Second Federal Criminal Trial Over Alleged Kickbacks at Tenet Healthcare Hospital Ends in Mistrial

The second federal criminal trial over allegations that Tenet HealthSystem Hospitals, a Tenet Healthcare subsidiary, Alvarado Hospital Medical Center and an Alvarado administrator paid illegal kickbacks to physician groups to increase patient referrals and revenue ended in a mistrial on Tuesday, the San Diego Union-Tribune reports (Laing [1], San Diego Union-Tribune, 4/5). In the case, federal prosecutors allege that Tenet HealthSystem, Alvarado and former Alvarado CEO Barry Weinbaum paid more than $10 million in illegal kickbacks to physicians through relocation agreements in exchange for patient referrals. Under Medicare anti-kickback laws for federal health care programs, hospitals cannot directly pay physicians for patient referrals. The first trial ended in a mistrial in February 2005 (Girion, Los Angeles Times, 4/5). In the second trial, federal prosecutors argued that the Alvarado relocation agreements -- which are legal and which are used to attract physicians to underserved areas -- were "overly generous and amounted to bribes for the doctors to refer patients to the hospital," the Union-Tribune reports. Defense attorneys argued that the Alvarado relocation agreements were reviewed and approved by health care attorneys and sought to address a physician shortage in the area. U.S. District Judge M. James Lorenz declared a mistrial after the jury in the trial deliberated for 62 days but failed to reach a unanimous verdict. Jurors said that their disagreement in large part resulted from an inability to determine whether Alvarado or Weinbaum sought to defraud the federal government intentionally. Attorneys for both sides will meet with Lorenz for a status conference on April 17, at which time U.S. Attorney Carol Lam will announce whether the federal prosecutors will seek a retrial. According to legal experts, the second mistrial "greatly increases the chances that the government will drop the charges," the Union-Tribune reports (Laing [1], San Diego Union-Tribune, 4/5).

Comments
Lam said, "The government continues to believe that it is important to address violations of the Medicare antikickback statute. We regret that the jury was unable to reach a verdict in this trial, and we will report back to the court with respect to our intentions regarding the case" (Los Angeles Times, 4/5). Charles La Bella, an attorney for Weinbaum, said of the allegations against his client, "It's been four years, and neither jury could conclude that this was occurring," adding, "The government threw their best health care trial lawyers they had on this case, and it still didn't change the outcome" (Laing [1], San Diego Union-Tribune, 4/5). Tenet spokesperson Steven Campanini said, "We would hope that this case is not going to be tried a third time, so we can focus our full energy on the broader issues" (Laing [2], San Diego Union-Tribune, 4/5).

Implications
Sheryl Skolnick, an analyst at CRT Capital, said the mistrial "is not a clean and positive catalyst for the turnaround to take place with respect to patient volume," adding, "And without patient volume, there is no turnaround" (Los Angeles Times, 4/5). Decreased patient admissions at Tenet hospitals, as well as bad debt from uninsured patients, has resulted in $3.5 billion in losses over the past two years for the company. A.J. Rice, an analyst at Merrill Lynch, said, "A clear verdict in the Alvarado case would have paved the way for the company to come to a relatively quick settlement with federal authorities regarding the remaining major federal investigation-related issues," but "with a hung jury that path is not as clear" (Laing [2], San Diego Union-Tribune, 4/5). However, Joseph Chiarelli, chair of the research company Chiarelli, said that the mistrial "is quite positive for Tenet," adding, "If they had lost, and the contracts were declared illegal, it would be a setback and an enormous issue for the entire hospital industry" (Rundle, Wall Street Journal, 4/5). In addition, legal experts said that the mistrial "makes it less likely" that federal prosecutors in other areas -- such as New Orleans; St. Louis; Memphis; Northern California; and El Paso, Texas; -- will file charges based on investigations of allegations of improper physician relationships at other Tenet hospitals, the Union-Tribune reports (Laing [1], San Diego Union-Tribune, 4/5).