<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2000.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
.
COMMISSION FILE NUMBER: I-7293
------------------------
TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3820 STATE STREET 93105
SANTA BARBARA, CALIFORNIA (Zip Code)
(Address of principal
executive offices)
</TABLE>
AREA CODE (805) 563-7000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
Common Stock............................................ New York Stock Exchange
Pacific Stock Exchange
9 5/8% Senior Notes due 2002............................ New York Stock Exchange
7 7/8% Senior Notes due 2003............................ New York Stock Exchange
8 5/8% Senior Notes due 2003............................ New York Stock Exchange
6% Exchangeable Subordinated Notes due 2005............. New York Stock Exchange
8% Senior Notes due 2005................................ New York Stock Exchange
10 1/8% Senior Subordinated Notes due 2005.............. New York Stock Exchange
8 5/8% Senior Subordinated Notes due 2007............... New York Stock Exchange
7 5/8% Series B Senior Notes due 2008................... New York Stock Exchange
8 1/8% Series B Senior Subordinated Notes due 2008...... New York Stock Exchange
</TABLE>
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendments to this Form 10-K. /X/
As of July 31, 2000, there were 314,841,441 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of these shares on
the New York Stock Exchange, was $9,543,853,352. For the purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended May 31, 2000, have been incorporated by reference into Parts I, II
and IV of this Report. Portions of the definitive Proxy Statement for the
Registrant's 2000 Annual Meeting of Shareholders have been incorporated by
reference into Part III of this Report.
--------------------------------------------------------------------------------
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<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT--2000
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 22
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 22
Item 6. Selected Financial Data..................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 22
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................. 24
</TABLE>
------------------------
Note: The responses to Items 5 through 8, Item 12 and portions of Items 1, 3,
10, 11 and 14 are included in the Registrant's Annual Report to
Shareholders for the year ended May 31, 2000, or the definitive Proxy
Statement for the Registrant's 2000 Annual Meeting of Shareholders. The
required information is incorporated into this Report by reference to
those documents and is not repeated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Tenet Healthcare Corporation (together with its subsidiaries, "Tenet", the
"Registrant" or the "Company") is the second-largest investor-owned health care
services company in the United States. At May 31, 2000, Tenet's subsidiaries and
affiliates (collectively "subsidiaries") owned or operated 110 general hospitals
with 26,939 licensed beds and related health care facilities serving urban and
rural communities in 17 states, and held investments in other health care
companies. The related health care facilities included a small number of
rehabilitation hospitals, specialty hospitals, long-term care facilities and a
psychiatric facility and many medical office buildings located on the same
campus as, or nearby, its general hospitals, physician practices and various
ancillary health care businesses, including outpatient surgery centers, home
health care agencies, occupational and rural health care clinics, health
maintenance organizations, a preferred provider organization and a managed care
insurance company.
Tenet regularly reviews its portfolio of facilities on a facility by
facility basis to assess performance and allocate resources. Tenet intends to
continue its strategic acquisitions of and partnerships or affiliations with
additional general hospitals and related health care businesses in order to
expand and enhance its integrated health care delivery systems. From time to
time Tenet also may close or sell facilities or convert them to alternate uses.
As discussed in more detail under Health Care on page 2, Tenet's
subsidiaries acquired one general hospital during fiscal 2000. In addition,
Tenet sold 17 general hospitals, closed three general hospitals and terminated
the lease of one general hospital during fiscal 2000.
Tenet's revolving credit agreement allows Tenet to borrow, repay and
reborrow up to $2.8 billion prior to its January 31, 2002, maturity date. The
Company had approximately $1.4 billion available under its revolving credit
agreement at May 31, 2000.
Under segment reporting criteria, Tenet's business of providing health care
is a single reportable operating segment. See the discussion of Tenet's revenues
and operations in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in Tenet's 2000 Annual Report to
Shareholders.
1
<PAGE>
OPERATIONS
A. HEALTH CARE
All of Tenet's operations are conducted through its subsidiaries. At
May 31, 2000, Tenet's subsidiaries operated 110 general hospitals with 26,939
licensed beds serving urban and rural communities in 17 states. Of those general
hospitals, 89 are owned by Tenet's subsidiaries and 21 are owned by third
parties and leased by Tenet subsidiaries (including one Tenet-owned facility
that is on land leased from a third party). A Tenet subsidiary also owns one
general hospital and ancillary health care operations in Barcelona, Spain.
During fiscal 2000, Tenet's subsidiaries acquired one general hospital,
Doctors Regional Medical Center, in Poplar Bluff, Missouri, with a total of 222
beds. In addition, during fiscal 2000, Tenet sold 17 general hospitals, closed
three general hospitals and terminated the lease on one general hospital. The
Company also sold three long-term care facilities. During fiscal 2000,
construction of the Worcester Medical Center in Worcester, Massachusetts was
completed and construction continued on a new hospital in Weston, Florida, under
a joint venture with The Cleveland Clinic Foundation.
Each of Tenet's general hospitals offers acute care services, operating and
recovery rooms, radiology services, respiratory therapy services, pharmacies and
clinical laboratories, and most offer intensive-care, critical-care and/or
coronary care units, and physical therapy, orthopedic, oncology and outpatient
services. A number of the hospitals also offer tertiary care services such as
open-heart surgery, neonatal intensive care and neuroscience. Six of the
Company's hospitals--Memorial Medical Center, USC University Hospital, Saint
Louis University Hospital, Hahnemann University Hospital, Sierra Medical Center
and St. Christopher's Hospital for Children--offer quaternary care in such areas
as heart, lung, liver and kidney transplants. USC University Hospital and Sierra
Medical Center also offer gamma-knife brain surgery and Memorial Medical Center
offers bone marrow transplants. Except for one small hospital that has not
sought to be accredited, each of the Company's facilities that is eligible for
accreditation is fully accredited by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"), the Commission on Accreditation of
Rehabilitation Facilities ("CARF") (in the case of rehabilitation hospitals),
The American Osteopathic Association ("AOA") (in the case of two hospitals) or
another appropriate accreditation agency. With such accreditation, the Company's
hospitals are eligible to participate in the Medicare and Medicaid programs. The
one hospital that is not accredited participates in the Medicare program through
a special waiver that must be renewed each year.
Various factors, such as technological developments permitting more
procedures to be performed on an outpatient basis, pharmaceutical advances and
pressures to contain health care costs, have led to a shift from inpatient care
to ambulatory or outpatient care. Tenet has responded to this trend by enhancing
its hospitals' outpatient service capabilities, including (i) establishing
freestanding outpatient surgery centers at or near certain of its hospital
facilities, (ii) reconfiguring certain hospitals to more effectively accommodate
outpatient treatment, by, among other things, providing more convenient,
dedicated outpatient facilities and (iii) restructuring existing surgical and
diagnostic capacity to allow a greater number and range of procedures to be
performed on an outpatient basis. Tenet's facilities will continue to emphasize
those outpatient services that can be provided on a quality, cost-effective
basis and that the Company believes will meet the needs of the communities the
facilities serve. The patient volumes and net operating revenues at both the
Company's general hospitals and its outpatient
2
<PAGE>
surgery centers are subject to seasonal variations caused by a number of
factors, including, but not necessarily limited to, seasonal cycles of illness,
climate and weather conditions, vacation patterns of both patients and
physicians and other factors relating to the timing of elective procedures.
In addition, inpatient care is continuing to move from acute care to
sub-acute care, where a less-intensive level of care is provided. Tenet has been
proactive in the development of a variety of sub-acute inpatient services to
utilize a portion of its unused capacity. By offering cost-effective ancillary
services in appropriate circumstances, Tenet is able to provide a continuum of
care where the demand for such services exists. For example, in certain
hospitals the Company has developed transitional care, rehabilitation and
long-term care sub-acute units. Such units utilize less intensive staffing
levels to provide the range of services sought by payors with a lower cost
structure.
The largest concentrations of the Company's hospital beds are in California
(29.6 percent), Florida (14.0 percent) and Texas (13.3 percent). While having
concentrations of hospital beds within geographic areas helps the Company to
reduce management and marketing expenses and more efficiently utilize resources,
such concentrations also increase the risk that any adverse economic, regulatory
or other developments that may occur within such areas may adversely affect the
Company's business, results of operations or financial condition.
Tenet believes that its general hospitals are well-positioned to compete
effectively in the rapidly evolving health care environment. Tenet continually
analyzes whether each of its hospitals fits within its strategic plans and has
and will continue to analyze ways in which such assets may best be used to
maximize shareholder value. To that end, the Company occasionally may close,
sell or convert to alternate uses certain of the Company's facilities and
services in order to eliminate non-strategic assets, duplicate services and
excess capacity or because of changing market conditions.
