Damage Award to Former Tenet Exec Is Slashed

Tenet Healthcare Corp. said Wednesday that a California appeals court panel had significantly reduced a $253-million damage award for a former executive who sued over unpaid benefits.

The court panel ruled Tuesday that interest owed to John C. Bedrosian should be calculated from Oct. 3, 2002, instead of April 1995. That reduced the award to $148 million.

Tenet had petitioned for a rehearing. Although the court denied that petition, it modified the date from which prejudgment interest is calculated. The Oct. 3 date is when the court assumed Bedrosian would have sold the shares.

The original appellate ruling calculated interest from April 1995, the date of the original trial court judgment. This correction reduced the interest to about $7 million from about $112 million.

The ruling may boost profit at the Santa Barbara-based company because it already had set aside money for damages.

Tenet, the second-biggest U.S. hospital chain, pulled its earnings forecasts last month as it struggled with government probes, pressure from managed-care companies to cut prices and unpaid bills from patients.

“These guys don’t need another drain on their cash right now,” said SG Cowen Securities Corp. analyst Kemp Dolliver, who has a “market perform” rating on Tenet and doesn’t own shares. Now, he said, “it’s a smaller burden.”

Bedrosian, a co-founder of Tenet predecessor National Medical Enterprises Inc., was fired in 1993. He alleged that the company breached his contract by not offering certain stock incentive awards. Richard Hodge, Bedrosian’s lawyer, did not return a call seeking comment.

A lower court first ordered Tenet to pay $9.2 million. The appeals court raised the award to $253 million, or about a third of Tenet’s earnings for all of last year. The court then reconsidered the damages at Tenet’s request. It denied the company’s bid for a new hearing.

Shares of Tenet rose 18 cents to $14.58 on the New York Stock Exchange. The stock has tumbled from a high of $52.50 last year after former Chief Executive Jeffrey Barbakow said the company was too aggressive in setting prices, which boosted payments for the sickest patients covered by Medicare. That practice touched off one of the U.S. probes.

The lawsuit damages aren’t as big a setback for Tenet as the loss of profit from the change in pricing procedures and government investigations, which also include an inquiry into whether hospitals performed unnecessary procedures, analyst Dolliver said. “I’d put this issue about third tier,” he said.

Tenet said the “huge award” still wasn’t justified, and that it planned an appeal to the state Supreme Court. The company won’t change reserves or offer new earnings estimates during the appeal, spokesman Steven Campanini said.

Tenet reported $785 million in net income on $13.9 billion in sales in 2002. Tenet said on Nov. 11 that it had a loss in the third quarter, hurt by unpaid bills.