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When Christi R. Sulzbach leaves her job on Nov. 1 as general counsel and chief corporate officer of troubled Tenet Healthcare Corp., her exit will be cheered by critics that include a committee of angry shareholders, an irate senator and plaintiffs’ lawyers suing Tenet in hundreds of civil actions. In her Sept. 26 resignation statement, Sulzbach as much as admitted that pressure over Tenet’s legal woes became too much to bear. She said she was leaving for the good of the company because “I believe that I have become a focal point for some Tenet critics.” Sulzbach, 48, was the legal pilot who for 20 years successfully steered Santa Barbara, Calif.-based Tenet and its predecessor through one federal investigation after another. But she leaves Tenet, the nation’s second-largest hospital company with 112 hospitals, embroiled in federal investigations and civil suits with potential liabilities of billions of dollars. Her resignation comes as in-house lawyers are facing unusual scrutiny. The criminal fraud trial of Rite Aid Corp.’s former GC, Franklin Brown, is under way in Pennsylvania. David Brodsky, former GC at Credit Suisse First Boston Corp., was a prosecution witness last week in the trial of investment banker Frank Quattrone. Tenet investigated Tenet announced on Oct. 6 that the U.S. attorney in New Orleans had opened a criminal investigation into its affiliate hospital in that city for unspecified reasons. Other pending criminal issues include an ongoing Department of Justice probe into alleged unnecessary heart procedures conducted at Tenet’s Redding Medical Center in California; a federal investigation into whether Tenet defrauded Medicare to obtain extra payments called “outlier payments”; a federal inquiry into “upcoding” illnesses to get more money from Medicare; a broad subpoena by the Florida Medicaid fraud unit for records pertaining to Tenet’s 16 hospitals in that state; and several indictments. The latest indictment, in September, was against officials at the Alvarado Medical Center in San Diego on charges of giving kickbacks to doctors for referring patients. Investigations continue at other Tenet hospitals. Tenet is also under investigation by the U.S. Securities and Exchange Commission (SEC) and the Health and Human Services Department over alleged Medicare fraud, and by the Internal Revenue Service, which has proposed assessing Tenet $157 million plus interest for back taxes. Tenet is appealing. Sulzbach is a defendant in a consolidated securities civil suit. Her attorney, Daniel Floyd of Los Angeles’ Gibson, Dunn & Crutcher, said her resignation will have no impact on the suit. Sulzbach declined requests for an interview. Tenet spokesman Steve Campanini said Tenet stands by previous statements that it is cooperating with all ongoing investigations and intends to defend itself vigorously against the civil suits. In announcing Sulzbach’s resignation, Tenet President and CEO Trevor Fetter called her a “consummate professional,” but added, “I believe that the company will now benefit from a fresh perspective on legal matters going forward.” Aboard since 1983 Sulzbach joined Tenet’s predecessor, National Medical Enterprises, in 1983 and rose to associate general counsel in charge of compliance and litigation. In 1994, she helped negotiate a deal with federal investigators in which the company paid the biggest fraud settlement in Medicare history to date, nearly $400 million, and made a corporate integrity agreement. It was the job of Sulzbach, who signed the agreement, to enforce integrity in business practices. Critics say she failed. U.S. Senator Charles Grassley, R-Iowa, whose finance committee is investigating Tenet, ripped Sulzbach in two angry letters to the company. In a Sept. 5 letter informing Tenet of his committee’s investigation, Grassley attacked her for serving as both general counsel and chief compliance officer until last August, calling it a conflict of interest to ensure compliance while defending noncompliance. “It doesn’t take a pig farmer from Iowa to smell the stench of conflict in that arrangement,” the letter said. In a follow-up letter on Sept. 25, Grassley criticized Tenet’s new compliance officer as a Sulzbach colleague who had helped establish “Tenet’s prior failed compliance programs.” The next day, Sulzbach resigned. Grassley also named her as one of three executives who had “profited most handsomely” from what he called the corporation’s “culture of fraud.” He was referring to her cashing in $7.25 million in stock options in 2001, shortly before Tenet’s legal problems were revealed in 2002. Sulzbach was ranked the nation’s 14th-highest paid general counsel in a compensation survey for 2002 by Corporate Counsel, a sister publication of the NLJ, with salary and bonuses of $1.37 million. She also received 312,501 new Tenet stock options, exercisable prior to June 30, according to a Tenet proxy report filed with the SEC. SEC filings show that, after resigning, Sulzbach is entitled to her salary and target bonus for the next three years, plus benefits. Tenet’s Campanini declined to discuss the severance package, saying it would be disclosed in a future SEC filing. Conflict of interest? Another vocal critic of Sulzbach is M. Lee Pearce, a Florida doctor who leads the Tenet Shareholders Committee. It has estimated that Tenet’s legal liabilities could reach $4 billion to $6 billion. Pearce has repeatedly accused Sulzbach of having a conflict of interest and failing to enforce compliance. In June, he called for the resignation of three executives, including Sulzbach, adding, “It is apparent that the primary objective of top management is to ensure its own survival.” Still another critic is Robert Simpson of Reiner, Simpson, Timmons & Slaughter of Redding, Calif., co-lead counsel in some 900 civil cases, including 75 wrongful death actions, against Tenet’s Redding Medical Center over allegedly unnecessary heart procedures. “I hope her leaving means Tenet will put behind them the delay, hiding and stall tactics she used across the country against harmed plaintiffs,” Simpson said. He called Sulzbach “an impediment to Tenet’s recovery” and “an impediment to Tenet ever regaining its integrity.” Tenet has a potential liability of at least $1 billion in the Redding civil suits, according to James Moriarty, a Houston plaintiffs’ attorney involved in the suits. As for Sulzbach, Moriarty said her leaving “will be extremely beneficial to the government investigations, the shareholder suits and the other plaintiffs’ suits” because of her “obfuscating tactics.” He said he has no direct evidence of any wrongdoing by Sulzbach, but charged that “there is also no evidence that she tried to prevent the wrongdoing” even though she had a responsibility as chief compliance officer to do so. In August, Tenet paid $54 million to settle the Redding criminal case against the company itself, without admitting wrongdoing. The U.S. attorney’s office, the SEC and Health and Human Services declined to comment on their Tenet investigations. Asked if Sulzbach was the target of a criminal investigation, a Justice Department spokesman said he would neither confirm nor deny any investigation. A California health care attorney who has litigated against Tenet but asked not to be named said Sulzbach’s job “was not an easy one from any perspective, but even if she was doing everything right, there are a lot of unhappy shareholders out there.” Tenet said Sulzbach will assist the company during a search for a new GC through March 31. Until a successor is named, Gary W. Robinson and Rod Stone, both deputy general counsel, will supervise Tenet’s legal functions.

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