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CONTENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K

Commission file number 1-7293

TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

        Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

        Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o    No ý

        As of June 30, 2005, there were 468,953,964 shares of common stock outstanding. The aggregate market value of the shares of common stock held by non-affiliates of the Registrant as of June 30, 2005, based on the closing price of the Registrant's shares on the New York Stock Exchange that day, was approximately $3,114,460,277. For the purpose of the foregoing calculation only, all directors and the executive officers who were SEC reporting persons of the Registrant as of June 30, 2005 have been deemed affiliates. As of February 28, 2006, there were 470,307,592 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive proxy statement for the 2006 annual meeting of shareholders to be held on May 12, 2006 are incorporated by reference into Part III of this Form 10-K.

CONTENTS

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PART I.

ITEM 1. BUSINESS

DESCRIPTION OF BUSINESS

        Tenet Healthcare Corporation operates in one line of business—the provision of health care services, primarily through the operation of general hospitals. All of Tenet's operations are conducted through its subsidiaries. (Unless the context otherwise requires, Tenet and its subsidiaries are referred to herein as "Tenet," the "Company," "we" or "us.") We are the second largest investor-owned health care services company in the United States as measured by net operating revenues. At December 31, 2005, our subsidiaries operated 73 general hospitals (two of which were classified as critical access hospitals) with 18,259 licensed beds, serving urban and rural communities in 13 states. Of those general hospitals, 59 were owned by our subsidiaries and 14 were owned by third parties and leased by our subsidiaries (including one facility we owned located on land leased from a third party).

        At December 31, 2005, our subsidiaries also owned or leased various related health care facilities, including two rehabilitation hospitals, one long-term acute care hospital, one cancer hospital, four skilled nursing facilities and 72 medical office buildings—each of which is located on the same campus as, or nearby, one of our general hospitals. In addition, our subsidiaries owned or leased physician practices, captive insurance companies and various other ancillary health care businesses, including outpatient surgery centers, diagnostic imaging centers, occupational and rural health care clinics, and interests in two health maintenance organizations, all of which comprise a minor portion of our business.

        Our mission is to provide quality health care services that are responsive to the needs of the communities we serve. To accomplish our mission in the complex and competitive health care industry, our operating strategies are to (1) improve the quality of care provided at our hospitals by identifying best practices and implementing those best practices in all of our hospitals, (2) improve operating efficiencies and reduce operating costs while maintaining or improving the quality of care provided, (3) improve patient, physician and employee satisfaction, (4) improve recruitment and retention of nurses and other employees, (5) increase collections of accounts receivable and improve cash flow, and (6) acquire new, or divest existing, facilities as market conditions, operational goals and other considerations warrant. We adjust these strategies as necessary in response to changes in the economic and regulatory climates in which we operate and the success or failure of our various efforts.

OPERATIONS

        Our four operating regions are:

•

California, which includes all of our hospitals in California, as well as our hospital in Nebraska;



•

Central Northeast-Southern States, which includes all of our hospitals in Georgia, Missouri, North Carolina, Pennsylvania, South Carolina and Tennessee;



•

Florida-Alabama, which includes all of our hospitals in Florida, as well as our hospital in Alabama; and



•

Texas-Gulf Coast, which includes all of our hospitals in Louisiana and Texas, as well as our hospital in Mississippi.

All of our regions report directly to our chief operating officer.

        We seek to operate our hospitals in a manner that positions them to compete effectively in the rapidly evolving health care environment. To that end, we sometimes decide to sell, consolidate or close certain facilities in order to eliminate duplicate services, non-core assets or excess capacity, or because of changing market conditions. From time to time, we make strategic acquisitions of, or enter into partnerships or affiliations with, general hospitals and related health care businesses.

        In January 2004, we announced our intention to divest 27 general hospitals, including 19 in California and eight in Louisiana, Massachusetts, Missouri and Texas. This decision was based on a comprehensive review of the near-term and long-term prospects of each of the hospitals, including a study of the capital expenditures required to comply with California's seismic regulations for hospitals. As of December 31, 2005, we had completed the divestiture of 25 of the 27 facilities. Discussions and negotiations with potential buyers for the remaining two hospitals slated for divestiture are ongoing.

        Going forward, we will focus our financial and management resources on the 69 general hospitals and related operations that will remain after all proposed divestitures are completed. Our general hospitals in continuing operations generated in excess of 96% of our net operating revenues for all periods presented in our Consolidated Financial Statements. Factors that affect patient volumes and, thereby, our results of operations at our hospitals and related health care facilities include, but are not limited to: (1) the business environment of local communities; (2) the number of uninsured and underinsured individuals in local communities treated at our hospitals; (3) seasonal cycles of illness; (4) climate and weather conditions; (5) physician recruitment, retention and attrition; (6) local health care competitors; (7) managed care contract negotiations or terminations; (8) unfavorable publicity, which impacts relationships with physicians and patients; and (9) the timing of elective procedures.

        All five of our hospitals and several imaging centers in the New Orleans area and our hospital in Mississippi suffered considerable damage from Hurricane Katrina in late August 2005. The hospitals affected are Kenner Regional Medical Center, Lindy Boggs Medical Center, Meadowcrest Hospital, Memorial Medical Center, NorthShore Regional Medical Center, and Gulf Coast Medical Center. Lindy Boggs and Memorial are closed at this time due to damage from the hurricane. The other four hospitals and our New Orleans-area imaging centers are open and providing health care services, such as 24-hour emergency rooms, general surgery and outpatient diagnostics. However, due to damage, ongoing remediation efforts, staffing issues caused by the lack of available housing for physicians, nurses and staff, and the overall impact of the hurricane on the Gulf Coast area, the hospitals are operating at reduced levels.

        Each of our general hospitals (other than those closed or offering limited services as a result of the effects of Hurricane Katrina) offers acute care services, operating and recovery rooms, radiology services, respiratory therapy services, clinical laboratories and pharmacies; most offer intensive care, critical care and/or coronary care units, physical therapy, and 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. Five of our hospitals—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, Sierra Medical Center and Good Samaritan Hospital also offer gamma-knife brain surgery; Saint Louis University Hospital offers cyberknife surgery for tumors and lesions in the brain, lung, neck and spine that may have been previously considered inoperable or inaccessible by radiation therapy; and Saint Louis University Hospital, Hahnemann University Hospital and USC Kenneth Norris Jr. Cancer Hospital, our facility specializing in cancer treatment on the campus of USC University Hospital, offer bone marrow transplants. (Prior to Hurricane Katrina, Memorial Medical Center offered quaternary care and bone marrow transplants, and Lindy Boggs Medical Center, in affiliation with Louisiana State University's School of Medicine, offered liver and kidney transplants.) In addition, our hospitals will continue their efforts to deliver and develop those outpatient services that can be provided on a quality, cost-effective basis and that we believe will meet the needs of the communities served by the facilities.

        With the exception of the 25-bed Sylvan Grove Hospital located in Georgia and the 25-bed Frye Regional Medical Center—Alexander Campus located in North Carolina, which are designated by the Centers for Medicare and Medicaid Services ("CMS") as critical access hospitals and which have not sought to be accredited, each of our facilities that is eligible for accreditation is accredited by the Joint Commission on Accreditation of Healthcare Organizations, the Commission on Accreditation of

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Rehabilitation Facilities (in the case of rehabilitation hospitals), the American Osteopathic Association (in the case of one hospital) or another appropriate accreditation agency. With such accreditation, our hospitals are deemed to meet the Medicare Conditions of Participation and are, therefore, eligible to participate in government-sponsored provider programs, such as the Medicare and Medicaid programs. The two hospitals that are not accredited also participate in the Medicare program by otherwise meeting the Medicare Conditions of Participation.

        The following table lists, by state, the general hospitals owned or leased and operated by our subsidiaries as of December 31, 2005:

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*

We continue to work toward divesting these facilities as part of the restructuring of our operations announced in January 2004, and discussions and negotiations with potential buyers are ongoing.

(1)

Leased from a partnership in which a Tenet subsidiary owns a 23% interest.

(2)

Leased by a partnership in which Tenet subsidiaries own a 75% interest and of which a Tenet subsidiary is the managing general partner.

(3)

Facility owned by us on land leased from a third party. Number of licensed beds includes USC Kenneth Norris Jr. Cancer Hospital, our 60-bed facility specializing in cancer treatment on the campus of USC University Hospital.

(4)

Owned by a partnership in which a Tenet subsidiary owns a 51% interest and is the managing general partner. The partner owning the 49% interest, an affiliate of the Cleveland Clinic Foundation, has an option to acquire our interest at any time after July 2, 2006 pursuant to the terms of the related partnership agreement, and, in February 2006, publicly expressed its intent to exercise that option.

(5)

Designated by CMS as critical access hospitals and, therefore, although not being divested, these facilities are not counted among the 69 general hospitals that will remain after all proposed divestitures are completed.

(6)

Closed at this time due to damage from Hurricane Katrina.

(7)

Owned by a limited liability company in which a Tenet subsidiary owns a 74% interest and is the managing member.

(8)

Leased from the Metrocrest Hospital Authority under a lease that expires in August 2007.

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        As of December 31, 2005, the largest concentrations of licensed beds in our general hospitals were in Florida (25.1%), California (21.5%) and Texas (16.3%). Strong concentrations of hospital beds within geographic areas help us contract more successfully with managed care payers, reduce management, marketing and other expenses, and more efficiently utilize resources. However, such concentrations increase the risk that, should any adverse economic, regulatory, environmental or other development occur within these states, our business, financial position, results of operations or cash flows could be materially adversely affected.

        The following table shows certain information about the hospitals operated domestically by our subsidiaries for the years ended December 31, 2005, 2004 and 2003.

(1)

Includes two facilities at December 31, 2005, nine facilities at December 31, 2004 and 32 facilities at December 31, 2003, respectively, that are classified as discontinued operations for financial reporting purposes.

(2)

Information regarding utilization of licensed beds and other operating statistics can be found in the table on page 62.

PROPERTIES

        Description of Real Property.    At December 31, 2005, our administrative offices were located in Los Angeles and Santa Ana, California; Ft. Lauderdale, Florida; Atlanta, Georgia; St. Louis, Missouri; Philadelphia, Pennsylvania; and Dallas, Texas. Our subsidiaries lease the space for our offices in Los Angeles, Santa Ana, Ft. Lauderdale, Atlanta, St. Louis and Philadelphia under operating lease agreements. Another one of our subsidiaries leases the space for our Dallas office under an operating lease agreement that terminates in 2010 subject to our ability to exercise of one or both of two five-year renewal options under the lease agreement.

        We moved our corporate headquarters from Santa Barbara, California to Dallas effective January 3, 2005. In June 2005, we closed our Santa Barbara office and, subsequently, sold the building, which we owned.

        Our subsidiaries owned or leased and operated 72 medical office buildings at December 31, 2005; most of these office buildings are adjacent to our general hospitals. The number of licensed beds and locations of our general hospitals at December 31, 2005 are described in the table beginning on page 3. We believe that all of our properties, including the administrative and medical office buildings described above, are suitable for their intended purposes.

        Obligations Relating to Real Property.    As of December 31, 2005, we had approximately $33 million of outstanding loans secured by property and equipment, and we had approximately $25 million of capitalized lease obligations. In addition, from time to time, we lease real property to third-party developers for the construction of medical office buildings. Under our current practice, the financing necessary to construct the medical office buildings encumbers only the leasehold and not our fee interest in the real estate. In years past, however, we have at times subordinated our fee interest and allowed our property to be pledged as collateral for third-party loans. We have no contractual obligation to make payments on these third-party loans, but our property could be subject to loss in the case of default by the lessee.

        Regulations Affecting Our Real Property.    We are subject to a number of laws and regulations affecting our use of, and purchase and sale of, real property. Among these are California's seismic standards and various environmental laws and regulations.

        The State of California has established standards intended to ensure that all hospitals in the state withstand earthquakes and other seismic activity without collapsing or posing the threat of significant loss of life. We are required to meet these standards by December 31, 2012. In addition, over time,

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hospitals must meet performance standards meant to ensure that they are capable of providing medical services to the public after an earthquake or other disaster. Ultimately, all general acute care hospitals in California must conduct all necessary seismic evaluations and be retrofitted, if needed, by 2030 to be in substantial compliance with the highest seismic performance standards. To date, we have conducted engineering studies and developed compliance plans for all of our California facilities in continuing operations. At this time, all of our general acute care hospitals in California are in compliance with all current seismic requirements. We anticipate spending approximately $385 million by 2012 to comply with the seismic regulations.

        Our properties are also subject to various federal, state and local environmental laws, rules and regulations, including with respect to asbestos abatement and the treatment of underground storage tanks, among other matters. We believe it is unlikely that the cost of complying with such laws, rules and regulations will have a material effect on our future capital expenditures, results of operations or competitive position.

MEDICAL STAFF AND EMPLOYEES

        Our hospitals are staffed by licensed physicians who have been admitted to the medical staff of individual hospitals. Under state laws and other licensing standards, hospital medical staffs are generally self-governing organizations subject to ultimate oversight by the hospital's local governing board. Members of the medical staffs of our hospitals also often serve on the medical staffs of hospitals not owned by us. Members of our medical staffs are free to terminate their affiliation with our hospitals or admit their patients to competing hospitals at any time. Although we own some physician practices and, where permitted by law, employ some physicians, the overwhelming majority of the physicians who practice at our hospitals are not our employees. Nurses, therapists, lab technicians, facility maintenance staff and the administrative staff of hospitals, however, normally are our employees. We are subject to federal minimum wage and hour laws and various state labor laws, and maintain a number of different employee benefit plans.

        Our operations depend on the efforts, abilities and experience of our employees and the physicians on the medical staffs of our hospitals, most of whom have no long-term contractual relationship with us. It is essential to our ongoing business that we attract and retain skilled employees and an appropriate number of quality physicians and other health care professionals in all specialties on our medical staffs. In some of our markets, physician recruitment and retention are affected by a shortage of physicians in certain sought-after specialties and the difficulties that physicians are experiencing in obtaining affordable malpractice insurance or finding insurers willing to provide such insurance. In addition, we believe physician attrition is one of the reasons for our recent volume declines. However, we are taking a number of steps to address the problem of volume decline, the most important of which is centered on building stronger relationships with the physicians who admit patients both to our hospitals and to our competitors' hospitals.

        Although we believe we will continue to successfully attract and retain key employees, qualified physicians and other health care professionals, the loss of some or all of our key employees or the inability to attract or retain sufficient numbers of qualified physicians and other health care professionals could have a material adverse effect on our business, financial position, results of operations or cash flows.

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        At December 31, 2005, the approximate number of our employees (of which approximately 27% were part-time employees) was as follows:

(1)

Includes employees whose employment relates to the operations of our general hospitals, rehabilitation hospitals, long-term acute care hospital, cancer hospital, outpatient surgery centers, managed services organizations, physician practices, in-house collection agency and other health care operations.

        The largest concentrations of our employees (excluding those in our administrative offices) are in those states where we have the largest concentrations of licensed hospital beds:

        At December 31, 2005, approximately 17% of our employees were represented by labor unions, and labor relations at our facilities generally have been satisfactory. We, and the hospital industry in general, are seeing an increase in the amount of union activity, particularly in California. In May 2003, we entered into an agreement with the Service Employees International Union and the American Federation of Federal, State, County and Municipal Employees with respect to all of our California hospitals and two hospitals in Florida; in December 2003, we entered into an agreement with the California Nurses Association with respect to all of our California hospitals. The agreements are expected to streamline the organizing and contract negotiation process, with minimal impact on and disruption to patient care, if a hospital's employees choose to organize into collective bargaining units. The agreements also provide a framework for pre-negotiated salaries, wages and benefits at the related hospitals. As of December 31, 2005, there were approximately 9,287 unionized employees in our California hospitals who were covered by these agreements. In 2006, labor union contracts that cover approximately 11% of our employees will expire; however, new contracts are expected to be negotiated consistent with our existing agreements. The new contracts are not expected to have a material adverse effect on our results of operations.

        Factors that adversely affect our labor costs include the nationwide shortage of nurses and the enactment of state laws regarding nurse-staffing ratios. The national nursing shortage continues and remains more serious in key specialties and in certain geographic areas than others, including several areas in which we operate hospitals. The nursing shortage has become a significant operating issue to health care providers, including us, and has resulted in increased labor costs for nursing personnel. In addition, state-mandated nurse-staffing ratios in California affect not only our labor costs, but, if we are unable to hire the necessary number of nurses to meet the required ratios, they may also cause us to limit patient admissions with a corresponding adverse effect on our net operating revenues. The vast majority of hospitals in California, including our hospitals, are not at all times meeting the state-mandated nurse-staffing ratios. We have continued to improve our monthly compliance and strive to make continued improvements in 2006.

        We cannot predict the degree to which we will be affected by the future availability or cost of nursing personnel, but we expect to continue to experience significant salary, wage and benefit pressures created by the nursing shortage throughout the country and escalation in state-mandated nurse-staffing ratios in California. In response to these trends, we have enhanced salaries, wages and benefits to recruit and retain nurses. In addition, we have been and may continue to be required to increase our use of temporary personnel, which is typically more expensive than hiring full-time or part-time employees. Significant efforts are being invested in workforce development with local schools of nursing and in recruitment of experienced nurses.

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COMPETITION

        Our general hospitals and other health care businesses operate in competitive environments. Competition among health care providers occurs primarily at the local level. A hospital's position within the geographic area in which it operates is affected by a number of competitive factors, including, but not limited to (1) the scope, breadth and quality of services a hospital offers to its patients and physicians, (2) the number, quality and specialties of the physicians who admit and refer patients to the hospital, (3) nurses and other health care professionals employed by the hospital or on the hospital's staff, (4) the hospital's reputation, (5) its managed care contracting relationships, (6) its location, (7) the location and number of competitive facilities and other health care alternatives, (8) the physical condition of its buildings and improvements, (9) the quality, age and state-of-the-art of its medical equipment, (10) its parking or proximity to public transportation, (11) the length of time it has been a part of the community, and (12) the charges for its services. Accordingly, each hospital develops its own strategies to address these competitive factors locally. In addition, tax-exempt competitors may have certain financial advantages not available to our facilities, such as endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property and income taxes. In some states, including California, not-for-profit hospitals are permitted by law to directly employ physicians while for-profit hospitals are prohibited from doing so.

        A significant factor in our future success will be the ability of our hospitals to continue to attract and retain physicians. We attract physicians by striving to equip our hospitals with technologically advanced equipment and quality physical plant, properly maintaining the equipment and physical plant, sponsoring training programs to educate physicians on advanced medical procedures, providing high-quality care to our patients and otherwise creating an environment within which physicians prefer to practice. Each hospital has a local governing board, consisting primarily of community members and physicians, that develops short-term and long-term plans for the hospital to foster a desirable medical environment for physicians. Each local governing board also reviews and approves, as appropriate, actions of the medical staff, including staff appointments, credentialing, peer review and quality assurance. While physicians may terminate their association with our hospitals at any time, we believe that by striving to maintain and improve the quality of care at our hospitals and by maintaining ethical and professional standards, we will attract and retain qualified physicians with a variety of specialties.

        The health care industry as a whole is challenged by the difficulty of providing quality patient care in a competitive and highly regulated environment. We believe our Commitment to Quality ("C2Q") initiative, which we launched in 2003, should help position us to competitively meet these challenges. The C2Q initiative is designed to (1) improve patient safety and evidence-based medicine, (2) support physician excellence, (3) improve the practice and leadership of nursing, and (4) facilitate improved patient flow and care delivery. By the end of 2005, we completed Phase I implementation of our C2Q initiative at all of our hospitals in continuing operations and started Phase II at several of these hospitals. As a result, at most of our hospitals, we have seen various levels of reductions in emergency room wait times, increases in on-time starts in the operating rooms, and improved bed management and care coordination. We believe that these improvements will have the effect of increasing physician and patient satisfaction, potentially improving volumes as a result.

HEALTH CARE 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 the Medicare and Medicaid programs and other government health care programs, hospital cost-containment initiatives by public and private payers, proposals to limit payments and health care spending, and industry-wide competitive factors greatly impact the health care industry. The industry is also subject to extensive federal, state and local regulation relating to licensure, conduct of operations, ownership of facilities, physician relationships, addition of facilities and services, and reimbursement rates for services. The laws, rules and regulations

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governing the health care industry are extremely complex, and the industry often has little or no regulatory or judicial interpretation for guidance. Although we have extensive policies and procedures in place to facilitate compliance in all material respects with such laws, rules and regulations, if a determination is made that we were in material violation of such laws, rules or regulations, our business, financial position, results of operations or cash flows could be materially adversely affected. In addition, we are unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations (discussed beginning on page 49). Further changes in the regulatory framework affecting health care providers could have a material adverse effect on our business, financial position, results of operations or cash flows.

        Both federal and state government agencies continue heightened and coordinated civil and criminal enforcement efforts against the health care industry. As part of an announced work plan that is implemented through the use of national initiatives pertaining to health care providers (including us), the U.S. Department of Health and Human Services ("HHS") and the U.S. Department of Justice are scrutinizing, among other things, billing practices related to coding of diagnosis-related groups and coronary artery stenting procedures, billings for services ordered by excluded physicians, and payments to inpatient rehabilitation and psychiatric hospital units. We believe that we, and the health care industry in general, will continue to be subject to increased government scrutiny and investigations such as these, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

        Another trend impacting health care providers, including us, is the increasing number of qui tam actions brought under the federal False Claims Act. Qui tam or "whistleblower" actions allow private individuals to bring actions on behalf of the government, alleging that a hospital or health care provider has defrauded a federal government program, such as Medicare or Medicaid. If the government intervenes in the action and prevails, the defendant may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each false claim submitted to the government. As part of the resolution of a qui tam case, 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 continue to pursue the action independently. Although companies in the health care industry in general, and us in particular, have been and may continue to be subject to qui tam actions, we are unable to predict the future impact of such actions on our business, financial position, results of operations or cash flows.

ANTI-KICKBACK AND SELF-REFERRAL REGULATIONS

        Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback Statute") prohibit certain business practices and relationships that might affect the provision and cost of health care services payable under the Medicare and Medicaid programs 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 Anti-kickback Statute include criminal penalties and civil sanctions, as well as fines and possible exclusion from government programs, such as Medicare and Medicaid. Many states have statutes similar to the federal Anti-kickback Statute, except that the state statutes usually apply to referrals for services reimbursed by all third-party payers, 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.

        The federal government has also issued regulations that describe some of the conduct and business relationships that are permissible under the Anti-kickback Statute. These regulations are often referred to as the "Safe Harbor" regulations. The fact that certain conduct or a given business arrangement does not meet a Safe Harbor does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. Rather, such conduct and business arrangements risk increased scrutiny by government enforcement authorities and should be reviewed on a case-by-case basis.

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        In addition to addressing other matters, as discussed below, the Health Insurance Portability and Accountability Act of 1996 also amended Title XI (42 U.S.C. Section 1301 et seq.) to broaden the scope of 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" law) generally restricts referrals by physicians of Medicare or Medicaid patients to entities with which the physician or an immediate family member has a financial relationship, unless one of several exceptions applies. The referral prohibition applies to a number of statutorily defined "designated health services," such as clinical laboratory, physical therapy, radiology, and inpatient and outpatient hospital services. The exceptions to the referral prohibition cover a broad range of common financial relationships. These statutory, and the subsequent regulatory, exceptions are available to protect certain permitted employment relationships, leases, group practice arrangements, medical directorships, and other common relationships between physicians and providers of designated health services, such as hospitals. A violation of the Stark law may result in a denial of payment, required refunds to patients and 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 that an entity fails to report required information, and exclusion from participation in the Medicare and Medicaid programs and other federal programs. Many states have adopted or are considering similar self-referral statutes, some of which extend beyond the related state 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. Our participation in and development of joint ventures and other financial relationships with physicians could be adversely affected by these amendments and similar state enactments.

        Our compliance and law departments systematically review all of our operations to determine the extent to which they comply with the Anti-kickback Statute, the Stark law and similar state statutes.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT

        Title II, Subtitle F of the Health Insurance Portability and Accountability Act, or HIPAA, mandates the adoption of specific standards for electronic transactions and code sets that are used to transmit certain types of health information. HIPAA's objective is to encourage efficiency and reduce the cost of operations within the health care industry. To protect the information transmitted using the mandated standards and the patient information used in the daily operations of a covered entity, HIPAA also sets forth federal rules protecting the privacy and security of personal health information. The privacy and security regulations address the use and disclosure of individually identifiable health information and the rights of patients to understand and control how their information is used and disclosed. The law provides both criminal and civil fines and penalties for covered entities that fail to comply with HIPAA.

        HHS regulations include deadlines for compliance with the various provisions of HIPAA. Effective October 1, 2005, CMS will not process electronic claims that do not meet HIPAA's electronic data transmission (transaction and code set) standards that health care providers must use when transmitting certain health care information electronically. Our electronic data transmissions are compliant with current standards.

        All covered entities, including those we operate, were required to comply with the privacy requirements of HIPAA by April 14, 2003. We were in material compliance with the privacy regulations by that date and remain so, as we continue to develop training and revise procedures to address ongoing compliance. The HIPAA security regulations require health care providers to implement administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of patient information. We continue to work toward full and complete compliance with the security standards.

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        We have developed a comprehensive set of policies and procedures in our efforts to comply with HIPAA, under the guidance of our compliance department. Hospital compliance officers and information security officers are responsible for implementing and monitoring compliance with our HIPAA privacy and security policies and procedures at our hospitals. We have also created an internal on-line HIPAA training program, which is mandatory for all employees. Based on the existing and proposed regulations, we believe that the cost of our compliance with HIPAA will not have a material adverse effect on our business, financial position, results of operations or cash flows.

HEALTH CARE FACILITY LICENSING REQUIREMENTS

        In order to maintain their operating licenses, health care facilities must comply with strict governmental standards concerning medical care, equipment and cleanliness. Various licenses and permits also are required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment. Our health care facilities hold all required governmental approvals, licenses and permits material to the operation of our business.

UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE

        In addition to certain statutory coverage limits and exclusions, federal laws and regulations, specifically the Medicare Conditions of Participation, generally require health care providers, including hospitals that furnish or order health care services that may be paid for under the Medicare program or state health care programs, to assure that claims for reimbursement are for services or items that are (1) provided economically and only when, and to the extent, they are medically reasonable and necessary, (2) of a quality that meets professionally recognized standards of health care, and (3) supported by appropriate evidence of medical necessity and quality. CMS administers the Quality Improvement Organization ("QIO") program through a network of QIOs that work with consumers, physicians, hospitals and other caregivers to refine care delivery systems to assure patients receive the appropriate care at the appropriate time, particularly among underserved populations. The QIO program also safeguards the integrity of the Medicare trust fund by reviewing Medicare patient admissions, treatments and discharges, and ensuring payment is made only for medically necessary services, and investigates beneficiary complaints about quality of care. The QIOs have the authority to deny payment for services provided and recommend to HHS that a provider that is in substantial noncompliance with certain standards be excluded from participating in the Medicare program.

        Medical and surgical services and practices are extensively supervised by committees of staff doctors at each of our health care facilities, are overseen by each facility's local governing board, the members of which primarily are community members and physicians, and are reviewed by our clinical quality personnel. The local hospital governing board also helps 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.

CERTIFICATE OF NEED REQUIREMENTS

        Some states require state approval for construction, expansion and closure 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 legislatures are looking at the certificate of need process as a way to contain rising health care costs. As of December 31, 2005, we operated hospitals in nine states that require a form of state approval under certificate of need programs applicable to those hospitals. We are unable to predict whether we will be required or able to obtain any additional certificates of need in any jurisdiction where such certificates of need are required, or if

11

any jurisdiction will eliminate or alter its certificate of need requirements in a manner that will increase competition and, thereby, affect our competitive position.

ENVIRONMENTAL REGULATIONS

        Our health care operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our operations also are subject to compliance with various other environmental laws, rules and regulations. We believe it is unlikely that the cost of such compliance will have a material effect on our future capital expenditures, results of operations or competitive position.

COMPLIANCE PROGRAM

        We maintain a multifaceted corporate and hospital-based compliance program that is designed to assist corporate staff and hospital operators to meet or exceed applicable standards established by federal guidance and industry practice. We established our compliance department in 2003 to carry out compliance-related functions previously carried out by the law department. To ensure the independence of the compliance department, the following measures were implemented:

•

the compliance department has its own operating budget;



•

the compliance department has the authority to hire outside counsel, to access any Tenet document and to interview any of our personnel; and



•

the chief compliance officer reports directly to the quality, compliance and ethics committee of our board of directors.

        On January 14, 2004, our board of directors approved a new compliance program charter intended to further our goal of fostering and maintaining the highest ethical standards, and valuing our compliance with all state and federal laws and regulations as a foundation of our corporate philosophy. The primary focus of the program is compliance with the requirements of the Medicare and Medicaid programs and all other government health care programs. Pursuant to the terms of the compliance program charter, the compliance department is responsible for the following activities: (1) drafting company policies and procedures related to compliance issues; (2) developing and providing compliance-related education and training to all of our employees and, as appropriate, directors, contractors, agents and staff physicians; (3) monitoring, responding to and resolving all compliance-related issues; (4) ensuring that we take appropriate corrective and disciplinary action when noncompliant or improper conduct is identified; and (5) measuring compliance with our policies and legal and regulatory requirements related to health care operations.

        In order to ensure the compliance department is well-positioned to perform its duties as outlined in its charter, in 2004 we significantly expanded our compliance staff. As part of this expansion, we hired regional compliance directors and have named a compliance officer for each hospital. All hospital-based compliance officers report to regional compliance directors who report directly to our chief compliance officer.

        On March 23, 2004, Tenet entered into a five-year Corporate Integrity Agreement ("CIA") with the Office of the Inspector General of HHS related to North Ridge Medical Center ("NRMC"), one of our Florida hospitals; however, certain provisions of the CIA impose obligations on Tenet and our subsidiaries. The CIA is structured to assure the federal government of our federal health care program compliance and specifically covers physician relationships. Under the CIA, we have an affirmative obligation to report to the government probable violations of applicable federal health care laws and regulations. This obligation could result in greater scrutiny of NRMC and Tenet by regulatory authorities. Breach of the CIA could subject us to substantial monetary penalties or affect NRMC's participation in the Medicare and Medicaid programs, or both. We have agreed, during the five-year

12

term of the CIA, to operate our compliance program as it pertains to NRMC in a manner that meets the requirements of the CIA.

ETHICS PROGRAM

        We maintain a values-based ethics program that is designed to monitor and raise awareness of ethical issues among employees and to stress the importance of understanding and complying with our Standards of Conduct.

        All of our employees, including our chief executive officer, chief financial officer, chief accounting officer and controller, are required to abide by our Standards of Conduct to ensure that our business is conducted in a consistently legal and ethical manner. The members of our board of directors are also required to abide by our Standards of Conduct. The standards reflect our basic values and form the foundation of a comprehensive process that includes compliance with all corporate policies, procedures and practices. Our standards cover such areas as quality patient care, compliance with all applicable laws and regulations, appropriate use of our assets, protection of patient information and avoidance of conflicts of interest.

        As part of the program, we provide annual ethics and compliance training sessions to every employee, as well as our board of directors. All employees are required to report incidents that they believe in good faith may be in violation of the Standards of Conduct, and are encouraged to contact our 24-hour toll-free Ethics Action Line when they have questions about the standards or any ethics concerns. Incidents of alleged financial improprieties reported to the Ethics Action Line or the ethics and business conduct department are communicated to the audit committee of our board of directors. All reports to the Ethics Action Line are kept confidential to the extent allowed by law, and employees have the option to remain anonymous. In cases reported to the Ethics Action Line that involve a possible violation of the law or regulatory policies and procedures, the matter is referred to the compliance department for investigation. Retaliation against employees in connection with reporting ethical concerns is considered a serious violation of our Standards of Conduct, and, if it occurs, it will result in discipline, up to and including termination of employment.

        The full text of our Standards of Conduct is published on our website, at www.tenethealth.com, under the "Ethics & Business Conduct" caption in the "Our Company" section. A copy of our Standards of Conduct is also available upon written request to our corporate secretary.

PROFESSIONAL AND GENERAL LIABILITY INSURANCE

        As is typical in the health care industry, we are subject to claims and lawsuits in the ordinary course of business. The health care industry has seen significant increases in professional liability insurance in recent years due to increased litigation. In response to such unfavorable pricing and availability of professional liability insurance, we have formed or participated in captive insurance companies to self-insure a substantial portion of our professional and general liability risk. Claims in excess of our self-insurance retentions are insured with commercial insurance companies.

        Our hospitals' self-insured retention per occurrence is currently $2 million, except for hospitals in states with patient compensation funds, whose retentions may be lower. Our captive insurance company's retention per occurrence is currently $13 million. Claims in excess of $15 million per occurrence are reinsured, and our captive insurance company bears 2.5% of the first $10 million of reinsurance claims. If a claim exceeds $25 million, our excess professional and general liability insurance would apply up to an aggregate limit of $275 million. Any losses not covered by or in excess of the amounts maintained under insurance policies will be funded from our working capital.

        In addition to the reserves recorded by our captive insurance subsidiaries, we maintain reserves, including reserves for incurred but not reported claims, for our self-insured professional liability

13

retentions and claims in excess of the policies' aggregate limits, based on actuarial estimates of losses and related expenses. Also, we provide letters of credit to our insurers, which can be drawn upon under certain circumstances, to collateralize the deductible and self-insured retentions under a selected number of our professional and general liability insurance programs.

EXECUTIVE OFFICERS

        The names, positions and ages of our executive officers, as of March 1, 2006, are:

        Mr. Fetter was elected president effective November 7, 2002 and was named chief executive officer in September 2003. He has also been a member of the board of directors of Tenet since September 2003. From March 2000 to November 2002, Mr. Fetter was chairman and chief executive officer of Broadlane, Inc. He continues to serve as chairman of Broadlane. From October 1995 to February 2000, he served in several senior management positions at Tenet, including executive vice president and chief financial officer, then chief corporate officer and chief financial officer in the office of the president. Mr. Fetter holds an M.B.A. from the Harvard Business School and a bachelor's degree in economics from Stanford University. Mr. Fetter is a member of the board of directors of the Tenet Healthcare Foundation, the Federation of American Hospitals and the U.S. Chamber of Commerce. He is also a member of the board of trustees of the Committee for Economic Development.

        Mr. Jennings was named chief operating officer on February 9, 2004. Prior to that, he served as president of our former eastern division, and, from 1997 to March 2003, he served as executive vice president of our former southeast division. Mr. Jennings rejoined Tenet in 1997 from Ramsay Health Care Inc., where he was president and chief executive officer from 1993 to 1996. Before that, he served as senior vice president, operations, responsible for National Medical Enterprises, Inc.'s acute care hospitals in Texas, Missouri and West Florida from 1991 to 1993. His career experience includes executive directorships at a number of acute care hospitals. Mr. Jennings holds an M.B.A. from the University of South Carolina and a bachelor's degree in pharmacy from the University of Georgia. Mr. Jennings is also a fellow of the American College of Healthcare Executives and a member of the board of directors of the Federation of American Hospitals.

        Mr. Pullen has served as interim chief financial officer of the Company since November 2005. He was appointed executive vice president and chief accounting officer in August 2003. Prior to that time, he served as vice president and controller of Tenet from 1995 to 1999, when he was promoted to senior vice president and controller. He joined The Hillhaven Corporation, a subsidiary of National Medical Enterprises, in 1983 and served in various executive positions, including vice president, finance. Mr. Pullen holds an M.B.A. from Seattle University and a bachelor's degree in accounting from the Rochester Institute of Technology. He also completed the Advanced Management Program at Harvard Business School.

        Mr. Urbanowicz joined Tenet as general counsel and was appointed secretary on December 22, 2003. From October 2001 to December 2003, he served as Deputy General Counsel of the U.S. Department of Health and Human Services. Before joining HHS, from June 2000 to October 2001,

14

Mr. Urbanowicz was a partner in the law firm of Locke Liddell & Sapp, specializing in health care law. From January 1998 to June 2000, he was a partner in the New Orleans law firm of Liskow & Lewis and was head of that firm's health care law practice. Before joining Liskow & Lewis, Mr. Urbanowicz was a partner in the New Orleans law firm of Monroe & Lemann, where he was head of the firm's health care law practice. Mr. Urbanowicz holds a J.D. from Tulane University's School of Law and a bachelor's degree in English and political science from Tulane University. He is a member of the American Law Institute and a member of the board of directors of the Federation of American Hospitals.

        Dr. Daley has served as chief medical officer and senior vice president, clinical quality since February 2003. When she first joined Tenet in July 2002, she was appointed to the newly created position of vice president, clinical effectiveness. Before joining Tenet, Dr. Daley served as director of the Center for Health Systems Design and Evaluation at Massachusetts General Hospital and Partners Health Care System from 1999 to 2002. From 1996 to 1999, Dr. Daley was vice president and medical director of health care quality at the Beth Israel Deaconess Medical Center, a Harvard teaching hospital. From 1990 to 1996, she was employed at the Department of Veterans Affairs (DVA) and served as the co-chair of the DVA's National Surgical Quality Improvement Program from 1991 to 2003. Dr. Daley has been an associate professor of medicine at the Harvard Medical School and a clinician-teacher and practicing internist at the New England Medical Center in Boston. She earned her medical degree at Tufts University School of Medicine and her bachelor's degree at Brown University.

COMPANY INFORMATION

        We file annual, transition, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.

        Our website, www.tenethealth.com, also offers, free of charge, extensive information about our operations and financial performance, including a comprehensive series of investor pages. These pages include real-time access to our annual, transition, quarterly and current reports (and amendments to such reports) and other filings made with, or furnished to, the SEC.

FORWARD-LOOKING STATEMENTS

        The information in this report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements represent management's current belief, based on currently available information, as to the outcome and timing of future events. They involve known and unknown risks, uncertainties and other factors—many of which we are unable to predict or control—that may cause our actual results, performance or achievements, or health care industry results, to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the risks described in Item 1A of this report and the following:

•

Our ability to satisfactorily and timely collect our patient accounts receivable;



•

Our ability to identify and execute on measures designed to save or control costs;



•

The availability and terms of debt and equity financing sources to fund the needs of our business;

15

•

Changes in our business strategies or development plans;



•

The impact of natural disasters, including our ability to reopen facilities affected by such disasters;



•

Technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care;



•

Various factors that may increase the cost of supplies;



•

National, regional and local economic and business conditions;



•

Demographic changes; and



•

Other factors and risk factors referenced in this report and our other public filings.

        When considering forward-looking statements, a reader should keep in mind the risk factors and other cautionary statements in this report. Should one or more of the risks and uncertainties described above, in Item 1A, Risk Factors, below or elsewhere in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and, therefore, disclaim any resulting liability for potentially related damages.

        All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

ITEM 1A. RISK FACTORS

        Our business is subject to a number of risks and uncertainties—many of which are beyond our control—that may cause our actual operating results or financial performance to be materially different from our expectations. If one or more of the events discussed in the following risks were to occur, actual outcomes could differ materially from those expressed in or implied by any forward-looking statements we make in this report or our other filings with the SEC, and our business, financial position, results of operations or liquidity could be materially adversely affected. Additional risks and uncertainties not presently known, or that we currently deem immaterial, may also negatively affect our business and operations. In either case, the trading price of our common stock could decline and shareholders could lose all or part of their investment.

        If managed care payers reduce the payments we receive as reimbursement for the health care services we provide, or if we have difficulty collecting from managed care payers, our revenues could be adversely affected.

        We currently have thousands of managed care contracts with various health maintenance organizations and preferred provider organizations. The amount of our net patient revenue from our continuing general hospitals under managed care contracts for the year ended December 31, 2005 was $4.7 billion, which represented approximately 49% of our total net operating revenues. Approximately 38% of our managed care net patient revenues during the year ended December 31, 2005 were derived from our top five managed care payers. At December 31, 2005, approximately 58% of our net accounts receivable related to continuing operations were due from managed care payers.

        Managed care payers are increasingly demanding discounted fee structures or the assumption by health care providers of all or a portion of the financial risk. We expect managed care payers to continue to aggressively manage reimbursement levels and enforce more stringent cost controls. In addition, an increasing number of managed care providers have experienced financial difficulties in recent years, in some cases resulting in bankruptcy or insolvency. Managed care providers with which we do business have encountered and may continue to encounter similar difficulties in paying claims in the future. In recent years, payment pressure from managed care payers, along with increased levels of co-pay payments, deductibles and coinsurance amounts to be paid by insured patients, has affected our provision for doubtful accounts, and we continue to experience ongoing managed care payment delays and disputes.

16

        It would harm our business if we were unable to enter into managed care provider arrangements on acceptable terms. Any material reductions in the payments that we receive for our services, coupled with the difficulty in collecting receivables from managed care payers, could reduce our overall revenues and have an adverse effect on our results of operations.

        Changes in the Medicare and Medicaid programs or other government health care programs could have an adverse effect on our business.

        Estimated payments under the Medicare program constituted approximately 27.5% of net patient revenues at our continuing general hospitals for the year ended December 31, 2005, and various state Medicaid programs, excluding state-funded managed care programs, constituted approximately 8.3% of net patient revenues at the same hospitals for the same period. The Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease government program payments in the future, as well as affect the cost of providing services to patients and the timing of payments to facilities. We are unable to predict the effect of future government health care funding policy changes on our operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers is limited, if we are required to pay substantial amounts in settlement pertaining to government programs, or if we, or one or more of our subsidiaries' hospitals, are excluded from participation in the Medicare or Medicaid program or any other government health care program, there could be a material adverse effect on our business, financial position, results of operations or cash flows.

        The ultimate resolution of claims, lawsuits and investigations could adversely affect our financial position.

        During the past several years, we have been subject to a significant number of claims and lawsuits. Also during the past several years, we became the subject of federal and state agencies' civil and criminal investigations and enforcement efforts, and received subpoenas and other requests from those agencies for information relating to a variety of subjects. While we cannot predict the likelihood of future claims or inquiries, we expect that new matters may be initiated against us from time to time. The results of claims, lawsuits and investigations also cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on our business (both in the near and long term), financial position, results of operations or cash flows. Although we defend ourselves vigorously against claims and lawsuits and cooperate with investigations, these matters:

•

Could require us to pay substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available;



•

Cause us to incur substantial expenses;



•

Require significant time and attention from our management; and



•

Could cause us to close or sell hospitals or otherwise modify the way we conduct business.

        We recognize that, where appropriate, our interests may be best served by resolving certain matters without litigation. To that end, we have been and continue to be engaged in discussions with federal law enforcement agencies regarding the possibility of reaching a non-litigated resolution of certain outstanding issues with the federal government. We are not able to predict whether such a resolution will in fact occur on any terms, project a timeline for resolution or quantify the economic impact of any non-litigated resolution. However, if we do reach a non-litigated resolution, it is possible that the settlement could be significant and may require us to incur additional debt or other financing. We do not expect to enter into any settlement unless funding for it can be arranged without jeopardizing our

17

liquidity. If a non-litigated resolution does not occur, we will continue to defend ourselves vigorously against claims and lawsuits. Any resolution of significant claims against us, whether as a result of litigation or settlement, could have a material adverse impact on our business, financial position or results of operations.

        Our business continues to be adversely affected by a high volume of uninsured patients.

        Like others in the health care industry, we continue to provide services to a high volume of uninsured patients. In fact, our level of uninsured patients has been higher in the last two years than in previous periods. Although the discounting components of our Compact with Uninsured Patients have reduced our provision for doubtful accounts recorded in our Consolidated Financial Statements, they are not expected to mitigate the net economic effects of treating uninsured patients. We continue to experience a high level of uncollectible accounts and, unless a business mix shift toward a higher level of insured patients occurs, we anticipate this trend to continue.

        We operate in a highly competitive industry, and competition is one reason for our recent declines in patient volumes.

        A number of factors affect patient volumes and, thereby, our results of operations at our hospitals and related health care facilities, including the influence of local health care competitors. Generally, other hospitals in the local communities we serve provide services similar to those offered by our hospitals. Some of the hospitals that compete with our hospitals are owned by government agencies or not-for-profit corporations. Tax-exempt competitors may have certain financial advantages not available to our facilities, such as endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property and income taxes. In some states, including California, not-for-profit hospitals are permitted by law to directly employ physicians while for-profit hospitals are prohibited from doing so. We also face increasing competition from physician-owned specialty hospitals and freestanding surgery, diagnostic and imaging centers for market share in high margin services and for quality physicians and personnel. If competing health care providers are better able to attract patients, recruit and retain physicians, expand services or obtain favorable managed care contracts at their facilities, we may continue to experience a decline in inpatient and outpatient volume levels.

        Our business and financial position could be harmed if we are not able to attract and retain employees, physicians and other health care professionals, and our costs continue to be adversely affected by the shortage of nurses.

        Our operations depend on the efforts, abilities and experience of our employees and the physicians on the medical staffs of our hospitals, most of whom have no long-term contractual relationship with us. It is essential to our ongoing business that we attract and retain skilled employees and an appropriate number of quality physicians and other health care professionals in all specialties on our medical staffs. In some of our markets, physician recruitment and retention are affected by a shortage of physicians in certain sought-after specialties and the difficulties that physicians are experiencing in obtaining affordable malpractice insurance or finding insurers willing to provide such insurance. In addition, we believe physician attrition is one of the reasons for our recent volume declines. If we are unable to build stronger relationships with the physicians who admit patients both to our hospitals and to our competitors' hospitals, we expect these volume declines to continue. In general, the loss of some or all of our key employees or the inability to attract or retain sufficient numbers of qualified physicians and other health care professionals could have a material adverse effect on our business, financial position, results of operations or cash flows.

        Labor costs remain a significant cost pressure facing us, as well as the health care industry in general. The national nursing shortage continues and remains more serious in key specialties and in certain geographic areas than others, including several areas in which we operate hospitals. This has increased labor costs for nursing personnel. In addition, state-mandated nurse-staffing ratios in

18

California affect not only our labor costs, but if we are unable to hire the necessary number of nurses to meet the required ratios, they may also cause us to limit patient admissions with a corresponding adverse effect on net operating revenues. We cannot predict the degree to which we will be affected by the future availability or cost of nursing personnel, but we expect to continue to experience significant salary, wage and benefit pressures created by the nursing shortage throughout the country and escalation in state-mandated nurse-staffing ratios in California. In response to these trends, we have enhanced salaries, wages and benefits to recruit and retain nurses. In addition, we have been and may continue to be required to increase our use of temporary personnel, which is typically more expensive than hiring full-time or part-time employees.

        Our licensed hospital beds are heavily concentrated in Florida, California and Texas, which makes us sensitive to economic, regulatory, environmental and other developments in those states.

        As of December 31, 2005, the largest concentrations of licensed beds in our general hospitals were in Florida (25.1%), California (21.5%) and Texas (16.3%). Such concentrations increase the risk that, should any adverse economic, regulatory, environmental or other development occur within these states, our business, financial position, results of operations or cash flows could be materially adversely affected.

