Innovation in a Difficult Marketplace

Trevor Fetter (HBS ’86), President and CEO of Tenet Healthcare, shared stories about spearheading the turnaround of America’s third largest hospital system for the past four years. Fetter provided company background and event context, and highlighted core components of the company’s turnaround strategy. Ultimately, he stressed that what allowed him to succeed was that he cared deeply about the company and embraced a long-term perspective. The Healthcare Club hosted Fetter and students on Tuesday, February 19, 2008 as part of a speaker series featuring prominent leaders in healthcare.

Fetter briefly gave an overview of the situation he walked into in late 2002 when Tenet “blew up.” During the week following November 7th, its share price dropped from $52 to $20 per share. Authorities raided one of its hospitals in Northern California gathering evidence that Tenet doctors had recommended unnecessary cardiac surgeries to boost income. Litigation was launched against Tenet for gaming Medicare billing policies that had produced in excess of $1B in revenues.

At that point, the Board brought Fetter back into the company as interim CEO. Fetter launched a rapid investigation to uncover the breadth and depth of troubles facing Tenet. Five weeks later, 80 percent of senior management had been implicated and had to be removed, including Fetter’s longtime mentor.

Fetter outlined a straightforward turnaround and growth plan. In Phase I, the company had to stabilize. Tenet had to rebuild its reputation. Fetter opened a dialogue with all stakeholders (e.g. shareholders, patients, government, etc.) to settle litigation and build trust. He implemented a set of governance policies that earned Tenet an S&P 500 Riskmetrics Governance ranking of 99.4 percent.

Most importantly, Tenet had to refocus on providing consistent high quality care. Consistency built confidence among patients and doctors in the near term, but in the long term, Fetter saw that high quality services would be the company’s differentiator in a difficult marketplace. Starting in 2003, Tenet invested $50M annually on quality improvement projects. In Phase II of the turnaround, Fetter expected quality and service line selection to lead to organic growth.

Today, Tenet is back on track for success. Annual revenue CY2007 was $8.7B, while total market valuation was $7B. Tenet has 14,265 beds in 54 acute care hospitals in 12 states and admitted 578,000 inpatients last year.

By addressing changes in the patient population-aging baby boomers, increasing rates of obesity and higher consumption of publicly reported quality data-Fetter reported that Tenet is positioned for success going forward. By investing in technology and emphasizing measurement of “everything,” Tenet can make selective investments in existing markets and outpatient business. For example, analysts use TGI generated “heat maps” to identify service lines for growth, optimization, improvement or termination. Beginning in 2008, Tenet will mine its rich data sets to determine future service offerings and delivery adaptation.

While Fetter remains dedicated to Tenet’s future, he has also been involved in several start ups. Former colleagues who went to work at these companies were in attendance on Tuesday’s lecture, including CEO of Healthcare Analytics, Inc. (HAI), Stephen Farber. HAI seeks to improve hospital collections by evaluating patients’ ability to pay, after treatment has been delivered. This new product, which is still in development, will help Tenet Healthcare and other major hospitals mitigate challenges posed by uninsured patients. A question from the audience suggested that universal health coverage, as proposed by democratic presidential candidates, would also alleviate this hospital burden.

Finally, Fetter underscored the need to recruit smart minds to healthcare services and delivery. A recent HBS graduate is running a Tenet hospital in Dallas, while others are being primed for similar positions in operations.