The following table lists, by state, the general hospitals owned or leased
by Tenet's subsidiaries and operated domestically as of May 31, 2000:
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
--------------------- --------------------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C>
Alabama........................ Brookwood Medical Center Birmingham 586 Owned
Arkansas....................... Central Arkansas Hospital Searcy 193 Owned
National Park Medical Center Hot Springs 166 Owned
Regional Medical Center of
NEA (1) Jonesboro 104 Owned
St. Mary's Regional Medical
Center Russellville 170 Owned
California (Southern).......... Alvarado Hospital Medical Center San Diego 231 Owned
Brotman Medical Center Culver City 432 Owned
Centinela Hospital Medical Center Inglewood 400 Owned
Century City Hospital Los Angeles 190 Leased
Chapman Medical Center Orange 126 Leased
Coastal Communities Hospital Santa Ana 178 Owned
Community Hospital of Huntington
Park Huntington Park 81 Leased
Desert Regional Medical Center Palm Springs 388 Leased
Encino-Tarzana Regional Medical
Center (2) Encino 151 Leased
Encino-Tarzana Regional Medical
Center (2) Tarzana 236 Leased
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
--------------------- --------------------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C>
Fountain Valley Regional Hospital
and Medical Ctr Fountain Valley 395 Owned
Garden Grove Hospital and Medical
Center Garden Grove 167 Owned
Garfield Medical Center Monterey Park 214 Owned
Greater El Monte Community
Hospital South El Monte 115 Owned
Irvine Medical Center Irvine 176 Leased
John F. Kennedy Memorial Hospital Indio 130 Owned
Lakewood Regional Medical Center Lakewood 161 Owned
Los Alamitos Medical Center Los Alamitos 153 Owned
Midway Hospital Medical Center Los Angeles 225 Owned
Mission Hospital of Huntington
Park Huntington Park 109 Owned
Monterey Park Hospital Monterey Park 101 Owned
Placentia Linda Hospital Placentia 114 Owned
Queen of Angels--Hollywood
Presbyterian Med Ctr Los Angeles 434 Owned
Rancho Springs Medical Center Murrieta 99 Owned
Saint Luke Medical Center Pasadena 165 Owned
San Dimas Community Hospital San Dimas 93 Owned
Santa Ana Hospital Medical Center Santa Ana 69 Leased
Suburban Medical Center Paramount 182 Leased
USC University Hospital (3) Los Angeles 285 Owned
Western Medical Center--Santa Ana Santa Ana 287 Owned
Western Medical Center--Anaheim Anaheim 193 Owned
Whittier Hospital Medical Center Whittier 181 Owned
California (Northern).......... Community Hospital of Los Gatos Los Gatos 143 Leased
Doctors Hospital of Manteca Manteca 73 Owned
Doctors Medical Center Modesto 459 Owned
Doctors Medical Center--San Pablo
Campus San Pablo 233 Leased
Redding Medical Center Redding 188 Owned
San Ramon Regional Medical Center San Ramon 123 Owned
Sierra Vista Regional Medical
Center San Luis Obispo 201 Owned
Twin Cities Community Hospital Templeton 84 Owned
Florida........................ Coral Gables Hospital Coral Gables 273 Owned
Delray Medical Center Delray Beach 343 Owned
Florida Medical Center Ft. Lauderdale 459 Owned
Hialeah Hospital Hialeah 378 Owned
Hollywood Medical Center Hollywood 324 Owned
North Ridge Medical Center Ft. Lauderdale 391 Owned
North Shore Medical Center Miami 357 Owned
Palm Beach Gardens Community
Hospital Palm Beach Gardens 204 Leased
Palmetto General Hospital Hialeah 360 Owned
Parkway Regional Medical Center North Miami Beach 382 Owned
Seven Rivers Community Hospital Crystal River 128 Owned
West Boca Medical Center Boca Raton 185 Owned
Georgia........................ Atlanta Medical Center Atlanta 460 Owned
North Fulton Regional Hospital Roswell 167 Leased
Spalding Regional Hospital Griffin 160 Owned
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
--------------------- --------------------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C>
Sylvan Grove Hospital Jackson 25 Leased
Indiana........................ Winona Memorial Hospital Indianapolis 317 Owned
Louisiana...................... Doctors Hospital of Jefferson Metairie 138 Leased
Kenner Regional Medical Center Kenner 203 Owned
Meadowcrest Hospital Gretna 203 Owned
Memorial Medical Center, Mid-City New Orleans 230 Owned
Memorial Medical Center, Uptown New Orleans 422 Owned
Northshore Regional Medical
Center Slidell 174 Leased
St. Charles General Hospital New Orleans 163 Owned
Massachusetts.................. MetroWest Medical Center--
Leonard Morse(4) Natick 184 Owned
MetroWest Medical Center--Union
Hospital(4) Framingham 238 Owned
Worcester Medical Center(5) Worcester 350 Owned
Mississippi.................... Gulf Coast Medical Center Biloxi 189 Owned
Missouri....................... Des Peres Hospital St. Louis 167 Owned
Doctors Regional Medical Center Poplar Bluff 222 Owned
Forest Park Hospital St. Louis 516 Owned
Lucy Lee Hospital Poplar Bluff 201 Leased
Saint Louis University Hospital St. Louis 356 Owned
SouthPointe Hospital St. Louis 408 Owned
Twin Rivers Regional Medical
Center Kennett 116 Owned
Nebraska....................... Saint Joseph Hospital (6) Omaha 388 Owned
Nevada......................... Lake Mead Hospital Medical Center North Las Vegas 198 Owned
North Carolina................. Central Carolina Hospital Sanford 137 Owned
Frye Regional Medical Center Hickory 355 Leased
Pennsylvania................... Elkins Park Hospital Elkins Park 280 Owned
Graduate Hospital Philadelphia 303 Owned
Hahnemann University Hospital Philadelphia 618 Owned
Medical College of Pennsylvania
Hospital Philadelphia 465 Owned
Parkview Hospital Philadelphia 200 Owned
St. Christopher's Hospital for
Children Philadelphia 183 Owned
Warminster Hospital Warminster 180 Owned
South Carolina................. East Cooper Regional Medical
Center Mount Pleasant 100 Owned
Hilton Head Medical Center and
Clinics Hilton Head 64 Owned
Piedmont Medical Center Rock Hill 268 Owned
Tennessee...................... John W. Harton Regional Medical
Center Tullahoma 137 Owned
Saint Francis Hospital Memphis 651 Owned
University Medical Center Lebanon 257 Owned
Texas (Dallas)................. Doctors Hospital Dallas 228 Owned
Garland Community Hospital Garland 113 Owned
Lake Pointe Medical Center Rowlett 97 Owned
RHD Memorial Medical Center Dallas 150 Leased
Trinity Medical Center Carrollton 149 Leased
Texas (Houston)................ Bayou City Medical Center Houston 526 Owned
Cypress Fairbanks Medical Center Houston 140 Owned
Houston Northwest Medical Center Houston 498 Owned
Park Plaza Hospital Houston 468 Owned
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
--------------------- --------------------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C>
Texas (Other).................. Brownsville Medical Center Brownsville 219 Owned
Nacogdoches Medical Center Nacogdoches 150 Owned
Providence Memorial Hospital El Paso 486 Owned
Sierra Medical Center El Paso 354 Owned
</TABLE>
--------------------------
(1) Owned by a limited liability company in which a Tenet subsidiary owns a
95 percent interest and is the managing member.
(2) Leased by a partnership in which Tenet's subsidiaries own a 75 percent
interest and of which a Tenet subsidiary is the managing general partner.
(3) Facility owned by Tenet on land leased from a third party.
(4) Owned by a limited partnership in which a Tenet subsidiary owns a
79.9 percent interest and is the managing general partner.
(5) Owned by a limited liability company in which a Tenet subsidiary owns a
90 percent interest and is the managing member.
(6) Owned by a limited liability company in which a Tenet subsidiary owns a
74 percent interest and is the managing member.
The following table shows certain information about the general hospitals
owned or leased domestically by Tenet's subsidiaries for the fiscal years ended
May 31:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Total number of facilities........................ 122 130 110
Total number of licensed beds..................... 27,867 30,791 26,939
Average occupancy during the period............... 44.0% 45.4% 46.8%
</TABLE>
Note: The above tables do not include Tenet's general hospital in Barcelona,
Spain, or Tenet's rehabilitation hospitals, long-term care facilities,
psychiatric facility, outpatient surgery centers or other ancillary
facilities.
B. BUSINESS STRATEGY
The Company's strategic objective is to provide quality health care services
responsive to the needs of each community or region within the current managed
care environment. Tenet believes that competition among health care providers
occurs primarily at the local level. Accordingly, the Company tailors its local
strategies to address the specific competitive characteristics of each region in
which it operates, including the number of facilities operated by Tenet's
subsidiaries, the nature and structure of physician practices and physician
groups, the extent of managed care penetration, the number and size of
competitors and the demographic characteristics of the area. Key elements of the
Company's development strategy are: (1) to acquire or enter into strategic
partnerships with hospitals, groups of hospitals, other health care businesses,
and ancillary health care providers where appropriate to expand and enhance
quality integrated health care delivery systems responsive to the current
managed care environment; (2) to reduce costs through enhanced operating
efficiencies while maintaining the quality of care provided; (3) to develop or
maintain its strong relationships with physicians and generally to foster a
physician-friendly culture; and (4) to enter into discounted fee-for-service
arrangements and managed care contracts with third-party payors.
6
<PAGE>
Over the past several years, the Company has employed, or entered into
full-risk management agreements with physicians in most of its markets. A large
percentage of these physician practices were acquired as part of large hospital
acquisitions or through the formation of integrated health care delivery
systems. These physician practices, however, have not been profitable.
Accordingly, the Company has evaluated its physician strategy in each of its
markets, has developed plans to either terminate or allow a significant number
of its existing contracts to expire and has been executing on those plans.
