Tenet Volunteers to Adopt New Outlier Policy; Impact Expected Within Ranges Tenet Previously...

Business Editors & Health/Medical Writers

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Jan. 6, 2003

Tenet Healthcare Corporation (NYSE:THC) today announced that it has volunteered to adopt a new policy on Medicare outlier payments that would reimburse its hospitals in accordance

In a letter today to Tom Scully, Administrator of the Centers for Medicare and Medicaid Services (CMS), Tenet President Trevor Fetter said that Tenet was volunteering to adopt the following new approaches as of Jan. 1, 2003: 1) ensure that the ratio of cost-to-charges (RCC) used in calculating outlier payments be based on the most recent cost report available, and 2) eliminate the "statewide average" method of calculation. Because these calculations are performed by a Medicare fiscal intermediary, not by Tenet, Tenet representatives are working with representatives from the fiscal intermediary to ensure the changes become effective immediately.

Tenet estimates that by adopting these two policy changes, outlier payments to Tenet hospitals will drop from approximately $65 million per month to approximately $8 million per month. This is consistent with assumptions used by Tenet in forecasts it gave to investors early last month for both its fiscal 2003 and fiscal 2004 results. Tenet will report results for its second quarter of fiscal 2003 on Jan. 13, 2003.

CMS has publicly indicated dissatisfaction with the current outlier formula and expressed its intent to issue changes to the outlier rule. In various forums, agency officials have expressed discontent with two specific aspects of the current formula: 1) that the use of historical cost reports to determine a hospital's RCC has resulted in RCCs being based on outdated cost data, and 2) that causing hospitals with RCCs below a national threshold to default to a "statewide average" RCC has resulted in those hospitals receiving significantly higher outlier payments. A CMS rule change, once finalized, would subsequently apply to hospitals nationwide. Tenet said that it was volunteering today to immediately adopt the above policy changes as a show of good faith to the agency, based on the company's conjecture that these changes may be central components in any rule change CMS makes.

Fetter said that Tenet continues to believe that its hospitals properly followed the existing rules regarding outlier payments. It was the formulaic rules combined with increases in hospitals' gross charges that led to certain Tenet hospitals receiving higher-than-average outlier payments, he added.

"We agree with CMS' assessment of the problems presented by the current outlier payment methodology," said Fetter. "We want to be part of CMS' solution to the outlier issue and we support across-the-board modifications. To that end, we are willing to step forward and adopt what we anticipate may become central components of CMS' new outlier rule as though the agency had put it into effect Jan. 1, 2003."

If CMS ultimately were to adopt a different approach to modifying its outlier rule, or impose alternative adjustments to the system, Tenet said it would expect to adopt those changes and to reconcile its payments accordingly as if they had gone into effect Jan. 1, 2003.

Tenet has previously announced that the Office of Audit Services of the Department of Health and Human Services is auditing, and the Department of Justice is investigating, outlier payments to certain Tenet hospitals. The company expects those matters to proceed and continues to cooperate with the respective agencies.

"Tenet has its own concerns regarding the level of Medicare outlier payments certain of its hospitals have received," said Fetter. "We've stated before our intention to address them expeditiously. Several weeks ago, we announced that we would freeze hospital charges while we reviewed historical approaches and worked to develop a new and sustainable approach to pricing. Our offer today is a second important step toward addressing the outlier issue."

Tenet Healthcare Corporation, through its subsidiaries, owns and operates 114 acute care hospitals with 27,851 beds and numerous related health care services. Tenet and its subsidiaries employ approximately 115,000 people serving communities in 16 states. Tenet's name reflects its core business philosophy: the importance of shared values among partners -- including employees, physicians, insurers and communities -- in providing a full spectrum of health care. Tenet can be found on the World Wide Web at www.tenethealth.com.

Certain statements in this release may constitute forward-looking statements. They are based on management's current expectations and could be affected by numerous factors and are subject to various risks and uncertainties. Certain of those risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K and quarterly reports on Form 10-Q. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise.