PacificCare Cautious in Tenet Talks
By VITA REED
Orange County Business Journal
PacifiCare Health Systems Inc. is hashing out a new contract with Tenet Healthcare Corp., the embattled Santa Barbara-based operator of 10 Orange County hospitals.
This time around, though, the talks are anything but ordinary.
Tenet, subject of a federal probe into aggressive Medicare charges, may lose its ability to bully health maintenance organizations into accepting heavy price increases for hospital services.
One possible example of the trend came in the two-year deal struck between Tenet and Health Net Inc., a Woodland Hills-based PacifiCare rival. The pact, which covers 27 Tenet hospitals in California, adopts a fixed-payment, or “per diem” payment system for hospital services instead of fees based on inflated retail prices.
The Health Net deal “will be a model for other contracts, especially in California,” said Sheryl Skolnick, a managing director at Fulcrum Global Partners LLC.
The pact ends dependence on pricier stop-loss payments, which are the HMO equivalent of the higher “outlier” hospital payments that Tenet’s being probed over, according to Skolnick.
“If there’s a deal with Health Net, a deal with PacifiCare shouldn’t be far behind,” said Thomas Shinkle, a healthcare analyst with Imperial Capital LLC of Beverly Hills. “Tenet has nowhere to go.”
Tenet has a lot at stake in its talks with PacifiCare and the state’s other HMOs. The hospital operator said it plans to drop aggressive Medicare pricing policies that spurred most of its growth in the past two years and the government audit. Instead, Tenet hopes to get more revenue from private health insurers such as PacifiCare, despite adopting simplified pricing for HMOs.
But HMOs, with PacifiCare reported to be among them, are said to be scrutinizing their pacts with Tenet for aggressive pricing.
PacifiCare spokesman Dan Yarbrough confirmed that the company is in talks with Tenet for a new contract, but didn’t provide further details.
Regulators are probing Tenet’s fees for outlier patients unusually expensive cases. HMOs get nailed because such payments are based on inflated sticker prices for hospital services.
PacifiCare shares fell early last month on word of Tenet’s woes but have risen since on fruits of a two-year turnaround. The company’s third-quarter operating income rose 66 percent, to $69.2 million, while revenue slipped 6 percent, to $2.8 billion.
Still, PacifiCare has been “affected along with the rest of the sector for the last week and a half or so,” Yarbrough said.
PacifiCare and other HMOs also have faced increasing demands from hospitals and physicians for shared-risk pacts, where they agree to pay more as providers’ costs rise.