In fiscal 2000 Tenet took a back to basics approach to making its hospitals
the hospitals of choice for patients and health care professionals and improving
financial performance by focusing on five core areas: (1) enhancing the quality
of care and service; (2) recruiting and retaining quality health care
professionals and other employees; (3) improving operating processes;
(4) reducing bad debts and increasing cash flow; and (5) increasing the number
of patients served by its hospitals.
Tenet's general hospitals serve as hubs for integrated health care delivery
systems. Those systems are designed to provide a full spectrum of care
throughout a community or region. For a further discussion of how Tenet's
business strategy enhances its competitive position, see Competition on page 9.
Tenet intends to continue its strategic acquisitions of and partnerships with
additional general hospitals and related health care businesses in order to
expand and enhance its integrated health care delivery networks.
Several factors have impacted the environment for acquisitions of general
hospitals and have caused Tenet's pace for acquisitions to slow. First, many
states have enacted and other states are considering enacting legislation that
subjects conversions of not-for-profit hospitals to for-profit status and
acquisitions of not-for-profit hospitals by for-profit companies to public
hearings and/or state approval. These reviews and hearings have lengthened the
process of acquiring not-for-profit hospitals. Second, not-for-profit boards
have become more deliberative in the process of selling their hospitals and
increasingly are engaging investment bankers or other third parties to assist
with the sale process. Third, start-up companies and financially strong
not-for-profit bidders--alone or in consortiums--are continuing to compete with
Tenet for acquisitions.
PROPERTIES
Tenet's principal executive offices are located at 3820 State Street, Santa
Barbara, California 93105. That building is leased by a Tenet subsidiary under a
lease that expires in 2006. The telephone number of Tenet's Santa Barbara
headquarters is (805) 563-7000. Hospital support services for Tenet's
subsidiaries are located in an operations center in Dallas, Texas, in space
leased by a Tenet subsidiary under a 10-year lease with two five-year renewal
options. That lease commenced in January 2000. At May 31, 2000, Tenet and its
subsidiaries also were leasing space for regional offices in California,
Florida, Georgia, Louisiana, Missouri, Pennsylvania and Texas. In addition,
Tenet's subsidiaries operated domestically 163 medical office buildings, most of
which are adjacent to Tenet's general hospitals.
The number of licensed beds and locations of the Company's general hospitals
are described on pages 3 through 6. As of May 31, 2000, Tenet had approximately
$32 million of outstanding loans secured by property and equipment and
approximately $48 million of capitalized lease obligations. The Company believes
that all of these properties, as well as the administrative and medical office
buildings described above, are suitable for their intended purposes.
7
<PAGE>
MEDICAL STAFF AND EMPLOYEES
Tenet's hospitals are staffed by licensed physicians who have been admitted
to the medical staff of individual hospitals. Members of the medical staffs of
Tenet's hospitals also often serve on the medical staffs of hospitals not owned
by the Company and may terminate their affiliation with the Tenet hospital or
shift some or all of their admissions to competing hospitals at any time.
Although Tenet owns certain physician practices and, where permitted by law,
employs physicians, most of the physicians who practice at the Company's
hospitals are not employees of the Company. In states where Tenet is not
permitted to own physician practices or employ physicians, Tenet manages
physician practices. Nurses, therapists, lab technicians, facility maintenance
staff and the administrative staff of hospitals, however, normally are employees
of the Company, as are the staff of the physician practices.
Tenet's operations are dependent on the efforts, ability and experience of
its employees and physicians. Tenet's continued growth depends on (i) its
ability to attract and retain skilled employees, (ii) the ability of its key
employees to manage growth successfully and (iii) Tenet's ability to attract and
retain physicians and other health care professionals at its hospitals. In
addition, the success of Tenet is, in part, dependent upon the quality, number
and specialties of physicians on its hospitals' medical staffs, most of whom
have no long-term contractual relationship with Tenet and may terminate their
association with Tenet's hospitals at any time. Although Tenet currently
believes it will continue to successfully attract and retain key employees,
qualified physicians and other health care professionals, the loss of some or
all of its key employees or inability to attract or retain sufficient numbers of
qualified physicians and other health care professionals could have a material
adverse impact on future results of operations.
The number of Tenet's employees (of which approximately 30 percent were
part-time employees) at May 31, 2000, was approximately as follows:
<TABLE>
<S> <C>
General hospitals and related health care facilities(1)..... 105,989
Dallas Operations Center and regional and support offices... 726
Corporate headquarters...................................... 127
-------
Total....................................................... 106,842
</TABLE>
------------------------
(1) Includes employees whose employment relates to the operations of the
Company's general hospitals, rehabilitation hospitals, psychiatric facility,
specialty hospitals, outpatient surgery centers, managed services
organizations, physician practices, debt collection subsidiary and other
health care operations.
Tenet is subject to the federal minimum wage and hour laws and maintains
various employee benefit plans. Labor relations at Tenet's facilities have been
satisfactory. A small percentage of Tenet's employees are represented by labor
unions. The hospital industry in general is experiencing a nationwide nursing
shortage. This shortage is more serious in certain areas than others, including
several areas in which the Company operates hospitals, such as South Florida and
Southern California, and in certain specialties, and has resulted in increased
costs to the Company for nursing personnel. The availability of nursing
personnel fluctuates from year to year. The Company cannot predict the degree to
which it will be affected by the future availability and cost of nursing
personnel but it expects the nursing shortage to continue.
8
<PAGE>
COMPETITION
Tenet's general hospitals and other health care businesses operate in
competitive environments. A facility's competitive position within the
geographic area in which it operates is affected by a number of competitive
factors, including the scope, breadth and quality of services a hospital offers
to its patients and their physicians; the number, quality and specialties of the
physicians who refer patients to the hospital and nurses and other health care
professionals employed by the hospital or on its staff; its reputation; its
managed care contracting relationships; the extent to which it is part of an
integrated network; its location; the location and number of competitive
facilities and other health care alternatives; the physical condition of its
buildings and improvements; the quality, age and state of the art of its medical
equipment; its location; its parking or proximity to public transportation; the
length of time it has been a part of the community; and its charges for
services. Tax-exempt competitors may have certain financial advantages, such as
endowments, charitable contributions, tax-exempt financing and exemption from
sales, property and income taxes, not available to Tenet facilities.
The importance of Tenet's facilities obtaining managed care contracts has
increased over the years and is expected to continue to increase as employers,
private and government payors and others turn to the use of managed care in an
attempt to control rising health care costs. The revenues and operating results
of most of the Company's hospitals are significantly affected by the hospitals
ability to negotiate favorable contracts with managed care payors.
A health care provider's ability to compete for managed care contracts is
affected by many factors, including the competitive factors referred to above.
Among the most important of those factors is whether the hospital is part of an
integrated health care delivery network and, if so, the scope, breadth and
quality of services offered by such network and by competing networks. A
hospital that is part of a network that offers a broad range of services in a
wide geographic area is more likely to obtain managed care contracts than a
hospital that is not. Tenet evaluates changing circumstances in each geographic
area on an ongoing basis and positions itself to compete in the managed care
market by forming its own, or joining with others to form, integrated health
care delivery networks.
Tenet's networks in Southern California, South Florida, the greater New
Orleans area, St. Louis and Philadelphia are models of how Tenet has developed
regional networks of its own hospitals and related health care facilities and
ancillary services to serve the full spectrum of health care needs of those
communities. In addition to competing for managed care contracts, Tenet's
hospitals and networks compete for traditional fee-for-service patients and
contract with traditional health care insurers and employers. Tenet's future
success will depend, in part, on the ability of its hospitals to continue to
attract and retain staff physicians, enter into managed care contracts and
organize and structure integrated health care delivery networks, including those
with other health care providers and physician practice groups, while continuing
to provide quality, cost-effective care.
9
<PAGE>
The health care industry, including Tenet, has had to contend in recent
years with increased competition for patients and staff physicians, significant
excess capacity at general hospitals, a shift from inpatient to outpatient
treatment settings and increased consolidation. The increased competition as
well as the factors described below have led to increased emphasis on the use of
alternative health care delivery systems such as outpatient surgery, emergency
and diagnostic centers and home health care services. That in turn has resulted
in certain conditions being treated and certain procedures being performed
outside of general hospitals, which has reduced the number and length of
hospital stays, led to a higher acuity level for patients who are admitted to
general hospitals and resulted in higher costs. The principal factors
contributing to these trends are advances in medical technology and
pharmaceuticals, cost-containment efforts by government payors, managed care
payors, employers and traditional health care insurers, changes in regulations
and reimbursement policies, increases in the number and type of competing health
care providers and changes in physician practice patterns. The Company expects
these trends to continue.
National and state efforts to reform the health care system in the United
States have adversely impacted and may further impact reimbursement rates under
government programs such as Medicare and Medicaid. Changes in medical
technology, existing and future legislation, regulations and interpretations and
competitive contracting for provider services by payors may require changes in
the Company's facilities, equipment, personnel, procedures, rates and/or
services in the future.
Inpatient admissions, average lengths of stay and average occupancy at
general hospitals throughout the industry, including the Company's general
hospitals, continue to be adversely affected by payor-required preadmission
authorization and utilization review and payor pressure to maximize outpatient
and alternative health care delivery services for less acutely ill patients.
Increased competition, admissions constraints and payor pressures are expected
to continue.