        Specifically, a natural disaster or other catastrophic event could affect us more significantly than other companies with less geographic concentration. In the recent past, hurricanes have had a disruptive effect on the operations of our hospitals in Florida and Texas, as well as in Louisiana and Mississippi, and the patient populations in those states. Our California operations could be adversely affected by a major earthquake in that state. Moreover, we anticipate spending approximately $385 million by 2012 to meet California's seismic regulations for hospitals.

        Our business and financial results could be harmed by violations of existing regulations or compliance with new or changed regulations.

        Our business is subject to extensive federal, state and local regulation relating to, among other things, licensure, conduct of operations, ownership of facilities, physician relationships, addition of facilities and services, and reimbursement rates for services. The laws, rules and regulations governing the health care industry are extremely complex, and the industry often has little or no regulatory or judicial interpretation for guidance. If a determination is made that we were in material violation of such laws, rules or regulations, we could be subject to penalties or liabilities or required to make significant changes to our operations. In addition, health care, as one of the largest industries in the United States, continues to attract much legislative interest and public attention. We are 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 affecting health care providers could harm our business, financial position, results of operations or cash flows.

        The cost and future availability of insurance, as well as insurance policy limits, may have an adverse effect on our operations.

        We continue to experience unfavorable pricing and availability trends in the professional and general liability insurance markets and increases in the size of claim settlements and awards in this area. If these trends continue, they could have an adverse effect on our business and financial results. All reinsurance and any excess professional and general liability insurance we purchase are subject to policy aggregate limitations. Any limits paid, in whole or in part, could deplete or reduce the excess limits available to pay any other material claims applicable to the relevant policy period. If such policy aggregate limitations should be partially or fully exhausted in the future, or actual payments of claims materially exceed projected estimates of claims, our financial position, results of operations or cash flows could be materially adversely affected.

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        All five of our hospitals and several imaging centers in the New Orleans area and our hospital in Mississippi suffered considerable damage from Hurricane Katrina in late August 2005. We have property, business interruption and related insurance coverage to mitigate the financial impact of these types of catastrophic events. Our policies, which are on an occurrence basis and cover the period April 1, 2005 through March 31, 2006, are subject to deductible provisions, exclusions and limits. One such limit relates to flood losses as defined in the insurance policies. If significant portions of the losses at our facilities are determined to be caused by flood, flood damage limits under our insurance policies for any future damages to any of our hospitals during the remainder of the policy period may be partially or fully exhausted. If existing flood policy limits should be partially or fully exhausted as a result of Hurricane Katrina and ensuing events, and we were to sustain a subsequent flood loss, and if we cannot or do not obtain additional coverage, our financial position, results of operations or cash flows could be materially adversely affected.

        Trends affecting our actual or anticipated results may lead to charges that would adversely affect our results of operations.

        As a result of the various factors that affect our industry generally and our business specifically, we may from time to time be required to record charges in our results of operations. For example, as a result of our recent financial trends and the current outlook for our future operating performance, we recorded goodwill and long-lived asset impairment charges of approximately $160 million in the year ended December 31, 2005 and approximately $1.1 billion during the fourth quarter of 2004. Based on future financial trends and the possible impact of negative trends on our future outlook, further impairments of long-lived assets and goodwill may occur, and we will incur additional restructuring charges. Future restructuring of our regions that changes our goodwill reporting units could also result in further impairments of our goodwill. Any such charges could adversely affect our results of operations.

        Our substantial leverage could have a significant effect on our operations.

        We are a highly leveraged company. As of December 31, 2005, we had approximately $4.8 billion of total long-term debt, as well as approximately $194 million in letters of credit outstanding under our letter of credit facility. In addition, from time to time, we expect to engage in various capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time.

        Our leverage and debt service obligations could have important consequences to an investor, including the following:

•

Our letter of credit facility and the indentures governing our senior notes contain, and any future debt obligations may contain, covenants that, among other things, restrict our ability to pay dividends, incur additional debt and sell assets. If we do not comply with these obligations, it may cause an event of default, which, if not cured or waived, could require us to repay the indebtedness immediately.



•

We may be more vulnerable in the event of a deterioration in our business, in the health care industry, in the economy generally or if federal or state governments set further limitations on reimbursement under the Medicare or Medicaid programs.



•

We may have difficulty obtaining additional financing at economically acceptable interest rates and other terms to meet our requirements for working capital, capital expenditures, the payment of judgments or settlements, or general corporate purposes.



•

We may be required to dedicate a substantial portion of our cash flow to the payment of principal and interest on our indebtedness, which could reduce the amount of funds available for our operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

        None.

ITEM 2. PROPERTIES

        Note: The disclosure required under this Item is included in Item 1.

ITEM 3. LEGAL PROCEEDINGS

        During the past several years, Tenet and our subsidiaries have been subject to a significant number of claims and lawsuits. Several of these matters were resolved in 2004 and 2005, and some have recently been resolved, as described below. Also during the past several years, we became the subject of federal and state agencies' civil and criminal investigations and enforcement efforts, and received subpoenas and other requests from those agencies for information relating to a variety of subjects. While we cannot predict the likelihood of future claims or inquiries, we expect that new matters may be initiated against us from time to time.

        The results of claims, lawsuits and investigations cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on our business (both in the near and long term), financial position, results of operations or cash flows.

        We recognize that, where appropriate, our interests may be best served by resolving certain matters without litigation. To that end, we have been and continue to be engaged in discussions with federal law enforcement agencies regarding the possibility of reaching a non-litigated resolution of certain outstanding issues with the federal government. We are not able to predict whether such a resolution will in fact occur on any terms, project a timeline for resolution or quantify the economic impact of any non-litigated resolution; therefore, we have not recorded reserves for such a resolution. However, if we do reach a non-litigated resolution, it is possible that the settlement could be significant and may require us to incur additional debt or other financing. We do not expect to enter into any settlement unless funding for it can be arranged without jeopardizing our liquidity. If a non-litigated resolution does not occur, we will continue to defend ourselves vigorously against claims and lawsuits. As stated above, any resolution of significant claims against us, whether as a result of litigation or settlement, could have a material adverse impact on our business, liquidity, financial position or results of operations.

        We record reserves for claims and lawsuits when they are probable and reasonably estimable. However, we presently cannot determine the ultimate resolution of all investigations and lawsuits. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated, we have not recognized in our Consolidated Financial Statements all potential liabilities that may result.

        Currently pending legal proceedings and investigations that are not in the ordinary course of business are principally related to the subject matters set forth below. Where specific amounts are sought in any pending legal proceeding, those amounts are disclosed. For all other matters, where the possible loss or range of loss is reasonably estimable, an estimate is provided. Where no estimate is provided, the possible amount of loss is not reasonably estimable at this time. We undertake no obligation to update the following disclosures for any new developments.

PHYSICIAN RELATIONSHIPS

        We and certain of our subsidiaries are under heightened scrutiny with respect to our hospitals' relationships with physicians. We believe that all aspects of our relationships with physicians are potentially under review. Proceedings in this area may be criminal, civil or both.

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United States v. Weinbaum, Tenet HealthSystem Hospitals, Inc. and Alvarado Hospital Medical Center, Inc., Case No. 03CR1587L (U.S. District Court for the Southern District of California)

        On June 5, 2003, a federal grand jury in San Diego, California returned an eight-count indictment against Barry Weinbaum, who was at that time the chief executive officer of Alvarado Hospital Medical Center, Inc., a hospital owned by one of our subsidiaries and located in San Diego. The indictment alleged conspiracy to violate the federal Anti-kickback Statute and included substantive counts alleging the payment of illegal remuneration related to physician relocation, recruitment and consulting agreements.

        On July 17, 2003, the grand jury returned a superseding indictment adding Tenet HealthSystem Hospitals, Inc. and Alvarado Hospital Medical Center as defendants. (Tenet HealthSystem Hospitals, Inc. is the legal entity that was doing business as Alvarado Hospital Medical Center during some of the period of time covered by the indictment.) The superseding indictment charged one count of conspiracy to violate the Anti-kickback Statute and 16 substantive counts of payment of illegal remunerations.

        On September 25, 2003, the grand jury returned a second superseding indictment that added the hospital's then-director of business development, Mina Nazaryan, as a defendant. The second superseding indictment charged the defendants with conspiracy to violate the Anti-kickback Statute and 19 substantive counts of paying illegal remunerations. Additionally, Ms. Nazaryan was charged with one count of obstruction of a health care offense investigation and two counts of witness tampering. On April 15, 2004, the grand jury returned a third superseding indictment, adding four counts of filing a false tax return solely against Ms. Nazaryan.

        On July 22, 2004, the grand jury returned a fourth superseding indictment against Barry Weinbaum, Mina Nazaryan, Alvarado Hospital Medical Center and Tenet HealthSystem Hospitals. The fourth superseding indictment added details and allegations to the previously identified counts, but no new charges.

        Prior to trial, all of the defendants pleaded not guilty. Trial proceedings commenced on October 20, 2004 in U.S. District Court in San Diego. In January 2005, Ms. Nazaryan entered into a plea agreement with the U.S. Attorney for the Southern District of California to plead guilty to one count of conspiracy. The other counts against Ms. Nazaryan were dismissed as part of her plea agreement. At the conclusion of the prosecution's case-in-chief, the defendants filed a motion for judgment of acquittal, then rested. On February 17, 2005, the trial judge declared a mistrial after the members of the jury indicated that they were unable to reach a verdict in the case. In early March 2005, the court entered an order granting defendants' motion on two specific counts alleging payment of illegal remunerations in violation of the Anti-kickback Statute, but denied the motion on the conspiracy charge and 17 other specific counts. A second trial relating to those counts commenced on May 3, 2005. Jury deliberations in the case began in mid-November 2005. In December 2005, the trial judge dismissed a juror after a court employee overheard the juror discussing the case while riding a commuter train. One of two alternate jurors was then seated, and the jury was required to restart deliberations after having deliberated for 17 days. As of March 8, 2006, deliberations were still ongoing. If convicted following this trial, the two defendant subsidiaries could be subject to monetary penalties and exclusion from participation in the Medicare program and other federal and state health care programs.

Southern California Investigations

        On July 3, 2003, we and several of our subsidiaries received administrative subpoenas from the U.S. Attorney's Office for the Central District of California seeking documents from 1997 through July 2003 related to physician relocation agreements at seven Southern California hospitals owned by our subsidiaries during that period, as well as summary information about physician relocation

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agreements related to all of our hospital subsidiaries. Specifically, the subpoenas, issued in connection with a criminal investigation, sought information from us, three intermediary corporate subsidiaries and subsidiaries that own or owned the following Southern California hospitals: Centinela Hospital Medical Center in Inglewood; Daniel Freeman Memorial Hospital in Inglewood; Daniel Freeman Marina Hospital in Marina del Rey; John F. Kennedy Memorial Hospital in Indio; Brotman Medical Center in Culver City; Encino-Tarzana Regional Medical Center in Encino and Tarzana; and Century City Hospital in Los Angeles. We sold Centinela Hospital Medical Center, Daniel Freeman Memorial Hospital and Daniel Freeman Marina Hospital in November 2004, and we ceased operating Century City Hospital in April 2004. We sold Brotman Medical Center in September 2005. We are cooperating with the government with respect to this investigation.

        Physician arrangements at three of these hospitals—Century City Hospital, Brotman Medical Center and Encino-Tarzana Regional Medical Center—are also the subject of an ongoing federal civil investigation.

        In addition, we have cooperated with the U.S. Attorney's Office in Los Angeles regarding its investigation into physician agreements, coronary procedures and billing practices at three hospitals in Southern California—Centinela Hospital Medical Center, Daniel Freeman Memorial Hospital and USC University Hospital. We received a number of voluntary document requests from the government seeking information from 1998 to June 2004 concerning various aspects of the investigation. The U.S. Attorney's Office has since indicated that it is no longer pursuing this matter.

Women's Cancer Center

        In April 2003, we received an administrative subpoena duces tecum from the Office of the Inspector General ("OIG") of the U.S. Department of Health and Human Services seeking documents relating to any agreements with the Women's Cancer Center, a physician's group not owned by us practicing in the field of gynecologic oncology, and certain physicians affiliated with that group. The subpoena sought documents from us as well as four of our California hospitals—Community Hospital of Los Gatos, Doctors Medical Center of Modesto, San Ramon Regional Medical Center and St. Luke Medical Center in Pasadena (which is now closed)—and Lake Mead Hospital Medical Center in North Las Vegas, Nevada (which we sold in February 2004). In October 2005, the U.S. Department of Justice ("DOJ") notified us that it is no longer pursuing this matter.

Florida Medicaid Investigation

        In June 2003, the Florida Medicaid Fraud Control Unit ("FMFCU") issued an investigative subpoena to us seeking employee personnel records and contracts with physicians, physician assistants, therapists and management companies, including loan agreements and purchase and sale agreements, from January 1992 to June 2003 related to the Florida hospitals then owned, or formerly owned, by our subsidiaries. Since that time, we have received additional requests for information related to the foregoing topics, as well as coding at our Florida hospitals, and we have cooperated with the FMFCU. On February 21, 2006, we announced that we had reached a broad agreement with the Attorney General of the State of Florida to settle this matter, along with the case entitled State of Florida, Office of the Attorney General, Department of Legal Affairs, et al. v. Tenet Healthcare Corporation and the investigation of Florida Medical Center, both of which are described in detail below. As part of the settlement, we will pay a total of $7 million, which we recorded as a charge in the quarter ended December 31, 2005. This includes $4 million to establish a fund to pay for care of indigent, uninsured patients at the 13 Florida county hospital districts and health care systems who were party to the lawsuit, and it also includes a $3 million payment to be allocated among the FMFCU and public hospitals in Florida.

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El Paso Investigation

        In January 2004, we learned that the OIG had issued subpoenas to various physicians who have or had financial arrangements with our hospitals in El Paso, Texas. The subpoenas requested documents relating to financial arrangements between these physicians and us or our subsidiaries. In March 2004, as anticipated, we received from the Civil Division of the DOJ a request for documents in connection with this inquiry. We are cooperating with the government with respect to this matter.

United States ex. rel. Dr. Man Tai Lam and Dr. William Meschel v. Tenet Healthcare Corporation, EP-02-CA-0525KC (U.S. District Court for the Western District of Texas)

        On December 28, 2005, we were served with a summons and third amended complaint in this qui tam action, which had originally been filed by the relators on November 8, 2002 and which remained under seal until the DOJ decided to not intervene in the matter and the court lifted the seal on July 18, 2005. The complaint alleges violations of the federal False Claims Act by Tenet hospitals in El Paso, Texas arising out of: (1) alleged violations of the federal Anti-kickback Statute in connection with certain unspecified financial arrangements with physicians; and (2) the alleged manipulation of the hospitals' charges in order to increase outlier payments. We served our response to the complaint on February 27, 2006 and have moved to dismiss the case.

New Orleans Investigation

        On July 30, 2004, we received a subpoena from the U.S. Attorney's Office in New Orleans, Louisiana requesting documents relating to physician relationships and financial arrangements at three New Orleans area hospitals—Memorial Medical Center, Kenner Regional Medical Center and St. Charles General Hospital (which we sold in December 2004). We are cooperating with the government with respect to this matter.

St. Louis Investigation

        On August 3, 2004 and March 18, 2005, we received voluntary requests from the U.S. Attorney's Office in St. Louis, Missouri seeking documents relating to physician relocation agreements entered into from 1994 to March 2005 at four hospitals we own or owned during that period in the St. Louis area—Saint Louis University Hospital, Des Peres Hospital, Forest Park Hospital (which we sold in December 2004), and Saint Alexius Hospital, Jefferson Campus (formerly SouthPointe Hospital) (which we also sold in December 2004)—as well as Twin Rivers Regional Medical Center in Kennett, Missouri (which we sold in November 2003). We are cooperating with the government with respect to this matter.

