News in brief - Sept. 22/29, 2003

Tenet hospital may be excluded from Medicare - New exec pay rules in place - Federal authorities investigate WebMD - Caremark acquires AdvancePCS - Zix buys maker of antispam software

Tenet hospital may be excluded from Medicare

Regulators have threatened to exclude a Tenet Healthcare hospital in California from participating in Medicare and other federal health programs in the wake of allegations that hundreds of unnecessary heart procedures were performed there.

Tenet said it received a notice on Sept. 3 that the Office of the Inspector General of the U.S. Dept. of Health and Human Services was moving to exclude the Redding Medical Center from participation in the programs because it determined that the hospital furnished unnecessary cardiac procedures and failed to meet professionally recognized standards of care.

The notice gave the Redding Medical Center 35 days to prove that exclusion is unwarranted. Meanwhile, Tenet said patient care would be uninterrupted.

On Aug. 6, Tenet agreed to pay the federal government $54 million to settle claims that unnecessary procedures were performed at the hospital and billed to government programs. Tenet did not admit any wrongdoing. As part of the settlement, the government reserved the right to pursue administrative action against the Santa Barbara, Calif.-based hospital chain.

Tenet has also disclosed that the Senate Finance Committee is investigating the hospital chain's corporate governance practices. Tenet said the committee has requested documents related to the Redding Medical Center, physician relationships, alleged unnecessary medical procedures and Medicare outlier payments.

In other news, Tenet announced on Sept. 2 that it had reached an agreement to sell four hospitals in Arkansas to Plano, Texas-based Triad Hospitals Inc. Gross proceeds from the sale are expected to total $175 million.

The sale is part of a cost-cutting plan Tenet announced in March to sell, divest or pull out of 14 of its 114 hospitals. With the four in Arkansas, 10 of the hospitals are under contract to be sold and two others are being closed. Negotiations for the sale of two more are ongoing.

New exec pay rules in place

National managed care companies and other publicly traded corporations that wish to award top executives with lucrative stock option plans now need to get the permission of shareholders under new rules approved by the Securities and Exchange Commission.

The rules require any corporation listed on the New York Stock Exchange or NASDAQ to get shareholder approval before adopting new equity-based compensation plans, which in recent years have become a common form of pay in addition to cash salaries and bonuses. Publicly traded companies must also now get shareholder permission to materially change an existing options plan or to reprice stock options.

Many companies have been criticized by shareholder rights groups for highly generous awards of options, with the decision process typically shrouded in secrecy and left to the will of board compensation committees. Both the NYSE and NASDAQ exchanges put the rules in place themselves this summer before they were codified by the SEC.

"The whole tenet of the corporate governance movement, post-Enron, is to make the boards of directors to be more of a check, more of a balance, and less of a handmaiden to management," said Gordon Kaiser, a corporate lawyer in Cleveland. "Boards are going to be more skeptical than they were in the past."

Federal authorities investigate WebMD

Agents from the FBI and the Internal Revenue Service on Sept. 3 raided three offices of WebMD Corp.

The raids were in relation to a federal investigation involving WebMD's dealer acquisition program of its physician services segment, Medical Manager, and the company's $5.5 million financial restatement in 1999, WebMD said in a prepared statement.

"WebMD believes that the search warrant was based on misleading information from two terminated employees who WebMD has sued for taking improper kickbacks," the Elmwood Park, N.J., company said.

The firm said it does not believe that it has violated any laws and is cooperating fully with authorities. WebMD sells physician practice management software and medical transaction processing services, and operates health information sites for doctors and consumers.

Caremark acquires AdvancePCS

Caremark Rx. Inc., Birmingham, Ala., has agreed to acquire AdvancePCS for about $5.6 billion. The proposed transaction, which will combine two of the country's largest pharmacy benefit managers, calls for owners of AdvancePCS common stock to receive 2.15 shares of Caremark's common stock for each of their shares. Based on Caremark's Sept. 2 closing price of $25.40 on the New York Stock Exchange, Caremark will pay about $54 for each AdvancePCS share, with 90% to be paid out in stock and the remainder cash.

Zix buys maker of antispam software

Zix Corp. has acquired the assets and business of Elron Software Inc., a Burlington, Mass., vendor of antispam software, for $7 million in stock and cash. Dallas-based Zix, which sells secure messaging systems to the health care industry, said the acquisition will add URL filtering software and enhance its antispam, antivirus and Web filtering product offerings.