimately comfortable leaving the recusal decision in Judge Stearns' hands and respect his decision to recuse himself under these unusual circumstances. We remain confident in our positions on non-infringement, invalidity, and unenforceability and look forward to the case being finally resolved by the court.”

In January 2004, Diomed, a subsidiary of Diomed Holdings, filed a lawsuit against AngioDynamics, alleging patent infringement related to AngioDynamics' VenaCure product line, a laser system used for the endovascular treatment of varicose veins and involving U.S. patent No. 6,398,777.

A hearing of the parties' respective summary judgment motions was scheduled for June 1, 2006. That hearing was postponed by the court while all parties responded to an order of the court dated May 22, 2006, wherein Judge Stearns indicated he had recently been referred to and consulted with a physician concerning a proposed laser treatment.

Although AngioDynamics said it did not request the judge's recusal, he issued that order and said, “I recognize that a reasonable person (perhaps depending on my ultimate rulings) might harbor doubts about my impartiality. Consequently, I will recuse myself and order that the case be transferred to another judge.”

AngioDynamics said that the change will delay resolution of the case “by at least several months.”

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