San Ramon Regional Medical Center

        On August 31, 2004, we received a subpoena from the U.S. Attorney's Office in San Francisco, California requesting documents relating to medical directorships entered into from January 2000 to August 2004 at San Ramon Regional Medical Center in San Ramon, California, as well as a small number of physician relocation agreements at that hospital. The U.S. Attorney's Office has recently indicated that it is no longer pursuing this matter.

Memphis Investigation

        On April 28, 2005, we received a subpoena from the U.S. Attorney's Office in Memphis, Tennessee requesting documents concerning physician relocation agreements entered into since January 1, 1999 at St. Francis Hospital in Memphis. We are cooperating with the government with respect to this matter.

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PRICING

        We and certain of our subsidiaries are currently subject to government investigations and civil lawsuits arising out of pricing strategies at facilities owned or formerly owned by our subsidiaries.

Outlier Investigation

        On January 2, 2003, the U.S. Attorney's Office for the Central District of California issued an administrative investigative demand subpoena seeking from us and 19 hospitals owned by our subsidiaries the production of documents related to Medicare outlier payments.

        On January 14, 2003, we received an additional subpoena requesting information concerning outlier payments and our corporate integrity agreement that expired in June 1999.

        On October 15, 2003, we received another subpoena from the U.S. Attorney's Office seeking medical and billing records from January 1998 to October 15, 2003 for certain identified patients who were treated at two Los Angeles-area facilities owned by our subsidiaries—Encino-Tarzana Regional Medical Center in Tarzana and USC University Hospital. Additionally, the subpoena sought personnel information concerning certain managers at those facilities during that period, as well as information about the two hospitals' gross charges for the same time period.

        The investigation is focused on whether our receipt of outlier payments violated federal law and whether we omitted material facts concerning our outlier revenue from our public filings. We are cooperating with the government with respect to this investigation.

Pricing Litigation

        We have been sued in class action lawsuits in a number of states regarding the pricing of pharmaceuticals and other products and services at hospitals or other medical facilities currently or formerly operated by our subsidiaries. The cases have been brought primarily on behalf of uninsured patients who were billed at undiscounted gross charge rates. While the specific allegations and relief sought vary from case to case, the plaintiffs generally allege violations of state consumer protection statutes, breach of contract and other state law claims, and seek to enjoin us from continuing the alleged unfair pricing practices and to recover all sums obtained by those practices, including compensatory and punitive damages, restitution, and attorneys' fees and costs. At December 31, 2005, we had an accrual of $30 million, recorded in 2004, as an estimated liability to address the potential resolution of these cases. In March 2005, we announced a nationwide settlement of the pricing cases, as described below.

        In California, 13 separate actions were coordinated into one proceeding in the Los Angeles County Superior Court entitled Tenet Healthcare Cases II, J.C.C.P. No. 4289. Plaintiffs in the coordinated California action filed amended complaints against us and all of our California hospitals on behalf of themselves and a purported class consisting of certain uninsured, self-insured and Medicare patients who allegedly paid excessive or unfair prices for prescription drugs or medical products or procedures at hospitals or other medical facilities owned by us or our subsidiaries. Plaintiffs asserted claims for violation of California's unfair competition law, violation of California's Consumers' Legal Remedies Act, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Plaintiffs sought to enjoin us from continuing the alleged unfair pricing policies and practices, and to recover all sums wrongfully obtained by those policies and practices, including compensatory damages, punitive damages, restitution, disgorgement of profits, treble damages, and attorneys' fees and costs. We filed counterclaims against the majority of the named plaintiffs for failure to pay the outstanding balances on their respective patient bills.

        In connection with the California action, on August 8, 2005, we received final court approval of a settlement that is nationwide in effect. The settlement has two primary components: (1) injunctive relief

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governing our conduct prospectively for a period of four years; and (2) retrospective relief, including restitution and discounting of outstanding unpaid bills, for covered patients who were treated at our hospitals during the settlement class period (June 15, 1999 to December 31, 2004). We have also agreed to make a $4 million charitable contribution to a health-care-related charity specified by plaintiffs' counsel. As part of the settlement, we have made no admission of wrongdoing, and we continue to deny the allegations made by plaintiffs in these actions. A notice of appeal of the judgment approving the settlement was filed in the California Court of Appeal by objectors to the settlement. However, in connection with our agreement in principle, on February 28, 2006, to settle the Singletary actions in South Carolina, as described below, the objectors to the nationwide settlement have agreed to withdraw their notice of appeal of the judgment approving the nationwide settlement. Once the notice of appeal is withdrawn, the nationwide settlement will become effective.

        In addition to the California coordinated cases, similar class actions have been filed in Tennessee, Louisiana, Florida, South Carolina, Pennsylvania, Texas, Missouri and Alabama. As described below, once the nationwide settlement approved by the California court becomes effective, we expect these actions to be dismissed to the extent that the claims in these cases fall within the scope of the release provided in the settlement.

•

Wade v. Tenet Healthcare Corporation, et al., No. Ct-000250-03, was filed in Circuit Court in Memphis, Tennessee on January 15, 2003. The complaint asserts claims for violation of the Tennessee Consumer Protection Act, unjust enrichment, fraudulent concealment, declaratory relief and breach of contract. These claims are based on allegations that we excessively inflated our charges for medical products, medical services and prescription drugs at our hospitals. Plaintiffs seek compensatory and punitive damages, attorneys' fees, and equitable and other relief. On April 8, 2005, the court entered an order staying this case pending final approval of the settlement in the California action. As part of the California nationwide settlement, plaintiffs have agreed to dismiss this action once the settlement becomes effective.



•

Wright v. Tenet Healthcare Corp., et al., No. 2003 6262, Civil District Court, Orleans Parish, was filed on April 22, 2003 in Louisiana. On November 14, 2003, plaintiff filed an amended petition, alleging claims against us under the Louisiana Unfair Practices Act, as well as claims for unjust enrichment, fraud and misrepresentation. Another action was filed in Louisiana on May 5, 2003, entitled Miranda v. Tenet Louisiana, Tenet Healthcare Corp., No. 03 6893, Civil District Court, Orleans Parish. The class action complaint, filed on behalf of all uninsured and partially insured residents of Louisiana who were treated at hospitals affiliated with us in Louisiana since February 1, 1999, alleged that the hospitals charged excessive prices for health care and pharmaceuticals. Plaintiff asserted claims for unjust enrichment, negligent misrepresentation, fraud and misrepresentation, and breach of contract, and sought compensatory and punitive damages, attorneys' fees and equitable, injunctive and other relief. The Wright and Miranda plaintiffs subsequently moved to consolidate their cases, and the court granted the unopposed motion. We filed exceptions to the consolidated amended petition, which were denied on July 30, 2004. The court denied our request for a stay of this case pending final approval of the settlement in the California action, and thus discovery is proceeding. However, plaintiffs have agreed to dismiss this action once the California nationwide settlement is effective.



•

Garcia v. Tenet Healthcare Corp., et al., No. 03 008646 CA 18b, which was filed on May 16, 2003 in Broward County, is pending in Florida. Plaintiffs allege, on behalf of themselves and a purported class of uninsured and partially insured patients, that we and/or our affiliated hospitals charged excessive and unlawful prices for medical products, services and pharmaceuticals. The complaint alleged a violation of Florida's Deceptive and Unfair Trade Practices Act and also asserted claims for unfair competition and unjust enrichment, and sought damages, attorneys' fees, and injunctive and other equitable relief. We filed a motion to dismiss the complaint, which was heard on April 29, 2004. On December 13, 2004, the court entered an

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order granting in part and denying in part our motion to dismiss. Plaintiffs were given an extension to file their second amended complaint, but have not yet done so. As part of the California nationwide settlement, plaintiffs have agreed to dismiss this action once the settlement becomes effective.

•

Comer v. Tenet Healthcare Corporation, No 03-CP-46-1688, Court of Common Pleas, Sixth Judicial Circuit, York County, was filed in South Carolina on June 19, 2003. The class action was amended and renamed Atherton v. Tenet Healthcare Corp. & AMISUB of South Carolina, Case No. 03-CP-46-1688. The amended complaint alleged, on behalf of plaintiffs and all "uninsured or self-pay patients" treated at Piedmont Medical Center in York County, South Carolina since January 1, 1997, that the charges at Piedmont Medical Center were excessive and in breach of a contract between York County and the defendant and trustees of the hospital to limit charges at the hospital. In addition to this breach of contract claim, plaintiffs also alleged claims for unjust enrichment and implied contract for value of goods and services received and sought compensatory and punitive damages, injunctive and other relief. On March 29, 2004, the court granted our motion for summary judgment in its entirety as to all claims asserted by plaintiff. On May 10, 2004, plaintiffs appealed the trial court's summary judgment ruling to the Court of Appeals of the State of South Carolina. On May 25, 2005, the Court of Appeals affirmed the trial court's ruling. The plaintiffs have not appealed the Court of Appeals' decision.

A second similar class action was filed in South Carolina on September 13, 2004. The matter, entitled Jerry C. Grubb and Cathy Lynn Dockins v. Hilton Head Health System, L.P., d/b/a Hilton Head Regional Medical Center; and Amisub of South Carolina, Inc. d/b/a Piedmont Medical Center, No 05-CP-46-367, Court of Common Pleas, Sixteenth Judicial Circuit, York County, was dismissed following final approval of the California nationwide settlement.

Two additional class actions were filed in the Court of Common Pleas, Charleston County, South Carolina on October 7, 2004, now entitled Robert A. Singletary, Sr. v. East Cooper Community Hospital, Inc., et al., No. 04-CP-10-4212, and R. Allen Singletary, Jr. v. East Cooper Community Hospital, Inc., et al., No. 04-CP-10-4211. In each case, the complaints purported to bring the actions on behalf of plaintiffs and all other patients of the defendants who did not receive a statutory discount to which plaintiffs and class members were allegedly entitled under S.C. Code Ann. § 38-71-120. More specifically, the Robert Singletary action was asserted on behalf of uninsured patients who would be entitled to the discount; the Allen Singletary case was asserted on behalf of insured patients allegedly eligible for the discount. Following announcement of the California settlement, plaintiffs filed a motion for class certification. We opposed class certification and moved to stay the cases pending final approval of the settlement in the California action, but, on June 20, 2005, the court granted class certification and denied our request for a stay. Also on June 20, the court denied our previously filed motion to dismiss. Attorneys for both Singletary actions filed objections to the California nationwide settlement that were overruled by the court in connection with the granting of final approval of the settlement. Subsequently, they filed a notice of appeal of the judgment approving the nationwide settlement. On February 28, 2006, we reached an agreement in principle with the plaintiffs in both Singletary actions to settle these cases. The settlement has two primary components: (1) injunctive relief governing our conduct prospectively for a period of four years; and (2) retrospective relief, including discounting of paid bills, for covered uninsured patients who were treated at our South Carolina hospitals during the claims period. In connection with this settlement, the Singletary plaintiffs have agreed to withdraw their notice of appeal of the judgment approving the nationwide settlement.

•

Wright v. Tenet Healthcare Corp., No. 002365, Court of Common Pleas, Philadelphia County, was filed on December 17, 2003 on behalf of all Pennsylvania residents who allegedly paid unlawful or unfair prices for prescription drugs or medical products or procedures at hospitals or other

27

medical facilities owned by us and/or our subsidiaries. The complaint alleged causes of action for violation of the Pennsylvania Unfair Trade Practices Act, breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment, and sought damages, restitution, injunctive relief and attorneys' fees. We filed a motion to dismiss the action on February 26, 2004. In response, plaintiff filed an amended complaint and, subsequently, filed a motion for leave to amend to add a new plaintiff and several additional defendant entities. Plaintiff's second amended complaint, filed on June 28, 2004, added a new representative plaintiff to the putative class and added as defendants seven Philadelphia hospitals that were affiliated with us during the relevant time period and their parent corporation, Tenet HealthSystem Philadelphia, Inc. We filed preliminary objections to the second amended complaint on July 22, 2004. On December 2, 2004, the court issued an order dismissing plaintiffs' claim for intentional interference with contract, but otherwise denying our preliminary objections. On April 6, 2005, the court entered an order staying this case pending final approval of the settlement in the California action. As part of the California nationwide settlement, plaintiffs have agreed to dismiss this action once the settlement becomes effective.

•

Fernandez v. Park Plaza Hospital and Tenet Healthcare Corporation, No. 2004-45486, District Court of Harris County, was filed in Texas on August 24, 2004. The complaint was brought on behalf of a purported class of uninsured patients and alleged causes of action for violation of the Texas Deceptive Trade Practices Act, breach of contract, unjust enrichment, and breach of the duty of good faith and fair dealing. The complaint alleged that the defendants charged uninsured patients unreasonable or unconscionable rates that were significantly higher than those paid by insured patients for the same services. On behalf of the purported class, the plaintiff sought declaratory and injunctive relief, compensatory and punitive damages, restitution and disgorgement, and attorneys' fees. Plaintiff voluntarily dismissed this case following final approval of the settlement in the California action.



•

Zimmerly v. Tenet HealthSystem SL, Inc., Case No. 042-09386, Circuit Court for the City of St. Louis, was filed in Missouri, and we were served with a complaint on January 11, 2005. The complaint is brought on behalf of a purported class of uninsured patients treated at St. Louis University Hospital during the period January 1, 2000 through the date of trial. The complaint alleges that the hospital's practice of charging uninsured patients higher rates than those paid by insured patients is unlawful. Specifically, the complaint alleges claims for breach of contract, declaratory judgment, breach of the duty of good faith and fair dealing, violation of the Missouri Merchandising Practices Act, unjust enrichment, constructive trust, and injunctive relief. The complaint seeks compensatory and punitive damages, injunctive and declaratory relief, and a constructive trust. Plaintiffs have agreed to dismiss this action once the California nationwide settlement becomes effective.



•

Sims v. Brookwood Medical Center Hospital, et al., Case No. CV 05 900, Circuit Court of Jefferson County, was filed in Alabama, and we were served with a complaint on February 17, 2005. The complaint is brought on behalf of a purported class of Alabama uninsured patients treated at Brookwood Hospital during the six years prior to the filing of the complaint. The complaint alleges that the hospital's practice of charging uninsured patients higher rates than those paid by insured patients is unlawful. Specifically, the complaint seeks compensatory damages and restitution on plaintiff's breach of contract and unjust enrichment claims, as well as declaratory and injunctive relief. The court has entered a stay of this case pending final approval of the settlement in the California action. We intend to seek dismissal of this action once the California nationwide settlement becomes effective.

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State of Florida, Office of the Attorney General, Department of Legal Affairs, et al. v. Tenet Healthcare Corporation, Case No. 05-20591-CIV (U.S. District Court for the Southern District of Florida, filed March 2, 2005)

        The Attorney General of the State of Florida and 13 Florida county hospital districts, health care systems and non-profit corporations filed a civil action in federal district court in Miami on March 2, 2005 alleging that Tenet's past pricing policies and receipt of Medicare outlier payments violated federal and Florida state Racketeer Influenced and Corrupt Organizations ("RICO") Acts, causing harm to the plaintiffs. The civil complaint asserted claims of RICO violations and unjust enrichment on behalf of the plaintiff hospital systems. The complaint also asserted a claim for violation of the Florida Deceptive and Unfair Trade Practices Act on behalf of the plaintiff hospital systems. The complaint sought unspecified amounts of damages (including treble damages under RICO), restitution and disgorgement. On February 21, 2006, we announced that we had reached a broad agreement with the Florida Attorney General to settle this matter, along with the Florida Medicaid investigation described above and the investigation of Florida Medical Center discussed below. In the settlement agreement, we made no admission of wrongdoing, and we continue to deny the allegations made by plaintiffs in this action. As stated above, as part of the settlement of all three matters, we will pay a total of $7 million, which we recorded as a charge in the quarter ended December 31, 2005. This includes $4 million to establish a fund to pay for care of indigent, uninsured patients at the 13 county hospital districts and health care systems who were party to the lawsuit, and it also includes a $3 million payment to be allocated among the FMFCU and public hospitals in Florida.