To meet these challenges, the Company (i) has expanded or converted many of
its general hospitals' facilities to include distinct outpatient centers,
(ii) offers discounts to private payor groups, (iii) upgrades facilities and
equipment, and (iv) offers new programs and services. The Company also has been
reducing its costs. For example, the Company has implemented a case management
system designed to maximize efficiency by identifying cost-per-procedure
variables among physicians performing the same procedures, standardizing
supplies used and negotiating volume discounts for purchases. In addition, the
Company has developed a computerized outcomes management system that contains
clinical and demographic information from the Company's hospitals and physicians
and allows users to identify "best practices" for treating specific
diagnostic-related groups. Nevertheless, the Company cannot provide assurance
that these measures will be successful, or that if they are successful, they
will serve to compensate for the reduced inpatient admissions, average lengths
of stay and average occupancy, and the consequent reductions in per-patient
revenue, resulting from the payor pressures referred to above.
10
<PAGE>
As noted above, the Company also responds to the challenges facing its
hospitals by forming integrated health care delivery systems. Components of
these systems include: (i) encouraging physicians practicing at its hospitals to
form independent physician associations ("IPA"S) and (ii) joining with those
IPAs, physicians and physician group practices to form physician hospital
organizations ("PHOs") to contract with managed care and other payors as well as
directly with employers and to enter into managed care contracts both on behalf
of those groups and, in certain circumstances, on behalf of PHOs.
The Company attracts physicians to its hospitals by equipping its hospitals
with technologically advanced equipment, sponsoring training programs to educate
physicians on advanced medical procedures and otherwise creating an environment
within which physicians prefer to practice. The Company also attracts physicians
to its hospitals by using local governing boards, consisting primarily of
physicians and community members, to develop short-and long-term plans for the
hospital and review and approve, as appropriate, actions of the medical staff,
including staff appointments, credentialing, peer review and quality assurance.
While physicians may terminate their association with a hospital at any time,
Tenet believes that by striving to maintain and improve the level of care at its
hospitals and by maintaining ethical and professional standards, it will attract
and retain qualified physicians with a variety of specialties.
There has been significant consolidation in the hospital industry over the
past decade due, in large part, to continuing pressures on payments from
government and private payors and increasing shifts away from the provision of
traditional in-patient services. Those economic trends have caused many
hospitals to close and many to consolidate either through acquisitions or
affiliations. Tenet's management believes that these cost-containment pressures
will continue and will lead to further consolidation in the hospital industry.
11
<PAGE>
MEDICARE, MEDICAID AND OTHER REVENUES
Tenet receives payments for patient care from private insurance carriers,
federal Medicare programs for elderly patients and patients with disabilities,
health maintenance organizations, preferred provider organizations, state
Medicaid programs for indigent and cash grant patients, the TriCare Program
(formerly known as the Civilian Health and Medical Program of the Uniformed
Services program, or CHAMPUS) ("TriCare"), employers and patients. The
approximate percentages of Tenet's net patient revenue by payment sources for
Tenet's domestic general hospitals owned or operated by its subsidiaries are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Medicare............................................ 38% 34.2% 32.6%
Medicaid............................................ 8.4% 9.1% 8.3%
Managed Care........................................ 33.7% 37.6% 40.7%
Private and Other................................... 19.9% 19.1% 18.4%
</TABLE>
Payments from government programs, such as Medicare and Medicaid, account
for a significant portion of Tenet's operating revenues. Recent legislative
changes, including the Balanced Budget Act of 1997 (the "BBA"), have resulted in
limitations on and, in some cases, significant reductions in levels of payments
to health care providers under government programs. The BBA has been phased in
gradually since October 1, 1997 and will continue to be phased in through
federal fiscal year 2002. The most significant changes were phased in by
October 31, 1998. The BBA changes the method of paying health care providers
under the Medicare and Medicaid programs, which has resulted in significant
reductions in payments to health care providers for their inpatient, outpatient,
home health, capital and skilled nursing facilities costs.
The Balanced Budget Refinement Act ("BBRA"), which was signed into law on
November 29, 1999, provides hospitals some relief from the impact of the BBA.
Although the impact of the BBRA on Tenet was not significant, it indicated a
recognition by Congress that further reductions in payments to hospitals were
not necessary.
In addition, private payors, including managed care payors, increasingly are
demanding discounted fee structures. Inpatient utilization, average lengths of
stay and occupancy rates continue to be negatively affected by payor-required
preadmission authorization and utilization review and by payor pressure to
maximize outpatient and alternative health care delivery services for less
acutely ill patients. Efforts to impose reduced allowances, greater discounts
and more stringent cost controls by government and other payors also are
expected to continue. Although Tenet is unable to predict the effect these
changes will have on its operations, as the number of patients covered by
managed care payors increases, significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a material adverse
effect on its business, financial condition and/or results of operations.
DESCRIPTION OF GOVERNMENT PROGRAMS
Medicare payments for general hospital inpatient services are based on a
prospective payment system ("PPS"), referred to herein as the "DRG-PPS." Under
the DRG-PPS, a general hospital receives for each Medicare patient discharged
from the hospital a fixed amount based on the Medicare patient's assigned
diagnostic related group ("DRG"). DRG payments are adjusted
12
<PAGE>
for area-wage differentials but otherwise do not consider a specific hospital's
operating costs. As discussed below, DRG payments exclude the reimbursement of
(a) capital costs, including depreciation, interest relating to capital
expenditures, property taxes and lease expenses, and (b) outpatient services.
Payments from state Medicaid programs are based on reasonable costs with certain
limits or are at fixed rates. Substantially all Medicare and Medicaid payments
are below the retail rates charged by Tenet's facilities. Payments from other
sources usually are based on the hospital's established charges, a percentage
discount from such charges or all-inclusive per diem rates.
Historically, DRG rates were increased each year to take into account the
increased cost of goods and services purchased by hospitals and non-hospitals
(the "Market Basket"). The BBA limited the rate of increase in DRG rates to the
annual Market Basket for such year minus (a) 1.9 percent from October 1, 1998
through September 30, 1999, (b) 1.8 percent from October 1, 1999 through
September 30, 2000, and (c) 1.1 percent from October 1, 2000 through
September 30, 2003. Payments to be received by general hospitals under the
DRG-PPS continue to be below the increases in the cost of goods and services
purchased by hospitals. The DRG rate for the federal fiscal year beginning
October 1, 2000, has been set at 2.0 percent (a 3.1 percent Market Basket
increase minus 1.1 percent).
Medicare pays general hospitals' capital costs separately from DRG payments.
Beginning in 1992, a PPS for Medicare reimbursement of general hospitals'
inpatient capital costs ("PPS-CC") generally became effective with respect to
the Company's general hospitals. Pursuant to the BBA, the PPS-CC rates paid to
Tenet's general hospitals for their inpatient capital costs were reduced by
approximately 15 percent in federal fiscal year 1998 from their prior-year
levels. Additional payment reductions will occur through federal fiscal year
2002.
Medicare historically has limited payment for outpatient services provided
at general hospitals, physical rehabilitation hospitals and psychiatric
facilities to the lower of customary charges or 94.2 percent of actual cost. The
BBA authorized the Health Care Financing Administration ("HCFA") to establish an
outpatient prospective payment system ("OPPS") which was implemented August 1,
2000. The OPPS establishes a number of Ambulatory Payment Classifications
("APC") for outpatient procedures. Payment will be made for each APC depending
upon the service rendered. The OPPS establishes a transitional period that
limits each hospital's losses during the first three and one half years of the
program. If a hospital's cost is less than the payment, the hospital will be
able to keep the difference. Tenet expects its hospitals' Medicare payments
under the OPPS to be about the same as the payments it is receiving under the
existing system. Congress intended the OPPS rates to be budget neutral from a
hospital's prior period.
Hospitals and hospital units currently exempt from the DRG-PPS, such as
qualified physical rehabilitation hospitals and psychiatric facilities ("Exempt
Hospitals/Units"), traditionally have been paid by Medicare on a cost-based
system under which target rates for each facility were used in applying various
limitations and calculating incentive payments. Tenet's Exempt Hospitals/Units
received no increase to their target rates for cost reporting periods beginning
from October 1, 1997 through September 30, 1998. Increases in target rates for
periods after September 30, 1998 have varied and will vary between a Market
Basket increase and no increase at all, depending upon the extent to which the
Exempt Hospitals/Units' actual costs are below their target rates. An additional
change under the BBA is that the Company's Exempt Hospitals/ Units have lost
most of the incentive payments they had been receiving for keeping their costs
lower than their preestablished target limits.
13
<PAGE>
Home health services historically were exempt from the DRG-PPS and were paid
by Medicare at cost, subject to certain limits. The BBA initially required that
HCFA develop a PPS for home health services, which PPS was to be phased in over
a four-year period beginning October 1, 1999. The implementation of the new
system has been delayed and currently is scheduled to take effect for
cost-reporting periods beginning on or after October 1, 2000, but may be further
delayed. In the interim, payment rates in effect under the current system have
been reduced and a new limit, based on a per-beneficiary cost, has been
established. The BBRA has delayed a 15 percent reduction in home health services
originally scheduled to take effect October 1, 2000, until one year after the
implementation of PPS for home health services. When PPS is implemented, the
Company expects that its hospitals will receive significantly lower payment for
home health services.
