Critical Condition

Tenet Healthcare has been laid low by scandal, fraud, and cash-draining litigation. Can new CFO Biggs Porter help cure the ailing hospital operator?

On June 6, 2006 — D-Day, appropriately enough — Biggs Porter addressed the troops. Standing in a crowded meeting room in Dallas, the new CFO of embattled hospital chain Tenet Healthcare Corp. outlined his expectations for the finance department and its employees. Porter spoke of fiduciary responsibility and transparency. He talked about open-door policies, good communication, and challenging the organization. He said a lot about integrity.

No one would have blamed the assembled workers if they had simply tuned him out. After all, the 53-year-old Porter is the fourth finance chief in as many years at Tenet. But during that speech, finance staffers got a glimpse of what makes Porter a good fit at the scandal-plagued company. One, he’s a quick study. Two, he sticks to a plan. And three, he doesn’t back away from a challenge.

In fact, Porter’s résumé reads like a shooting script for “World’s Toughest Jobs.” He worked for LTV in the early 1990s, when the conglomerate was in the throes of a tempestuous consolidation. In 2000, he joined Dallas-based utility TXU, right around the time the Texas power industry was shuddering through deregulation. And he signed on as controller at Patriot-missile maker Raytheon in 2003, even though the aerospace giant was being investigated by the Securities and Exchange Commission. “I’ve been at companies that were going through significant transitions,” says Porter. “You either like that or you don’t.”

Classifying Tenet’s current situation as a “transition” is a sizable understatement. Once a rising star in the health-care universe, the publicly traded, Texas-based hospital holding company has suffered blunt-force trauma during the past 15 years. Two different scandals have battered the company, and left its corporate brand in tatters.

The first incident involved kickbacks, bribes, and the alleged hiring of bounty hunters to fill hospital beds. It also led to felony convictions, a $379 million settlement with the Department of Justice in 1994, and the ouster of the company’s top executives. The second scandal, which broke in 2002, saw Tenet’s subsequent management team charged with running a secret pricing scheme that excessively boosted the rates the company charged for treating Medicare’s sickest patients, known as outliers. Tenet denied the allegations, but soon after, a raft of senior executives resigned, including then-CEO Jeffrey Barbakow. Although the company and its former executives never admitted guilt in the case, Tenet last year agreed to pay $725 million (plus interest) to the Justice Department over four years to settle the charges.

Changing the corporate mind-set at a company with widely dispersed facilities — and more than 60,000 employees — is tough enough. But the latest ignominy at Tenet has pushed the hospital operator to the brink. Since news of the alleged outlier scheme broke in late 2002, Tenet has been hemorrhaging cash. Last year, the company reported a pretax loss of $1.1 billion on $8.7 billion in revenues. Tenet’s share price has plummeted as well, dropping from more than $50 to $5, and the credit rating on its senior debt has sunk with it (pegged at CCC+ by Standard & Poor’s). The company has shrunk dramatically, and now operates about half the number of medical facilities (56) it did at its zenith. And it has witnessed an exodus of doctors, some of whom say they’ll never work for Tenet again.

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