Boca Raton Community Hospital, Inc. v. Tenet Healthcare Corporation, Case No. 05-80183-CIV
(U.S. District Court for the Southern District of Florida, filed March 2, 2005)

        Plaintiff filed this civil action in federal district court in Miami on March 2, 2005 on behalf of itself and a purported class consisting of most of the acute care hospitals in the United States, alleging that Tenet's past pricing policies and receipt of Medicare outlier payments violated the federal RICO Act, causing harm to plaintiffs. When filed, the civil complaint asserted claims of RICO violations, as well as claims of fraud, unjust enrichment and violation of the California Unfair Competition Law, and sought unspecified amounts of damages (including treble damages under RICO), restitution, disgorgement and punitive damages. We filed a motion to dismiss the case on April 8, 2005. Plaintiffs subsequently withdrew their fraud claims, and those claims were dismissed without prejudice on May 19, 2005. On August 29, 2005, the district court granted our motion to dismiss the unjust enrichment claim and denied our motion to dismiss the remaining RICO and unfair competition claims. Plaintiff has since moved for partial summary judgment on its claim under the California Unfair Competition Law and on two of our affirmative defenses. We have cross-moved for partial summary judgment. A hearing has not yet been scheduled. Plaintiff has also moved for class certification. A class certification hearing has not yet been scheduled. Discovery is ongoing, and the court has set February 19, 2007 as the date the jury trial will begin.

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SECURITIES LITIGATION AND SHAREHOLDER DERIVATIVE CASES

        On January 12, 2006, we announced that we had reached agreements in principle to settle the federal securities class action and shareholder derivative litigation entitled In Re Tenet Healthcare Corporation Securities Litigation and In Re Tenet Healthcare Corporation Derivative Litigation, which are pending in U.S. District Court in Los Angeles and California Superior Court in Santa Barbara, respectively. If approved by the courts, the agreements would settle these matters, which are discussed in further detail below.

        Tenet has agreed to pay $215 million in cash to settle the securities class action. The funds will be disbursed to certain purchasers of Tenet securities according to a distribution plan to be devised and approved by the federal court. We expect that our directors' and officers' insurance will contribute approximately $75 million toward our total cost. Taking into account the insurance contribution, the net cost of the settlement to Tenet, without regard to an award of attorneys' fees in the shareholder derivative litigation, should be approximately $140 million, which we recorded as a charge in the quarter ended December 31, 2005.

        Under the agreements, two former senior executives of the Company agreed to contribute an additional $1.5 million of their personal funds to the settlement. Jeffrey Barbakow, former chairman and chief executive officer, will contribute $1 million of his own funds, and Thomas Mackey, former chief operating officer, will contribute $500,000 of his own funds. The settlement agreements cover all the former directors and officers named in the litigation, but not KPMG LLP ("KPMG"), the Company's independent registered public accounting firm, which is also a defendant in the federal securities class action.

        The parties to the settlements anticipate that the federal derivative litigation now pending in U.S. District Court in Los Angeles, which is discussed in further detail below, will be dismissed if the state court in Santa Barbara approves the settlement of the state derivative litigation.

In Re Tenet Healthcare Corporation Securities Litigation, Case No. CV-02-8462-RSWL (U.S. District Court for the Central District of California, Third Amended Consolidated Complaint dated March 28, 2005)

        From November 2002 through January 2003, 20 securities class action lawsuits were filed against Tenet and certain of our officers and directors in the U.S. District Court for the Central District of California and the Southern District of New York on behalf of all persons or entities who purchased our securities during the various class periods specified in the complaints. All of these actions were consolidated under the above-listed case number in the U.S. District Court for the Central District of California.

        The named defendants in plaintiffs' third amended complaint were Tenet Healthcare Corporation, former senior executive officers Jeffrey Barbakow, David Dennis, Thomas Mackey, Raymond Mathiasen, Barry Schochet and Christi Sulzbach, and KPMG, the Company's independent registered public accounting firm. Plaintiffs alleged that Tenet and the individual defendants made or were responsible for false and misleading statements concerning the Company's receipt of Medicare outlier payments and allegedly medically unnecessary heart surgeries at Redding Medical Center, a hospital we owned in Redding, California until July 16, 2004.

        As described in further detail above, we agreed on January 12, 2006 to settle this case and have since received preliminary court approval. The final approval hearing is scheduled for May 15, 2006.

Shareholder Derivative Actions

(1)

In re Tenet Healthcare Corporation Derivative Litigation, Lead Case No. 01098905 (Superior Court of California, County of Santa Barbara); and

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(2)

In re Tenet Healthcare Corporation Derivative Litigation, Case No. CV-03-0011 RSWL (U.S. District Court for the Central District of California).

        The above-listed cases are shareholder derivative actions filed against members of our board of directors and senior management by shareholders purporting to pursue their actions on behalf of Tenet and for our benefit. No pre-lawsuit demand to investigate the allegations or bring the actions was made on the board of directors. Tenet is also named as a nominal defendant in each of the cases.

        In the California derivative litigation, which relates to 10 consolidated cases, the lead plaintiff filed a Consolidated Amended Complaint on March 3, 2003. The complaint alleged claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, indemnification and insider trading under California law. The complaint alleged that the individual defendants breached their fiduciary duties and engaged in gross mismanagement by allegedly ignoring indicators of the lack of control over our accounting and management practices, allowing the Company to engage in improper conduct, permitting misleading information to be disseminated to shareholders, failing to monitor hospitals and doctors to prevent improper action, and otherwise failing to carry out their duties and obligations to us. The lead plaintiff further alleged that the defendants violated the California insider trading statute because they allegedly knew, but did not disclose, that (1) physicians at hospitals owned by our subsidiaries were routinely performing unnecessary procedures in order to take advantage of Medicare outlier reimbursement, (2) we deliberately raised our prices to take advantage of Medicare outlier reimbursement, (3) our growth was dependent primarily on our continued receipt of Medicare outlier payments, and (4) the rules and regulations related to Medicare outlier payments were being reformed to limit outlier payments, which would have a material negative effect on our revenues and earnings going forward. Plaintiff sought a declaration that the individual defendants violated their fiduciary duties, compensatory damages plus interest, treble damages under Section 25502.5(a) of the California Corporations Code for insider trading, restitution and disgorgement of profits.

        As described in further detail above, we agreed on January 12, 2006 to settle this case and have since received preliminary court approval. The final approval hearing is scheduled for May 4, 2006.

        In addition to the California state derivative litigation, four derivative cases have also been filed in federal court. These four cases have been consolidated in the U.S. District Court for the Central District of California. Dr. Bernard Stern, North Border Investments and the City of Philadelphia have been appointed lead plaintiffs. The parties to the settlements described above anticipate that this federal derivative litigation will be dismissed if the state court in Santa Barbara approves the settlement of the state derivative litigation.

        At this time, however, pursuant to plaintiffs' Third Consolidated Amended Shareholder Derivative Complaint, the federal matter is proceeding with the following claims against the following defendants: (1) alleged breach of fiduciary duty against defendants Jeffrey Barbakow, Bernice Bratter, Sanford Cloud, Jr., Maurice DeWald, Michael Focht, Van B. Honeycutt, Robert Kerrey, Lester Korn, Thomas Mackey, Raymond Mathiasen and Christi Sulzbach; (2) alleged insider trading and misappropriation in violation of the common law against defendants Barbakow, Mackey, Mathiasen and Sulzbach; (3) alleged unjust enrichment against defendants Barbakow, Mackey, Mathiasen and Sulzbach; (4) alleged violations of Section 10(b) of and Rule 10b-5 under the Securities Exchange Act of 1934 against defendant Barbakow; and (5) alleged violations of Section 14(a) of and Rule 14a-9 under the Exchange Act against defendants Barbakow, Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey and Korn.

SEC INVESTIGATION

        The Securities and Exchange Commission initiated a formal investigation of Tenet and certain of our current and former directors and officers, whom the SEC did not specifically identify, by order

31

dated April 22, 2003. The confidential investigation concerns whether our disclosures in our financial reports relating to Medicare outlier reimbursements and stop-loss payments under managed care contracts were misleading or otherwise inadequate, and whether there was any improper trading in our securities by certain of our current and former directors and officers. The SEC served a series of document requests and subpoenas for testimony on Tenet and certain of our current and former employees, officers and directors, as well as our independent registered public accounting firm. The securities law provisions implicated in the investigation include Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, regulations associated with those statutes, and Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act.

        On April 27, 2005, we announced that we had received a "Wells Notice" from the staff of the SEC in connection with the investigation, and that we had been informed that Wells Notices had also been issued to certain former senior executives of the Company who left their positions in 2002 and 2003, including the former chief executive officer, former chief operating officer, former general counsel, former chief financial officer, former chief accounting officer and former senior vice president of government programs. A Wells Notice indicates that the SEC's staff intends to recommend that the agency bring a civil enforcement action against the recipients for possible violations of federal securities laws. Recipients of Wells Notices have the opportunity to respond before the SEC's staff makes its formal recommendation on whether any action should be brought. We submitted a response on May 13, 2005.

        As previously disclosed, the SEC is also investigating allegations made by a former employee that inappropriate contractual allowances for managed care contracts may have been established at three California hospitals through at least fiscal year 2001. At the request of the audit committee of our board of directors, the board's independent outside counsel, Debevoise & Plimpton LLP ("Debevoise"), conducted an investigation of these allegations utilizing the forensic accounting services of Huron Consulting Group ("Huron"). This investigation was expanded and included determining whether similar issues might have affected other Tenet hospitals during the periods mentioned in the allegations and any other pertinent periods. Debevoise and Huron have completed their investigation and presented the results of their findings to the audit committee. Based on these findings, the audit committee determined that it would be necessary to restate our previously reported financial statements as described in Note 2 to the Consolidated Financial Statements. We are continuing to cooperate with the SEC with respect to its investigation, including responding to subsequent requests for voluntary production of documents, as well as a subpoena request for documents dated October 6, 2005, and have provided regular updates to the SEC as to the progress of the investigation.

REDDING MEDICAL CENTER

State of California ex rel. John Corapi, et al. v. Tenet Healthcare Corporation, et al. (Superior Court of California, County of Shasta, filed under seal November 5, 2002, Second Amended Complaint filed May 18, 2005)

        This qui tam action was brought under California Insurance Code Section 1871.7 et seq., which allows "interested persons" to file sealed complaints for allegedly fraudulent billings to private insurers. The action was unsealed in October 2004 and, subsequently, was served on the defendants. Both the California Department of Insurance and the District Attorney of Shasta County, California declined to intervene in this action. Plaintiffs' second amended complaint, which was filed on May 18, 2005, generally alleged that false claims for payments were made to private insurers for allegedly medically unnecessary procedures performed at Redding Medical Center (of which we sold certain hospital assets in July 2004), and also included a cause of action for "aiding and conspiring." We denied all material allegations and set forth numerous affirmative defenses. In November 2005, we agreed that the Tenet subsidiary that previously owned and operated Redding Medical Center would make a payment of $1 million to settle our portion of this case (which we recorded in the quarter ended December 31,

32

2005), in exchange for which plaintiffs have agreed to dismiss the entire action, including on behalf of the State of California, with prejudice and to release us from any and all claims relating to the action. As part of the settlement, we have made no admission of wrongdoing, and we continue to deny the allegations made by plaintiffs in this action. The action will be dismissed following execution of the settlement and release agreement and payment of the settlement.

MEDICARE CODING

United States v. Tenet Healthcare Corp., et al, Case Nos. CV-03-206-GAF, CV-04-857-GAF and CV-04-859-GAF (U.S. District Court for the Central District of California)

        In January 2003, the Department of Justice filed a civil complaint in the U.S. District Court for the Central District of California, alleging violations of the federal False Claims Act and various common law theories of liability arising out of certain hospital billings to Medicare for inpatient stays reimbursed pursuant to diagnosis-related groups ("DRGs") 79 (pneumonia), 415 (operating room procedure for infectious and parasitic diseases), 416 (septicemia), and 475 (respiratory system diagnosis with mechanical ventilator). Prior to the filing of the complaint, the DOJ, in conjunction with the OIG, had been investigating hospital billings to Medicare pursuant to these DRGs by a number of acute care hospitals owned or acquired by our subsidiaries during the period September 1992 through December 1998. The investigation is believed to have stemmed initially from the government's nationwide pneumonia "upcoding" initiative.

        On November 19, 2003, the District Court (1) granted our motion to dismiss for failure to plead fraud with the requisite particularity, with leave to amend, (2) granted, in part, our motion to sever, with leave to amend, and (3) dismissed, with prejudice, the government's claims for unjust enrichment, disgorgement and recoupment. Pursuant to the District Court's order, on February 6, 2004, the government filed a Second Amended Complaint and two additional related complaints against us and various subsidiaries alleging successor liability for claims submitted by the hospitals' prior owners and setting forth allegations similar to the allegations contained in the original complaint. The government seeks treble damages and other relief, including punitive damages. We have filed answers to all three complaints. At December 31, 2005, we had an accrual of $34 million, recorded in prior years, for this matter.

        On May 10, 2005, we filed a motion for summary adjudication seeking to dismiss on statute of limitations grounds all claims prior to September 1999 and payment by mistake claims prior to 1996. The motion is currently set for hearing on April 24, 2006. In the meantime, discovery is ongoing, and the trials are set to begin March 6, 2007.

Desert Regional Medical Center Comprehensive Cancer Center

        We are cooperating with an investigation by the U.S. Attorney's Office for the Central District of California into coding, billing and cost reporting relating to the Comprehensive Cancer Center at our Desert Regional Medical Center in Palm Springs, California. Salick Health Care Inc., an entity not owned by us, manages the Comprehensive Cancer Center. We have operated Desert Regional Medical Center since June 1997 under a long-term lease with the Desert Healthcare District.

OTHER MATTERS

David L. Dennis Arbitration

        On October 27, 2003, David L. Dennis, our former chief financial officer and chief corporate officer, filed a demand for arbitration alleging that he was entitled to payments under a severance benefit plan that our board of directors adopted in January 2003. We contended that the severance

33

benefit plan did not apply to Mr. Dennis, who resigned in November 2002. On February 28, 2006, Mr. Dennis withdrew his arbitration demand with prejudice, which brought an end to this matter.

Thomas B. Mackey Arbitration

        On June 24, 2005, Thomas B. Mackey, our former chief operating officer, filed a demand for arbitration with the American Arbitration Association alleging that he is entitled to a lump sum payment under Tenet's Supplemental Executive Retirement Plan (SERP). The arbitration demand was brought against Tenet Healthcare Corporation Pension Administration Committee, Tenet Healthcare Corporation Supplemental Executive Retirement Plan, and Tenet Healthcare Corporation. We contend that the Pension Administration Committee properly denied Mr. Mackey's claim for a lump sum payment. Mr. Mackey is seeking approximately $7.8 million, less monthly payments made to date under the SERP, and attorneys' fees. Discovery has commenced, and the arbitrator has set March 30, 2006 as the date a hearing in this matter will begin.