Hospitals that treat a disproportionately large number of low-income
patients (Medicaid and Medicare patients eligible to receive supplemental Social
Security income) currently receive additional payments from the federal
government in the form of Disproportionate Share Payments. The BBA provided that
such payments will be reduced by one percent for each federal fiscal year from
1998 through 2002 but the BBRA froze the reduction for federal fiscal year 2001
at the federal fiscal year 2000 levels. Nevertheless, under the BBA further
reductions are scheduled for 2002.
A general hospital historically was paid its full DRG payment for patients
discharged from an acute-care setting. Under the BBA, however, if a patient is
discharged from a general hospital prior to being in the general hospital for
the mean length of stay for the patient's DRG and subsequently receives home
health services or rehabilitation, psychiatric or skilled nursing services in
either a freestanding hospital or hospital unit, the general hospital will
receive only a prorated payment for that DRG depending on the length of time the
patient was in the hospital. This new provision became effective for discharges
after October 1, 1998, and applies only to 10 high-volume DRG's selected by the
Secretary of the Department of Health and Human Services ("HHS").
Under current law, if a hospital is unable to collect a Medicare
beneficiary's deductible or co-payment (a "Bad Debt"), the hospital may be paid
by the federal government for the Bad Debt provided certain conditions are met.
The BBA provided that the amount of a Bad Debt for which the Company otherwise
would be paid will be reduced: 25 percent beginning October 1, 1997, 40 percent
beginning October 1, 1998, and 45 percent beginning October 1,1999.
As part of the DRG-PPS, Congress established additional payments to
hospitals that treat patients who are costlier to treat than the average
patient. These additional payments are referred to as "Outlier Payments."
Congress has mandated that HCFA limit Outlier Payments to equal between 5% and
6% of total DRG payments. In order to bring expected Outlier Payments within
this mandate, HCFA has proposed raising the threshold standard used to determine
the patients for which a hospital will receive Outlier Payments, effective
October 1, 2000. The change in the outlier standard will significantly reduce
the number of patients with respect to which Tenet's hospitals will qualify for
future Outlier Payments. This change is expected to result in a reduction in
Outlier Payments to the Company in fiscal year 2001.
14
<PAGE>
As discussed above, the BBA significantly changed the manner in which the
Company is paid for services provided to Medicare beneficiaries. While none of
the changes taken individually has had or is expected to have a significant
impact on the total amount of payments received by the Company from the federal
government, all of the changes taken as a whole have significantly reduced the
amount of payments received by the Company from the federal government.
The purpose of the BBA was to balance the federal budget by federal fiscal
year 2002. It has been determined that the BBA has reduced hospital payments
significantly below the expected levels. Because of the budget surplus generated
by the BBA, both the Clinton Administration and Congress have made proposals to
return a portion of these savings to general hospitals and other health care
providers. The Company cannot predict which of these proposals, if any, will be
implemented.
The Medicare, Medicaid and TriCare programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payments to facilities.
The final determination of amounts earned under the programs often requires many
years because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made in the Company's
financial statements for such adjustments. Until final adjustment, however,
significant issues remain unresolved and previously determined allowances could
be more or less than ultimately required.
HEALTH CARE REFORM, REGULATION AND LICENSING
CERTAIN BACKGROUND INFORMATION
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Changes in
Medicare, Medicaid and other programs, hospital cost-containment initiatives by
public and private payors, proposals to limit payments and health care spending
and industry-wide competitive factors are highly significant to the health care
industry. In addition, the health care industry is governed by a framework of
federal and state laws, rules and regulations that are extremely complex and for
which the industry has the benefit of little or no regulatory or judicial
interpretation. Although the Company believes it is in compliance in all
material respects with such laws, rules and regulations, if a determination is
made that the Company was in material violation of such laws, rules or
regulations, its operations and financial results could be materially adversely
affected.
As discussed under Medicare, Medicaid and Other Revenues starting on
page 12, the BBA has the effect of reducing payments to hospitals and other
health care providers under Medicare programs. The reductions in payments and
other changes mandated by the BBA, have had a significant impact on the
Company's revenues under Medicare programs. In addition, there continue to be
federal and state proposals that would, and actions that do, impose more
limitations on payments to providers such as Tenet and proposals to increase
copayments and deductibles from patients.
15
<PAGE>
Tenet's facilities also are affected by controls imposed by government and
private payors designed to reduce admissions and lengths of stay. For all
providers, such controls, including what is commonly referred to as "utilization
review," have resulted in fewer of certain treatments and procedures being
performed. Utilization review entails the review of the admission and course of
treatment of a patient by a third party. Utilization review by third-party peer
review organizations ("PROs") is required in connection with the provision of
care paid for by Medicare and Medicaid. Utilization review by third parties also
is a requirement of many managed care arrangements.
Many states have enacted or are considering enacting measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private health care insurance. Various states have applied, or are considering
applying, for a federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
Texas was denied a waiver under Section 1115 of the BBA but is in the process of
implementing regional managed care programs under a more limited waiver. Texas
also has applied for federal funds for children's health programs under the BBA.
Louisiana is considering wider use of managed care for its Medicaid population.
California has created a voluntary health insurance purchasing cooperative that
seeks to make health care coverage more affordable for businesses with five to
50 employees and changed the payment system for participants in its Medicaid
program in certain counties from fee-for-service arrangements to managed care
plans. Florida also has legislation, and other states are considering adopting
legislation, imposing a tax on net revenues of hospitals to help finance or
expand the provision of health care to uninsured and underinsured persons. A
number of other states are considering the enactment of managed care initiatives
designed to provide universal low-cost coverage. These proposals also may
attempt to include coverage for some people who currently are uninsured.
CERTIFICATE OF NEED REQUIREMENTS
Some states require state approval for construction and expansion of health
care facilities, including findings of need for additional or expanded health
care facilities or services. Certificates of Need, which are issued by
governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Following a number of
years of decline, the number of states requiring Certificates of Need is once
again on the rise as state legislators once again are looking at the Certificate
of Need process as a way to contain rising health care costs. At May 31, 2000,
Tenet operated hospitals in nine states that require state approval under
Certificate of Need Programs. Tenet is unable to predict whether it will be able
to obtain any Certificates of Need in any jurisdiction where such Certificates
of Need are required.
ANTIKICKBACK AND SELF-REFERRAL REGULATIONS
The health care industry is subject to extensive federal, state and local
regulation relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services and prices for services. In
particular, Medicare and Medicaid antikickback and antifraud and abuse
amendments codified under Section 1128B(b) of the Social Security Act (the
"Antikickback Amendments") prohibit certain business practices and relationships
that might affect the provision and cost of health care services payable under
the Medicare, Medicaid and other government programs, including the payment or
receipt of remuneration for the referral of patients whose care will be paid for
by such programs. Sanctions for violating the Antikickback Amendments include
criminal penalties and civil sanctions, including fines and possible exclusion
from
16
<PAGE>
government programs such as the Medicare and Medicaid programs. Many states have
statutes similar to the federal Anitikickback Amendments, except that the state
statutes usually apply to referrals for services reimbursed by all third-party
payors, not just federal programs.
In addition, it is a violation of the Federal Civil Monetary Penalties Law
to offer or transfer anything of value to Medicare or Medicaid beneficiaries
that is likely to influence their decision to obtain covered goods or services
from one provider or service over another. Any person or entity that files a
false claim for payment or reimbursement from the federal government also is
subject to civil and criminal penalties under the False Claims Act.
In addition to addressing other matters, as discussed below, the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA") amends Title XI
(42 U.S.C. 1301 ET SEQ.) to broaden the scope of current fraud and abuse laws to
include all health plans, whether or not payments under such health plans are
made pursuant to a federal program.
Section 1877 of the Social Security Act (commonly referred to as the "Stark"
laws) restricts referrals by physicians of Medicare, Medicaid and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements.
Section 1877 was amended effective January 1, 1995, to significantly broaden the
original scope of prohibited referrals. A violation of the Stark laws may result
in a denial of payment, required refunds to patients and to the Medicare
program, civil monetary penalties of up to $15,000 for each violation, civil
monetary penalties of up to $100,000 for "sham" arrangements, civil monetary
penalties of up to $10,000 for each day in which an entity fails to report
required information and exclusion from participation in the Medicare, Medicaid
and other federal programs. Violations of the Stark laws also may result in
violations of the False Claims Act. Many states have adopted or are considering
similar legislative proposals, some of which extend beyond the Medicaid program
to prohibit the payment or receipt of remuneration for the referral of patients
and physician self-referrals regardless of the source of the payment for the
care. Tenet's participation in and development of joint ventures and other
financial relationships with physicians could be adversely affected by these
amendments and similar state enactments.
The federal government has issued regulations that describe some of the
conduct and business relationships that are permissible under the Antikickback
Amendments ("Safe Harbors"). The fact that certain conduct or a given business
arrangement does not fall within a Safe Harbor does not render the conduct or
business arrangement per se illegal under the Antikickback Amendments. Such
conduct and business arrangements, however, do risk increased scrutiny by
government enforcement authorities. Tenet may be less willing than some of its
competitors to enter into conduct or business arrangements that do not clearly
satisfy the Safe Harbors. Passing up certain of those opportunities of which its
competitors are willing to take advantage may put Tenet at a competitive
disadvantage. Tenet has a voluntary regulatory compliance program and
systematically reviews all of its operations to ensure that they comply with the
Antikickback Amendments, the Stark laws and similar state statutes.
