Like the sword above Damocles' head, Tenet Healthcare (NYSE: THC) investors had a potentially serious threat dangling precariously over them. While this hospital operator has made many moves to get back on track in the wake of tremendous issues concerning the company's practices and ethics, the issue of a final settlement with the federal government still remained.
Now that's finished.
Tenet announced on Thursday that it has reached a master settlement in which it will pay $725 million to the government, waive another $175 million that the government owed the company, and pay an additional $36 million. That's a grand total of $936 million, but that's not exactly the full story. That $175 million in "waived fees" was never booked as revenue or a receivable. What's more, the settlement will be tax-deductible.
As if the tax-deductible part weren't strange enough, it gets even weirder. In the settlement, Tenet admits no wrongdoing. The payments the company is making are for inflated charges, kickbacks, and patient upcoding . and it doesn't have to admit wrongdoing? I'm not a lawyer, so maybe the deal had to be done this way -- maybe the government would have been obligated to pursue additional penalties without that clause. Either way, it buries the needle on my weirdness meter.
In a separate announcement, the company said that it's also selling an additional 11 hospitals. This is unrelated to the settlement -- unlike the issue in San Diego, where it has to close or sell a hospital as part of a different settlement -- and should generate somewhere around $250 million to $275 million in proceeds, with the midpoint of that range being pretty attainable, in my view. These were, on the whole, money-losing locations in places such as southern Florida, Louisiana, and Philly.
With this huge issue removed, Tenet can now continue moving forward. After all, HCA (NYSE: HCA) paid out an even bigger settlement in 2000 (about $1.7 billion), and HCA is still very much around. While Tenet has some future margin targets that look a little challenging, and investors have plenty of other options to consider -- including Lifepoint Hospitals (Nasdaq: LPNT), Triad Hospitals (NYSE: TRI), and Health Management Associates (NYSE: HMA) -- at least things seem to be moving in the right direction.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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