Wage and Hour Actions

        On September 28, 2004, the court granted our petition to coordinate two pending wage and hour actions, McDonough, et al. v. Tenet Healthcare Corporation and Tien, et al. v. Tenet Healthcare Corporation, in Los Angeles Superior Court. The McDonough case was originally filed on June 24, 2003 in San Diego Superior Court and the Tien case was originally filed on May 21, 2004 in Los Angeles Superior Court. We will now be defending in a single court this proposed class action lawsuit alleging that our hospitals violated certain provisions of the California Labor Code and applicable California Industrial Welfare Commission Wage Orders with respect to meal breaks, rest periods and the payment of one hour's compensation for meal breaks or rest periods not taken. The complaint in the Tien case also alleges that we have not included certain payments (including the California Differential payments described below) in the regular rate of pay that is used for purposes of calculating overtime, that we have improperly "rounded off" time entries on timekeeping records, that our pay stubs do not include all information required by California law, and that we have not paid a double time premium when employees work in excess of 12 hours in a day. The plaintiffs are seeking back pay, statutory penalties and attorneys' fees, and seek to certify this action on behalf of virtually all nonexempt employees of our California subsidiaries.

        We contend that certification of a class in the action is not appropriate because our uniform policies comply and have complied with the applicable Labor Code and Wage Orders. Our policies are intended to ensure that (1) employees who miss a rest period or meal break on any given day are appropriately paid, (2) all appropriate forms of compensation are included in the regular rate for overtime calculations and all appropriate overtime premiums are paid, and (3) our "rounding off" practices and pay stubs comply with California law. In addition, we contend that each of these claims must be addressed individually based on its particular facts and, therefore, should not be subject to class certification.

        Two other proposed class actions, Pagaduan v. Fountain Valley Regional Medical Center, pending in Orange County Superior Court, and Falck v. Tenet Healthcare Corporation, pending in Los Angeles Superior Court, also involve allegations regarding unpaid overtime. These lawsuits allege that our pay practices since 2000 for California-based 12-hour shift employees violate California overtime laws by virtue of the alleged failure to include certain payments known as Flexible (or California) Differential payments in the regular rate of pay that is used to calculate overtime pay. These payments are made to 12-hour shift employees when they do not work a shift that is exactly 12 hours. We contend that these differential payments need only be included in the regular rate of pay when they actually are paid (as opposed to merely being potentially payable), and that they always are included in the regular rate calculation in these circumstances. Plaintiffs in both cases are seeking back pay, statutory penalties and attorneys' fees.

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Peoples Health Network Investigation

        In October 2003, Peoples Health Network, or PHN, an unconsolidated New Orleans health plan management services provider in which one of our subsidiaries holds a 50% membership interest, received two subpoenas from the U.S. Attorney's Office in New Orleans seeking certain records from January 1, 1999 to October 9, 2003. The first subpoena, issued to PHN on October 3, 2003, sought documents, including articles of incorporation and bylaws, membership data, agendas and minutes of meetings, and policy manuals, from PHN and additional documents related to several New Orleans-area independent physician associations with membership interests in PHN. The second subpoena, issued to PHN on October 14, 2003, sought information on patients who were admitted to a rehabilitation unit and members for whom inpatient rehabilitation services were ordered, recommended or requested, and subsequently denied. On November 21, 2003, PHN received two additional subpoenas from the U.S. Attorney's Office in New Orleans. One of the subpoenas to PHN sought documents and information from January 1, 1999 to October 9, 2003 related to payments to and contractual matters concerning physicians and others, as well as third-party reviews of denials of services. The second subpoena to PHN sought various documents, including agendas, minutes, bylaws, membership data and policies, from June 1, 2002 to November 19, 2003, related to certain medical staff committees and other medical staff entities. A subpoena issued to PHN on September 9, 2004 from the U.S. Attorney's Office in New Orleans sought various documents, including medical policies and practice guidelines, and an additional subpoena issued to PHN in April 2005 sought documents related to PHN's appeal and grievance policies and member disenrollment, as well as information on PHN members who were admitted to a long-term acute-care service or facility.

        On November 21, 2003, the U.S. Attorney's Office in New Orleans also issued a related subpoena to Memorial Medical Center, a New Orleans hospital owned by one of our subsidiaries. That subpoena sought various documents, including agendas, minutes, bylaws, membership data and policies, from June 1, 2002 to November 19, 2003, related to certain medical staff committees and other medical entities.

        We are cooperating with the government with respect to this matter, and continue to provide certain information as requested by the government.

Retained Liabilities

        We were notified in mid-2004 that subpoenas had been issued to the buyer of two of our former hospitals, Twin Rivers Regional Medical Center in Missouri and John W. Harton Regional Medical Center in Tennessee. We retained certain liabilities in connection with the sale of these hospitals in November 2003. The Twin Rivers subpoena sought documents for the period from 1999 through 2003 pertaining to a number of cardiac care patients. The Harton subpoena sought a variety of documents, primarily financial, for the period from June 2000 through 2003.

        In addition, we are cooperating with voluntary requests from the U.S. Attorney's Office in St. Louis, Missouri seeking, among other things, documents regarding physician relocation agreements at four St. Louis area hospitals—two of which we no longer own—as well as Twin Rivers. The voluntary requests also seek additional information regarding certain admissions and medical procedures at Twin Rivers.

Internal Revenue Service

        In May 2003, the Internal Revenue Service completed an examination of our federal income tax returns for fiscal years ended May 31, 1995, 1996 and 1997 and issued a Revenue Agent's Report in which it proposed to assess an aggregate tax deficiency for the three-year audit period of $157 million plus interest. During 2005, we recorded adjustments of $41 million ($38 million in continuing operations and $3 million in discontinued operations) to reduce our estimated liability for interest

35

related to audit contingencies as a result of the resolution of several disputed issues. Among these issues was a disputed adjustment with respect to the timing of the recognition of income for tax purposes pertaining to Medicare and Medicaid net revenues, which we resolved by agreeing to spread the impact of the disputed adjustment over fiscal years ended May 31, 1995 through May 31, 2002. During the third quarter of 2005, we paid approximately $8 million of tax and interest to settle the issues that are no longer in dispute.

        After the settlement, the tax liability that remains in dispute for fiscal years ended May 31, 1995, 1996 and 1997 is approximately $67 million, for which the Internal Revenue Service issued a statutory notice of tax deficiency in the fourth quarter of 2005. We intend to contest the tax deficiency notice through formal litigation in Tax Court. Interest expense (approximately $69 million through December 31, 2005, before any federal or state tax benefit) will continue to accrue until the case is resolved. The principal issues that remain in dispute include the deductibility of a portion of the civil settlement we paid to the federal government in 1994 related to our discontinued psychiatric hospital business and the computation of depreciation expense with respect to certain capital expenditures incurred during the foregoing fiscal years. We presently cannot determine the ultimate resolution of the remaining disputed items. We have fully provided for all tax exposures, including interest, related to those disputed items.

        The Internal Revenue Service has commenced an examination of our tax returns for fiscal years ended May 31, 1998 through the seven-month transition period ended December 31, 2002. We presently cannot determine the ultimate resolution of this examination. We have provided for all tax matters, including interest, related to all periods ended after May 31, 1997.

Florida Medical Center

        On March 24, 2005, the Florida Department of Children and Families ("DCF") notified our Florida Medical Center hospital in Ft. Lauderdale that DCF had reinstated the hospital's authority to receive patients under the Baker Act, a Florida state law that governs the involuntary admission of psychiatric patients to a hospital. On February 14, 2005, DCF had suspended the hospital's authority to receive Baker Act patients.

        On March 1, 2005, we received a voluntary request for documents from the Florida Attorney General's Medicaid Fraud Control Unit office in Ft. Lauderdale seeking medical records and billing information for certain Medicaid patients admitted to Florida Medical Center's psychiatric unit from January 2004 through February 2005, as well as certain information concerning patients admitted to the hospital under the Baker Act. On February 21, 2006, we announced that we had reached a broad agreement with the Florida Attorney General to settle this matter, along with the Florida Medicaid investigation and the civil action entitled State of Florida, Office of the Attorney General, Department of Legal Affairs, et al. v. Tenet Healthcare Corporation, both of which are described in detail above. As stated above, as part of the settlement of all three of these matters, we will pay a total of $7 million, which we recorded as a charge in the quarter ended December 31, 2005. This includes $4 million to establish a fund to pay for care of indigent, uninsured patients at the 13 Florida county hospital districts and health care systems who were party to the lawsuit, and it also includes a $3 million payment to be allocated among the FMFCU and public hospitals in Florida.

Investigation by Louisiana Attorney General's Office

        In connection with an investigation into patient deaths that occurred at various hospitals and nursing homes following Hurricane Katrina, the Louisiana Attorney General's Office is conducting a review of events that occurred during the hurricane at two Tenet hospitals in New Orleans. The hospitals, Memorial Medical Center and Lindy Boggs Medical Center, have both been closed since September 2, 2005 because of damage from the hurricane. On October 1, 2005, representatives of the

36

Louisiana Attorney General's Office conducted a search of Memorial's campus pursuant to a search warrant issued by an Orleans Parish state judge on September 30, 2005. Certain records and other materials were removed, including materials from an independently owned long-term acute care facility on Memorial's campus, which is managed and operated under separate license by LifeCare Holdings Inc., which is not affiliated with us. The Attorney General's Office also issued subpoenas to Tenet and Memorial requesting documents pertaining to the matters under investigation and events occurring at the hospital during and after the hurricane. In addition, the Attorney General has subpoenaed certain individuals he wishes to question on these matters, including a number of Tenet employees. We are cooperating with the Louisiana Attorney General's Office with respect to this matter.

Expropriation Action

        On September 27, 2005, Jefferson Parish Hospital District No. 1, a political subdivision of Jefferson Parish, Louisiana, attempted to initiate an expropriation action against Meadowcrest Hospital by making an unsolicited written offer to purchase the hospital for $15.7 million. Jefferson Parish Hospital District No. 1 owns and operates West Jefferson Medical Center, a public hospital in Jefferson Parish. Meadowcrest Hospital, which is owned by one of our subsidiaries, is also located in Jefferson Parish. On October 7, 2005, Meadowcrest Hospital responded to Jefferson Parish's unsolicited offer and expropriation attempt by filing a civil action against West Jefferson Medical Center in the U.S. District Court for the Eastern District of Louisiana, seeking a declaratory judgment and injunctive relief prohibiting the expropriation on the grounds that it was anticompetitive in nature and, if allowed, would violate federal antitrust laws and both the United States and Louisiana state constitutions. On October 21, 2005, West Jefferson Medical Center answered the complaint and counterclaimed for expropriation, claiming the need to acquire Meadowcrest Hospital in order to ensure that the future health care needs of the residents of Jefferson Parish were met. On November 16, 2005, Jefferson Parish amended its prior resolution seeking to expropriate Meadowcrest Hospital by voting instead to allow the Parish to pursue discussions concerning the acquisition of the hospital by any means except expropriation. Based on that action, Meadowcrest Hospital subsequently dismissed its civil action against West Jefferson Medical Center.

Managed Care Insurance Disputes

        In 2005, we resolved our disputes with several managed care payers regarding charges at facilities owned by our subsidiaries and the impact of those charges on stop-loss and other payments. In particular, as announced on February 14, 2005, we resolved a payment dispute involving our California hospitals by entering into a settlement agreement with Health Net, Inc. We and our subsidiaries are from time to time engaged in disputes with managed care payers. For the most part, we believe the issues raised in these contract interpretation and rate disputes are commonly encountered by other providers in the health care industry.

Medical Malpractice and Other Ordinary Course Matters

        In addition to the matters described above, our hospitals are subject to claims and lawsuits in the ordinary course of business. The largest category of these relates to medical malpractice. One recently filed medical malpractice case involves six individuals who claim they are former patients of Memorial Medical Center in New Orleans and who allege, on behalf of themselves and a purported class of other Memorial patients and their family members, damages as a result of injuries sustained during Hurricane Katrina. In addition to disputing the merits of the allegations in the suit, we contend that certification of a class in this action is not appropriate and that each of these cases must be adjudicated independently. We will, therefore, oppose class certification and vigorously defend the hospital in this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is listed on the New York Stock Exchange and the Pacific Exchange under the symbol "THC." On June 15, 2005, we submitted to each of the New York Stock Exchange and the Pacific Exchange an annual CEO certification regarding our compliance with the corporate governance listing standards of the respective exchange. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock on the New York Stock Exchange.

        On February 28, 2006, the last reported sales price of our common stock on the New York Stock Exchange composite tape was $7.89 per share. As of that date, there were approximately 9,125 holders of record of our common stock.

        We have not paid cash dividends on our common stock since the first quarter of fiscal 1994, and we do not intend to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain earnings, if any, for the future operation and development of our business. In addition, our letter of credit facility contains provisions that may have the effect of limiting or prohibiting the payment of dividends from time to time.

        Please see Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, for information regarding securities authorized for issuance under equity compensation plans.

        Our transfer agent and registrar is The Bank of New York. Shareholders with questions regarding their stock certificates, including inquiries related to exchanging or replacing certificates or changing an address, should contact the transfer agent at (800) 524-4458.

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ITEM 6. SELECTED FINANCIAL DATA

OPERATING RESULTS

        In March 2003, our board of directors approved a change in our fiscal year from a fiscal year ending on May 31 to a fiscal year that coincides with the calendar year, effective December 31, 2002. The following tables present selected audited consolidated financial data for Tenet Healthcare Corporation and its wholly owned and majority-owned subsidiaries for the years ended December 31, 2005, 2004 and 2003, the seven-month transition period ended December 31, 2002, and the years ended May 31, 2002 and 2001.

(1)

Amounts have been restated as described in Note 2 to the Consolidated Financial Statements.

(2)

All periods have been adjusted to reflect a 3-for-2 stock split declared in May 2002 and distributed on June 28, 2002.

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        The operating results data presented above are not necessarily indicative of our future results of operations. Reasons for this include, but are not limited to: overall revenue and cost trends, particularly trends in patient accounts receivable collectibility and associated provisions for doubtful accounts; the timing and magnitude of price changes; fluctuations in contractual allowances, including the impact of the discounting components of our Compact with Uninsured Patients ("Compact"); changes in Medicare regulations; Medicaid funding levels set by the states in which we operate; levels of malpractice expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses and costs related to natural disasters; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; income tax rates and valuation allowances; the timing and amounts of stock option and restricted stock unit grants to employees, directors and others; and changes in occupancy levels and patient volumes. Factors that affect patient volumes and, thereby, our results of operations at our hospitals and related health care facilities include, but are not limited to: (1) unemployment levels; (2) the business environment of local communities; (3) the number of uninsured and underinsured individuals in local communities treated at our hospitals; (4) seasonal cycles of illness; (5) climate and weather conditions; (6) physician recruitment, retention and attrition; (7) local health care competitors; (8) managed care contract negotiations or terminations; (9) unfavorable publicity, which impacts relationships with physicians and patients; and (10) factors relating to the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

BALANCE SHEET DATA

(1)

Amounts have been restated as described in Note 2 to the Consolidated Financial Statements.

CASH FLOW DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS

        The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which financial information may be analyzed, and to provide information about the

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quality of, and potential variability of, our results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations, with dollar amounts expressed in millions (except per-share amounts). This information should be read in conjunction with the accompanying Consolidated Financial Statements. It includes the following sections:

•

Executive Overview



•

Sources of Revenue



•

Results of Operations



•

Liquidity and Capital Resources



•

Off-Balance Sheet Arrangements



•

Recently Issued Accounting Standards



•

Critical Accounting Estimates

EXECUTIVE OVERVIEW

KEY DEVELOPMENTS

        During 2005, we continued to focus on the development and execution of our operating strategies, including initiatives we introduced during the years ended December 31, 2004 and 2003. Management is dedicated to improving our patients', shareholders' and other stakeholders' confidence in us. We believe we will do that by providing quality care and generating positive growth and earnings at our hospitals.