Both federal and state government agencies are continuing heightened and
coordinated civil and criminal enforcement efforts. As part of an announced work
plan, the government has begun to scrutinize, among other things, the terms of
acquisitions of physician practices by companies that own hospitals, coding
practices related to certain clinical laboratory procedures and coding practices
related to transfers to another facility. The Company believes that the health
care industry will continue to be subject to increased government scrutiny and
investigations such as this.
17
<PAGE>
Another trend impacting the health care industry today is the increased use
of the False Claims Act by individuals. Such QUI TAM or "whistleblower" actions
allow private individuals to bring actions on behalf of the government alleging
that the defendant has defrauded the federal government. If the government
intervenes in the action and prevails, the party filing the initial complaint
may share in a portion of any settlement or judgment. If the government does not
intervene in the action, the QUI TAM plaintiff may pursue the action
independently. Although from time to time companies in the health care industry
in general and the Company in particular may be subject to QUI TAM actions, the
Company is unable to predict the impact of such actions on its business,
financial condition or results of operations.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, financial condition and results of
operations.
HIPAA
HIPAA mandates the adoption of standards for the exchange of electronic
health information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of the health care
industry. Ensuring privacy and security of patient information--
"accountability"--is one of the key factors driving the legislation. The other
major factor--"portability"--refers to Congress' intention to ensure that
individuals can take their medical and insurance records with them when they
change employers.
HIPAA will bring about significant and costly changes in health care. It
mandates new security measures, sets standards for electronic signatures,
standardizes a method for identifying providers, employers, health plans and
patients, requires that the health care industry utilize the most efficient
method to codify data and will significantly change the manner in which
hospitals communicate with payors.
HIPAA's security and privacy regulations currently are scheduled to be
finalized by HHS in September 2000. Once the regulations are finalized, the
Company will have approximately two years to be fully compliant. Sanctions for
failing to comply with HIPAA include criminal penalties and civil sanctions.
The Company is evaluating the impact of HIPAA and has initiated a plan
designed to allow the Company to comply with the HIPAA regulations as they have
been adopted to date. At this time, the Company anticipates that it will be able
to fully comply with those HIPAA requirements that have been adopted. Since the
HIPAA regulations have not yet been finalized, however, the Company cannot at
this time estimate the cost of such compliance. Based on its current knowledge,
the Company believes that the cost of its compliance will not have a material
adverse effect on its business, financial condition or results of operations.
ENVIRONMENTAL REGULATIONS
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, also are subject to compliance with various
other environmental laws, rules and regulations. The Company anticipates that
such compliance will not, materially affect the Company's business, financial
condition and results of operations.
18
<PAGE>
HEALTH CARE FACILITY LICENSING REQUIREMENTS
Tenet's health care facilities are subject to extensive federal, state and
local legislation and regulation. In order to maintain their operating licenses,
health care facilities must comply with strict standards concerning medical
care, equipment and hygiene. Various licenses and permits also are required in
order to dispense narcotics, operate pharmacies, handle radioactive materials
and operate certain equipment. Tenet's health care facilities hold all required
governmental approvals, licenses and permits. Except for one small hospital that
has not sought to be accredited, each of Tenet's facilities that is eligible for
accreditation is fully accredited by the JCAHO, CARF (in the case of
rehabilitation hospitals), AOA (in the case of two hospitals) or another
appropriate accreditation agency. With such accreditation, the Company's
hospitals are eligible to participate in government-sponsored provider programs
such as the Medicare and Medicaid programs. The one hospital that is not
accredited participates in the Medicare program through a special waiver that
must be renewed each year.
UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE
Tenet's health care facilities are subject to and comply with various forms
of utilization review. In addition, under the Medicare PPS, each state must have
a PRO to carry out a federally mandated system of review of Medicare patient
admissions, treatments and discharges in general hospitals. Medical and surgical
services and practices are extensively supervised by committees of staff doctors
at each health care facility, are overseen by each health care facility's local
governing board, the members of which primarily are physicians and community
members, and are reviewed by Tenet's quality assurance personnel. The local
governing boards also help maintain standards for quality care, develop
long-range plans, establish, review and enforce practices and procedures and
approve the credentials and disciplining of medical staff members.
COMPLIANCE PROGRAM
The Company maintains a multifaceted corporate compliance and ethics program
that meets or exceeds all applicable federal guidelines and industry standards.
The program is designed to monitor and raise awareness of various regulatory
issues among employees and to stress the importance of complying with all
governmental laws and regulations. As part of the program, the Company provides
annual ethics and compliance training to every employee and encourages all
employees to report any violations to a toll-free telephone hotline.
19
<PAGE>
MANAGEMENT
The executive officers of the Company who are not also Directors as of
July 31, 2000 are:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- --------------------------------------------- --------
<S> <C> <C>
David L. Dennis.................... Vice Chairman, Chief Corporate Officer and
Chief Financial Officer in the Office of
the President 51
Thomas B. Mackey................... Chief Operating Officer in the Office of the
President 52
Raymond L. Mathiasen............... Executive Vice President and Chief Accounting
Officer 57
Barry P. Schochet.................. Vice Chairman 49
Christi R. Sulzbach................ Executive Vice President and General Counsel 45
</TABLE>
Mr. Dennis was elected to the position of Vice Chairman, Chief Corporate
Officer and Chief Financial Officer in the Office of the President, effective
March 1, 2000. Mr. Dennis held various positions with Donaldson, Lufkin and
Jenrette ("DLJ") from 1989 to 2000, including serving as the co-head of the Los
Angeles office from 1996 through February 2000. Before joining DLJ in 1989,
Mr. Dennis spent nine years in a number of positions with the investment banking
division of Merrill Lynch Capital Markets. Mr. Dennis serves as a director of
Westwood One and iFuse Inc. He holds a bachelor's degree in economics and
finance from San Diego State University and an M.B.A. in finance and corporate
strategy from UCLA.
Mr. Mackey was elected Chief Operating Officer in the Office of the
President on January 13, 1999. Mr. Mackey has 25 years experience in the health
care industry. He has held a variety of senior regional and divisional
management positions with Tenet since 1985, most recently serving as Executive
Vice President, Western Division from March 1995 to January 1999. Before joining
Tenet, Mr. Mackey was vice president, operations, for Greatwest Hospitals in
California. He began his health care career at the University of California, San
Diego University Hospital. Mr. Mackey is a member of the board of directors of
the Federation of American Hospitals. Mr. Mackey holds a bachelor's degree in
industrial engineering from Northeastern University and an M.B.A. from Cornell
University.
Mr. Mathiasen was elected Executive Vice President on March 22, 1999. Since
March 1996, Mr. Mathiasen has been Chief Accounting Officer of the Company. From
February 1994 to March 1996, Mr. Mathiasen served as Senior Vice President and
Chief Financial Officer of the Company and from September 1993 to
February 1994, Mr. Mathiasen served as Senior Vice President and acting Chief
Financial Officer. Mr. Mathiasen was elected to the position of Senior Vice
President in 1990 and Chief Operating Financial Officer in 1991. Prior to
joining Tenet as a Vice President in 1985, he was a partner with Ernst & Young.
Mr. Mathiasen holds a bachelor's degree in accounting from California State
University, Long Beach.
Mr. Schochet was elected Vice Chairman of Tenet on January 25, 1999.
Mr. Schochet joined Tenet in 1979 and has held a variety of executive positions
since that time, most recently serving as Executive Vice President of Operations
from March 1995 to January 1999. He is a diplomat of the American College of
Healthcare Executives and is Chair of the board of directors of the Federation
of American Hospitals. Mr. Schochet holds a bachelor's degree in zoology from
the
20
<PAGE>
University of Maine and a master's degree in hospital administration from George
Washington University in Washington D.C.
Ms. Sulzbach was elected Executive Vice President and General Counsel on
February 22, 1999. Prior to that appointment, Ms. Sulzbach served as Associate
General Counsel in charge of compliance and litigation and as Senior Vice
President, Public Affairs. She joined Tenet in 1983 and has held a variety of
positions in the law department since that time. She serves on the boards of
directors of the Federation of American Hospitals, the National Health
Foundation, and the Los Angeles Chapter of the Federal Bar Association.
Ms. Sulzbach holds bachelor degrees in political science and psychology from the
University of Southern California and a J.D. from Loyola University in Los
Angeles.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company insures substantially all of its professional and comprehensive
general liability risks in excess of self-insured retentions through a
majority-owned insurance subsidiary. These self-insured retentions currently are
$1 million per occurrence and varied in prior years by hospital and by policy
period from $500 thousand to $3 million per occurrence. A significant portion of
these risks is, in turn, reinsured with major independent insurance companies.
If actual payments of claims materially exceed projected payments of claims,
Tenet's financial condition could be materially adversely affected.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K, and the
documents incorporated herein by reference, including, without limitation,
statements containing the words "believes", "anticipates", "expects", "will",
"may", "might", "should", "estimates", "intends", "appears" and words of similar
import, and statements regarding the Company's business strategy and plans,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on management's current expectations and involve known and unknown risks,
uncertainties and other factors, many of which the Company is unable to predict
or control, that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and regionally;
industry capacity; demographic changes; existing laws and government regulations
and changes in, or the failure to comply with, laws and governmental
regulations; legislative proposals for health care reform; the ability to enter
into managed care provider arrangements on acceptable terms; a shift from
fee-for-service payments to capitated and other risk-based payment systems; a
shift from traditional Medicare and Medicaid reimbursement to Medicare and
Medicaid managed care plans; changes in Medicare and Medicaid payment or
reimbursement levels; liability and other claims asserted against the Company;
competition; the loss of any significant customers; technological and
pharmaceutical improvements that increase the cost of providing, or reduce the
demand for, health care; changes in business strategy or development plans; the
ability to attract and retain qualified personnel, including physicians, nurses
and other health care professionals; the significant indebtedness of the
Company; the availability of suitable acquisition opportunities and the length
of time it takes to accomplish acquisitions; the Company's ability to integrate
new businesses with its existing operations; the availability and terms of
capital to fund the expansion of the Company's business,
21
<PAGE>
including the acquisition of additional facilities; and other factors referenced
in this Annual Report on Form 10-K and the documents incorporated herein by
reference. Given these uncertainties, prospective investors are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
ITEM 2. PROPERTIES.
The response to this item is included in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been involved in significant civil litigation of an unusual
nature related principally to its subsidiaries' discontinued psychiatric
business. The Company recently entered into an agreement in principle to settle
such civil litigation. As a result, the Company posted a $19 million after-tax
charge to discontinued operations to reflect this settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The response to this item is included on page 41 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 2000. The required information
hereby is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The response to this item is included on page 5 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 2000. The required information
hereby is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The response to this item is included on pages 6 through 16 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 2000. The
required information hereby is incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The response to this item is included on pages 14 and 15 of the Registrant's
Annual Report to Shareholders for the year ended May 31, 2000. The required
information hereby is incorporated by reference.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included on pages 18 through 41 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 2000. The
required information hereby is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION.
Information concerning the Directors of the Registrant, including executive
officers of the Registrant who also are Directors, including compensation and
other information required by Item 10 is included on pages 2 through 13 and 37
of the definitive Proxy Statement for Registrant's 2000 Annual Meeting of
Shareholders and hereby is incorporated by reference. Similar information
required by Item 10 regarding executive officers of the Registrant who are not
Directors is set forth on pages 20 and 21 above. Information regarding
compensation of executive officers of the Registrant, and other information
required by Item 11, is included on pages 14 through 21 and pages 27 through 31
of the definitive Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders and hereby is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item is included on pages 7 through 8 and page 33 of
the definitive Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders. The required information hereby is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is included on pages 31 and 32 of the definitive
Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders. The
required information hereby is incorporated by reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS.
The consolidated financial statements to be included in Part II, Item 8, are
incorporated by reference to the Registrant's 2000 Annual Report to
Shareholders. (See Exhibit 13)
2. FINANCIAL STATEMENT SCHEDULES.
Schedule II--Valuation and Qualifying Accounts (included on page 30).
All other schedules and Condensed Financial Statements of Registrant are
omitted because they are not applicable or not required or because the required
information is included in the consolidated financial statements or notes
thereto.
3. EXHIBITS.
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as amended
October 13, 1987 and June 22, 1995
(b) Restated Bylaws of Registrant, as amended October 6, 1999
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Indenture, dated as of March 1, 1995, between Tenet and The Bank of
New York, as Trustee, relating to 9 5/8% Senior Notes due 2002
(b) First Supplemental Indenture, dated as of October 30, 1995, between
Tenet and The Bank of New York, as Trustee, relating to 9 5/8%
Senior Notes due 2002 (Incorporated by reference to Exhibit 4(c) to
Registrant's Annual Report on Form 10-K, dated August 27, 1997, for
the fiscal year ended May 31, 1997)
(c) Second Supplemental Indenture, dated as of August 21, 1997, between
Tenet and The Bank of New York, as Trustee, relating to 9 5/8%
Senior Notes due 2002 (Incorporated by reference to Exhibit 4(d) to
Registrant's Annual Report on Form 10-K, dated August 27, 1997, for
the fiscal year ended May 31, 1997)
(d) Indenture, dated as of March 1, 1995, between Tenet and The Bank of
New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes
due 2005
(e) First Supplemental Indenture, dated as of October 27, 1995, between
Tenet and The Bank of New York, as Trustee, relating to 10 1/8%
Senior Subordinated Notes due 2005 (Incorporated by reference to
Exhibit 4(f) to Registrant's Annual Report on Form 10-K, dated
August 27, 1997, for the fiscal year ended May 31, 1997)
(f) Second Supplemental Indenture, dated as of August 21, 1997, between
Tenet and The Bank of New York, as Trustee, relating to 10 1/8%
Senior Subordinated Notes due 2005 (Incorporated by reference to
Exhibit 4(g) to Registrant's Annual Report on Form 10-K, dated
August 27, 1997, for the fiscal year ended May 31, 1997)
(g) Indenture, dated as of October 16, 1995, between Tenet and The Bank
of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003
(Incorporated by
24
<PAGE>
reference to Exhibit 4(d) to Registrant's Annual Report on
Form 10-K, dated August 26, 1996, for the fiscal year ended May 31,
1996)
(h) First Supplemental Indenture, dated as of October 30, 1995, between
Tenet and The Bank of New York, as Trustee, relating to 8 5/8%
Senior Notes due 2003 (Incorporated by reference to
Exhibit 4(i) to Registrant's Annual Report on Form 10-K, dated
August 27, 1997, for the fiscal year ended May 31, 1997)
(i) Second Supplemental Indenture, dated as of August 21, 1997, between
Tenet and The Bank of New York, as Trustee, relating to 8 5/8%
Senior Notes due 2003 (Incorporated by reference to Exhibit 4(j) to
Registrant's Annual Report on Form 10-K, dated August 27, 1997, for
the fiscal year ended May 31, 1997)
(j) Indenture, dated as of January 10, 1996, between Tenet and The Bank
of New York, as Trustee, relating to 6% Exchangeable Subordinated
Notes due 2005 (Incorporated by reference to Exhibit 4(a) to
Registrant's Quarterly Report on Form 10-Q, dated January 15, 1996,
for the fiscal quarter ended November 30, 1995)
(k) Escrow Agreement, dated as of January 10, 1996, among Tenet, NME
Properties, Inc., NME Property Holding Co., Inc. and The Bank of New
York, as Escrow Agent (Incorporated by reference to Exhibit 4(b) to
Registrant's Quarterly Report on Form 10-Q, dated as of January 15,
1996, for the fiscal quarter ended November 30, 1995)
(l) Indenture, dated January 15, 1997, between Tenet and The Bank of New
York, as Trustee, relating to 7 7/8% Senior Notes due 2003
(Incorporated by reference to Exhibit 4(m) to Registrant's Annual
Report on Form 10-K, dated August 27, 1997, for the fiscal year
ended May 31, 1997)
(m) Indenture, dated January 15, 1997, between Tenet and The Bank of New
York, as Trustee, relating to 8% Senior Notes due 2005 (Incorporated
by reference to Exhibit 4(n) to Registrant's Annual Report on
Form 10-K, dated August 27, 1997, for the fiscal year ended May 31,
1997)
(n) Indenture, dated January 15, 1997, between Tenet and The Bank of New
York, as Trustee, relating to 8 5/8% Senior Subordinated Notes due
2007 (Incorporated by reference to Exhibit 4(o) to Registrant's
Annual Report on Form 10-K, dated August 27, 1997, for the fiscal
year ended May 31, 1997)
(o) Indenture, dated May 21, 1998, between Tenet and The Bank of New
York, as Trustee, relating to 7 5/8% Senior Notes due 2008
(Incorporated by reference to Exhibit 4(o) to Registrant's Annual
Report on Form 10-K, dated August 28, 1998, for the fiscal year
ended May 31, 1998)
(p) Indenture, dated May 21, 1998, between Tenet and The Bank of New
York, as Trustee, relating to 8 1/8% Senior Subordinated Notes due
2008 (Incorporated by reference to Exhibit 4(p) to Registrant's
Annual Report on Form 10-K, dated August 28, 1998, for the fiscal
year ended May 31, 1998)
(q) Indenture, dated June 16, 2000, between Tenet and The Bank of New
York, as Trustee, relating to 9 1/4% Senior Notes due 2010
25
<PAGE>
(10) Material Contracts
(a) $91,350,000 Amended and Restated Letter of Credit and Reimbursement
Agreement, dated as of February 28, 1995, among the Company, as
Account Party, and Bank of America National Trust and Savings
Association, The Bank of New York, Bankers Trust Company and Morgan
Guaranty Trust Company of New York, as Banks, and The Bank of New
York, as Issuing Bank
(b) Amendment to Reimbursement Agreement, dated as of March 1, 1996,
among the Company, as Account Party, Bank of America National Trust
and Savings Association, The Bank of New York, Bankers Trust Company
and Morgan Guaranty Trust Company of New York, as Banks, and The
Bank of New York, as the Issuing Bank (Incorporated by reference to
Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q, dated
as of April 12, 1996, for the fiscal quarter ended February 29,
1996)
(c) Amendment No. 2 to Reimbursement Agreement, dated January 30, 1997,
among the Company, as Account Party, Bank of America National Trust
and Savings Corporation, The Bank of New York and Morgan Guaranty
Trust Company of New York, as Banks, and The Bank of New York, as
Issuing Bank (Incorporated by reference to Exhibit 10(c) to
Registrant's Annual Report on Form 10-K, dated August 27, 1997, for
the fiscal year ended May 31, 1997)
(d) $2,800,000,000 Credit Agreement, dated as of January 30, 1997, as
amended by Amendment No.1, dated as of July 25, 1997, Amendment
No. 2, dated as of March 16, 1999 and Amendment No. 3, dated as of
October 1, 1999, among the Company, as Borrower, the Lenders,
Managing Agents and Co-Agents party thereto, the Swingline Bank
party thereto, The Bank of New York and the Bank of Nova Scotia, as
Documentation Agents, Bank of America National Trust and Savings
Association, as Syndication Agent, and Morgan Guaranty Trust Company
of New York, as Administrative Agent (Incorporated by reference to
Exhibit 10(jj) to Registrant's Quarterly Report on Form 10-Q, dated
as of January 13, 2000, for the fiscal quarter ended November 30,
1999)
(e) Letter from the Registrant to Jeffrey C. Barbakow, dated May 26, 1993
(Incorporated by reference to Exhibit 10(h) to Registrant's Annual
Report on Form 10-K, dated August 26, 1999, for the fiscal year
ended May 31, 1999)
(f) Letter from the Registrant to Jeffrey C. Barbakow, dated June 1, 1993
(Incorporated by reference to Exhibit 10(i) to Registrant's Annual
Report on Form 10-K, dated August 26, 1999, for the fiscal year
ended May 31, 1999)
(g) Memorandum from the Registrant to Jeffrey C. Barbakow, dated
June 14, 1993 Incorporated by reference to Exhibit 10(j) to
Registrant's Annual Report on Form 10-K, dated August 26, 1999, for
the fiscal year ended May 31, 1999)
(h) Memorandum of Understanding, dated May 21, 1996, from Jeffrey C.
Barbakow to the Company (Incorporated by reference to Exhibit 10(t)
to Registrant's Annual Report on Form 10-K, dated as of August 26,
1996, for the fiscal year ended May 31, 1996)
26
<PAGE>
(i) Deferred Compensation Agreement, dated May 31, 1997, between Jeffrey
C. Barbakow and the Company (Incorporated by reference to
Exhibit 10(l) to Registrant's Annual Report on Form 10-K, dated
August 28, 1998, for the fiscal year ended May 31, 1998)
(j) Letter from the Company to David L. Dennis, dated February 18, 2000
(k) Consulting and Non-Compete Agreement between Michael H. Focht, Sr.
and the Company, dated as of January 12, 1999 (Incorporated by
reference to Exhibit 10(n) to Registrant's Annual Report on
Form 10-K, dated as of August 26, 1999, for the fiscal year ended
May 31, 1999)
(l) Letter from the Company to Trevor Fetter, dated January 13, 1999
(Incorporated by reference to Exhibit 10(o) to Registrant's Annual
Report on Form 10-K, dated as of August 26, 1999, for the fiscal
year ended May 31, 1999)
(m) Letter from the Company to Thomas B. Mackey, dated January 13, 1999
(Incorporated by reference to Exhibit 10(p) to Registrant's Annual
Report on Form 10-K, dated as of August 26, 1999, for the fiscal
year ended May 31, 1999)
(n) Letter from the Company to Barry P. Schochet, dated February 23, 1999
(Incorporated by reference to Exhibit 10(q) to Registrant's Annual
Report on Form 10-K, dated as of August 26, 1999, for the fiscal
year ended May 31, 1999)
(o) Separation and Continuing Employment Agreement between Trevor Fetter
and the Company, dated as of March 1, 2000
(p) Executive Officers Relocation Protection Agreement (Incorporated by
reference to Exhibit 10(v) to Registrant's Annual Report on
Form 10-K, dated as of August 26, 1996, for the fiscal year ended
May 31, 1996)
(q) Executive Officers Severance Protection Plan (Incorporated by
reference to Exhibit 10(w) to Registrant's Annual Report on
Form 10-K, dated as of August 26, 1996, for the fiscal year ended
May 31, 1996)
(r) Board of Directors Retirement Plan, effective January 1, 1985, as
amended August 18, 1993, April 25, 1994 and July 30, 1997
(Incorporated by reference to Exhibit 10(p) to Registrant's Annual
Report on Form 10-K, dated August 28, 1998, for the fiscal year
ended May 31, 1998)
(s) Supplemental Executive Retirement Plan, dated as of November 1, 1984,
as amended May 21, 1986, April 25, 1994, July 25, 1994 and
January 28, 1997 (Incorporated by reference to Exhibit 10(q) to
Registrant's Annual Report on Form 10-K, dated August 28, 1998, for
the fiscal year ended May 31, 1998).
(t) 1997 Annual Incentive Plan (Incorporated by reference to Exhibit B
to the Definitive Proxy Statement, dated as of August 26, 1997, for
the Registrant's 1997 Annual Meeting of Shareholders)
(u) Tenet Executive Deferred Compensation and Supplemental Savings Plan,
as amended April 13, 2000
(v) Tenet Executive Deferred Compensation Plan Trust, as amended and
restated effective November 10, 1995
27
<PAGE>
(w) Agreement, dated October 30, 1996, between Tenet and United States
Trust Company of New York, as Trustee, Regarding the First Amendment
to the Tenet Deferred Compensation Plan Trust (Incorporated by
reference to Exhibit 10(d) to Registration Statement on Form S-3
(Registration No. 333-26621) dated May 7, 1997, filed with the
Commission on May 7, 1997)
(x) First Amended and Restated 1994 Directors Stock Option Plan
(Incorporated by reference to Exhibit A to the Definitive Proxy
Statement, dated as of August 26, 1997, for the Registrant's 1997
Annual Meeting of Shareholders)
(y) Second Amendment to the First Amended and Restated 1994 Directors
Stock Option Plan
(z) 1991 Stock Incentive Plan (Incorporated by reference to
Exhibit 10(kk) to Registrant's Annual Report on Form 10-K, dated as
of August 26, 1996, for the fiscal year ended May 31, 1996)
(aa) Amended and Restated 1995 Stock Incentive Plan (Incorporated by
reference to Annex D to the Proxy Statement/Prospectus, dated as of
December 18, 1997, for the Registrant's Special Meeting of
Shareholders held on January 28, 1997)
(bb) Fourth Amended and Restated 1995 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 4 to Registrant's Registration
Statement on Form S-8, dated July 14, 2000)
(cc) Tendex Inc. 2000 Senior Executive Stock Purchase Plan
(dd) First Amended and Restated Broadlane Inc. 2000 Senior Executive
Stock Incentive Plan
(13) 2000 Annual Report to Shareholders of Registrant
(21) Subsidiaries of the Registrant
(23) Consent of Experts
(a) Accountants' Consent and Report on Consolidated Schedule (KPMG LLP)
(27.1) Financial Data Schedule for fiscal year 2000
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 15, 2000.
<TABLE>
<S> <C> <C> <C>
TENET HEALTHCARE CORPORATION
By: /s/ DAVID L. DENNIS By: /s/ RAYMOND L. MATHIASEN
------------------------------------- -------------------------------------
David L. Dennis Raymond L. Mathiasen
VICE CHAIRMAN, CHIEF CORPORATE EXECUTIVE VICE PRESIDENT AND
OFFICER AND CHIEF FINANCIAL OFFICER CHIEF ACCOUNTING OFFICER
(PRINCIPAL FINANCIAL OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on August 15, 2000, by the following persons on
behalf of the registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JEFFREY C. BARBAKOW
------------------------------------------- Chairman, Chief Executive Officer and
Jeffrey C. Barbakow Director (Principal Executive Officer)
/s/ LAWRENCE BIONDI, S.J.
------------------------------------------- Director
Lawrence Biondi, S.J.
/s/ BERNICE B. BRATTER
------------------------------------------- Director
Bernice B. Bratter
/s/ SANFORD CLOUD, JR.
------------------------------------------- Director
Sanford Cloud, Jr.
/s/ MAURICE J. DEWALD
------------------------------------------- Director
Maurice J. DeWald
/s/ MICHAEL H. FOCHT, SR.
------------------------------------------- Director
Michael H. Focht, Sr.
/s/ RAYMOND A. HAY
------------------------------------------- Director
Raymond A. Hay
/s/ VAN B. HONEYCUTT
------------------------------------------- Director
Van B. Honeycutt
/s/ LESTER B. KORN
------------------------------------------- Director
Lester B. Korn
/s/ FLOYD D. LOOP, M.D.
------------------------------------------- Director
Floyd D. Loop, M.D.
</TABLE>
29
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1998, 1999 AND 2000
(IN MILLIONS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO:
BALANCE AT ----------------------------
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES(1) OTHER ACCOUNTS DEDUCTIONS(2) ITEMS(3) END OF PERIOD
---------- ----------- -------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998...................... 224 598 -- (629) (2) 191
1999...................... 191 770 -- (683) 9 287
2000...................... 287 915 -- (848) 4 358
</TABLE>
------------------------
(1) Before considering recoveries on accounts or notes previously written off.
(2) Accounts written off.
(3) Primarily beginning balances for purchased businesses, net of balances for
businesses sold.
30