        Key developments included:

•

Settlement of Pricing Litigation—In March 2005, we announced that we had settled our pricing litigation, and in August 2005, we received final court approval of the settlement in connection with a class action lawsuit brought against us and all of our California hospitals, in which the plaintiffs alleged that they paid excessive or unfair prices for prescription drugs or medical products or procedures at hospitals or other medical facilities currently or formerly operated by our subsidiaries. The settlement should be nationwide in effect. A notice of appeal of the judgment approving the settlement was filed by an objector to the settlement. However, in connection with our agreement in principle, on February 28, 2006, to settle two related pricing cases in South Carolina, the objectors to the nationwide settlement have agreed to withdraw their notice of appeal of the judgment approving the nationwide settlement. Once the notice of appeal is withdrawn, the nationwide settlement will become effective, and once the settlement becomes effective, we expect similar cases brought by plaintiffs in Tennessee, Louisiana, Florida, South Carolina, Pennsylvania, Texas, Missouri and Alabama will be dismissed to the extent the claims in those cases fall within the scope of the release provided in the settlement.



•

Settlement of Securities Lawsuit and Derivative Litigation—In January 2006, we reached agreements in principle to settle a federal securities class action lawsuit brought against us on behalf of certain purchasers of Tenet securities, as well as shareholder derivative litigation brought by certain shareholders. If approved by the courts, we will pay $215 million in cash to settle the securities class action. We expect our insurance for directors and officers will contribute approximately $75 million toward our total cost. A net charge of $140 million was recorded in the fourth quarter of 2005 for the estimated settlement.



•

Settlement with the Florida Attorney General—On February 21, 2006, we announced that we had reached a broad agreement with the Attorney General of the State of Florida to settle three

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separate matters: (1) the investigation of physician relationships and coding at our Florida hospitals by the Florida Medicaid Fraud Control Unit ("FMFCU"); (2) the civil RICO action brought by the Florida Attorney General and 13 Florida county hospital districts, health care systems and non-profit corporations; and (3) the FMFCU's investigation of our Florida Medical Center. As part of the settlement, we will pay a total of $7 million, which we recorded as a charge in the quarter ended December 31, 2005. This includes $4 million to establish a fund to pay for care of indigent, uninsured patients at the 13 county hospital districts and health care systems in Florida who were party to the lawsuit, and it also includes a $3 million payment to be allocated among the FMFCU and public hospitals in Florida.

•

Progress in Existing Securities and Exchange Commission ("SEC") Investigation—As previously disclosed, the SEC is investigating allegations made by a former employee that inappropriate contractual allowances for managed care contracts may have been established at three California hospitals through at least fiscal year 2001. At the request of the audit committee of our board of directors, the board's independent outside counsel, Debevoise & Plimpton LLP ("Debevoise"), conducted an investigation of these allegations utilizing the forensic accounting services of Huron Consulting Group ("Huron"). This investigation was expanded and included determining whether similar issues might have affected other Tenet hospitals during the periods mentioned in the allegations and any other pertinent periods. Debevoise and Huron have completed their investigation and presented the results of their findings to the audit committee. Based on these findings, the audit committee determined that it would be necessary to restate our previously reported financial statements as described in Note 2 to the Consolidated Financial Statements.



•

Impact of Hurricane Katrina—All five of our hospitals and several imaging centers in the New Orleans area and our hospital in Mississippi suffered considerable damage from Hurricane Katrina in late August 2005. The hospitals affected are Kenner Regional Medical Center, Lindy Boggs Medical Center, Meadowcrest Hospital, Memorial Medical Center, NorthShore Regional Medical Center, and Gulf Coast Medical Center. Lindy Boggs and Memorial are closed at this time due to damage from the hurricane. The other four hospitals and imaging centers are open and providing health care services, such as 24-hour emergency rooms, general surgery and outpatient diagnostics. However, due to damage, ongoing remediation efforts, staffing issues caused by the lack of available housing for physicians, nurses and staff, and the overall impact of the hurricane on the Gulf Coast area, the hospitals are operating at reduced levels. We completed our preliminary assessment of the financial impact caused by the hurricane on our Louisiana and Mississippi operations, and recorded approximately $52 million in costs and an impairment charge related to damage of $79 million, net of $64 million of insurance proceeds received by December 31, 2005. We estimate approximately $141 million in lost revenue in the six months ended December 31, 2005, and recorded a $61 million impairment charge reflecting the hurricane's impact on our future results of operations and cash flows, as more fully described in Note 24 to the Consolidated Financial Statements.



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New Health Network in New Orleans—In October 2005, we announced the creation of a new, locally focused health network for restored and enhanced patient services in New Orleans. At this time, we plan on repairing our existing facilities or constructing new facilities if needed. We are still assessing whether to repair our existing Lindy Boggs and Memorial hospital buildings, but have decided to renovate one building on the campus of Memorial to create an ambulatory surgery center by September 2006 and then an all-private-room, 65-bed surgery oriented hospital by September 2007. To help design the repair and construction of facilities in the new network, we have engaged an architectural firm with particular expertise in health care facilities. The cost of creating the new network has not yet been fully determined, but we believe a significant portion of the cost may be covered by insurance proceeds rather than borrowings.

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Construction of New El Paso Hospital—On August 18, 2005, we announced our plan to construct a new 100-bed acute care hospital in El Paso, Texas. Construction is expected to begin in 2006 at a cost of approximately $130 million, and the hospital is targeted to open in March 2008.



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Sale of Facilities—On March 8, 2005, we completed the previously announced sale of four hospitals in Orange County, California. The hospitals are Chapman Medical Center, Coastal Communities Hospital, Western Medical Center—Anaheim and Western Medical Center—Santa Ana. Net after-tax proceeds, including the liquidation of working capital, are estimated to be approximately $80 million. On September 1, 2005, we completed the previously announced sale of Brotman Medical Center in Culver City, California. Net after-tax proceeds, including the liquidation of working capital, are estimated to be approximately $27 million. On December 31, 2005, we completed the previously announced sale of Community and Mission Hospitals of Huntington Park in Huntington Park, California. Net after-tax proceeds, including the liquidation of working capital, are estimated to be approximately $4 million. These seven hospitals are among the 27 hospitals whose intended divestiture we announced in January 2004.



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Departure of our Chief Financial Officer—In November 2005, Robert S. Shapard, our chief financial officer since March 2005, decided to depart the Company and rejoin his former employer. Timothy L. Pullen, our executive vice president and chief accounting officer, is serving as interim chief financial officer while we conduct a nationwide search for Mr. Shapard's successor.



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Appointment of New Chief Compliance Officer—Effective August 1, 2005, Steven W. Ortquist was named senior vice president, ethics and compliance/chief compliance officer, a newly combined position. Prior to joining the Company, Steven was vice president, ethics and compliance/chief compliance officer at Banner Health in Phoenix and, before that, director of corporate compliance and assistant chief compliance officer at Rush-Presbyterian-St. Luke's Medical Center in Chicago. He is certified in health care compliance by the Healthcare Compliance Certification Board.



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Appointment of New Members to our Board of Directors—In March 2005, we announced that Brenda J. Gaines, Karen M. Garrison and J. McDonald Williams had joined our board of directors as independent members. Brenda Gaines, retired president and chief executive officer of Diners Club North America, also currently serves on the boards of CNA Financial Corp., Office Depot Inc., the March of Dimes and the Economic Club of Chicago. Karen Garrison, retired president of the management services subsidiary of Pitney Bowes Inc., also serves on the boards of two other public companies, North Fork Bancorporation, Inc. and Standard Parking Corporation. Don Williams, retired chairman of Trammell Crow Company, also currently serves on the boards of two other public companies, Trammell Crow and Belo Corp.



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Approval of Stock Incentive Plan Amendment—On May 26, 2005, our shareholders approved an amendment to our 2001 Stock Incentive Plan to allow a one-time exchange of certain outstanding employee stock options for a lesser number of restricted stock units. Our directors, four most senior executives and all former employees were not eligible to participate. Approximately 92% of the eligible stock options were exchanged for restricted stock units on July 1, 2005.



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Issuance of New Senior Notes—In January 2005, we issued $800 million of 9¹/4% senior notes due 2015 in a private placement with registration rights. We used a portion of the proceeds to repurchase or redeem the remaining $400 million aggregate principal amount outstanding on our senior notes due in 2006 and 2007, and the balance of the proceeds for general corporate purposes. Our next scheduled maturity of senior notes is now in 2011.

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Amendment to Letter of Credit Facility—On March 16, 2005, we amended our letter of credit facility. The amendment provided for the release of liens on the stock of certain of our subsidiaries, at our request, any time after April 15, 2005, so long as no default exists. On April 19, 2005, the stock certificates were returned to us, and all liens were subsequently terminated. In accordance with the amendment, the termination date of the letter of credit facility was extended from December 31, 2005 to June 30, 2006. The letter of credit facility was further amended in August 2005 to extend the termination date to June 30, 2008. The letter of credit facility remains collateralized by cash of approximately $263 million.

SIGNIFICANT CHALLENGES

        Our performance this year was impacted by a combination of challenges specific to us and significant industry trends. Below is a summary of these items:

Company Specific Challenges

        Volume decline—Our total-hospital volumes were negatively impacted by the effects of Hurricane Katrina in late August 2005 on our Gulf Coast operations and surrounding communities and will likely continue to be negatively impacted in future periods. As a result, we have excluded our six Gulf Coast hospitals and our imaging centers in New Orleans from our same-hospital statistics in order to provide a comparable basis for assessing our operating results. Our admissions and outpatient visits decreased in 2005 from the prior year on this same-hospital basis. We believe the reasons for the volume declines include, but are not limited to, the impact of our litigation and government investigations, physician attrition, increased competition and managed care contract negotiations or terminations. We are taking a number of steps to address the problem of volume decline. The most important of these is centered around building stronger relationships with the physicians who admit patients both to our hospitals and to our competitors' hospitals.

        Our Commitment to Quality ("C2Q") initiative, which we launched in 2003, should help position us to competitively meet this challenge. By the end of 2005, we completed Phase I implementation of our C2Q initiative at all of our hospitals in continuing operations and started Phase II at several of these hospitals. As a result, at most of our hospitals, we have seen various levels of reductions in emergency room wait times, increases in on-time starts in the operating rooms, and improved bed management and care coordination. We believe that these improvements will have the effect of increasing physician and patient satisfaction, potentially improving volumes as a result.

        Litigation and investigations—Although we have settled several legacy issues, we continue to defend ourselves against a significant amount of litigation, and we are cooperating with a number of governmental investigations. We also continue to seek resolution of certain matters without litigation where appropriate and cost-effective. See Note 15 to the Consolidated Financial Statements for a summary of material litigation and investigations and Part I, Item 3, Legal Proceedings, in this report for more detailed information.

Significant Industry Trends

        Bad debt—Like others in the health care industry, we continue to provide services to a high volume of uninsured patients. Although the discounting components of our Compact have reduced and are expected to continue to reduce our provision for doubtful accounts recorded in our Consolidated Financial Statements, they are not expected to mitigate the net economic effects of treating uninsured patients. We continue to experience a high level of uncollectible accounts, and unless a business mix shift toward a higher level of insured patients occurs, we anticipate this trend to continue.

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        Cost pressures—Labor and supply costs remain a significant cost pressure facing us as well as the industry in general. In particular, the national nursing shortage continues and remains more serious in key specialties and in certain geographic areas than others, including several areas in which we operate hospitals. This has increased labor costs for nursing personnel. In addition, state-mandated nurse-staffing ratios in California affect not only our labor costs, but if we are unable to hire the necessary number of nurses to meet the required ratios, they may also cause us to limit patient admissions with a corresponding adverse effect on net operating revenues. Supply costs also continue to increase as new products and technology are used to improve the quality of care, as well as due to general inflation of supply costs.

RESULTS OF OPERATIONS—OVERVIEW

        Our results of operations for the last three years reflect the challenges we have faced in restructuring our operations to focus on a smaller group of general hospitals. Our turnaround timeframe is influenced by industry trends and company-specific challenges that continue to negatively affect our patient volumes, revenue growth and operating expenses. In addition, our turnaround timeframe has now been influenced by the impact of Hurricane Katrina. Our future profitability depends on volume growth, reimbursement levels and cost control.

        Results of operations—Year ended December 31, 2005 compared to the year ended December 31, 2004:

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Same-hospital net inpatient revenue per patient day and per admission increased by 2.6% and 2.1%, respectively, primarily due to the effect of newly negotiated levels of reimbursement on our managed care contracts and slightly higher Medicare reimbursement levels, offset by additional discounts under the Compact during the phase-in process.



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Same-hospital net outpatient revenue per visit increased 2.3%, while same-hospital outpatient visits declined 8.2%. The increase in revenue per visit is due primarily to higher emergency room volume, a positive shift in payer mix and the sale or closure of certain home health agencies, hospices and clinics, which businesses typically generate lower revenue per visit amounts than other outpatient services.



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Cash generated by operating activities was $763 million during 2005 compared to cash used by operations of $82 million during 2004, reflecting an income tax refund of $537 million received in March 2005 and lower restructuring and litigation settlement payments.

        Results of operations—Year ended December 31, 2004 compared to the year ended December 31, 2003:

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Net inpatient revenue per patient day and per admission increased by 2.1% and 2.5%, respectively, despite the implementation, during the last half of the year, of our discounting of self-pay charges under the Compact.



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Net outpatient visits and outpatient revenue decreased by 4.3% and 4.7%, respectively.



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Two material patient litigation matters (Redding Medical Center and Palm Beach Gardens) were settled in the fourth quarter of 2004, resulting in charges to our results of operations.



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We refinanced debt and increased liquidity through private placements of debt, pushing our next major maturity out to December 2011, after various debt extinguishments in the first quarter of 2005.



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Cash used in operating activities was $82 million during 2004 (prior to capital expenditures and asset sale proceeds), which included payments for restructuring, litigation and settlement costs of $280 million and a use of cash in our discontinued operations of $408 million, which included a

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$395 million legal settlement related to Redding Medical Center, compared to cash provided by operating activities of $838 million in 2003.

        The table below shows the pretax and after-tax impact on continuing operations during the years ended December 31, 2005, 2004 and 2003 of (1) additional provision for doubtful accounts, (2) a change in prior-year liability estimates for retirement plans, (3) impairment and restructuring charges, (4) hurricane costs, (5) costs of litigation and investigations, (6) net gains on sales of facilities, long-term investments and subsidiary common stock, (7) loss from early extinguishment of debt, (8) impairment of investment securities, (9) reduction in our estimated income tax exposures and (10) adjustments to the valuation allowance for deferred tax assets:

(1)

Certain amounts for the years ended December 31, 2004 and 2003 have been restated as a result of the adjustments described in Note 2 to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES—OVERVIEW

        Net cash provided by operating activities was $763 million in 2005 compared to cash used of $82 million in 2004. The principal reasons for the change were an income tax refund of $537 million received in March 2005 and a positive change in cash used by operating activities from discontinued operations of $453 million.

        Proceeds from the sales of facilities, long-term investments and other assets during 2005 and 2004 aggregated $173 million and $502 million, respectively.

        In January 2005, we sold $800 million of unsecured 9¹/4% senior notes with registration rights in a private placement. The net proceeds from the sale of the senior notes were approximately $773 million after deducting discounts and related expenses. We used a portion of the proceeds in February 2005 for the early redemption of the remaining $400 million aggregate principal amount outstanding on our senior notes due in 2006 and 2007, and the balance of the proceeds for general corporate purposes. Our next scheduled maturity of senior notes is now in 2011. From time to time, we expect to engage in various capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at the time.

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        In June 2004, we issued $1 billion of senior notes due in 2014 and subsequently used a portion of the $954 million of net proceeds, after deducting discounts and related expenses, to repurchase $552 million of senior notes due in 2006 through 2008.

        On December 31, 2004, we terminated our then-existing credit agreement and replaced it with a letter of credit facility. The new facility provides for the issuance of up to $250 million in letters of credit and does not provide for any cash borrowings. The new facility is collateralized by cash equal to 105% of the facility amount (approximately $263 million reflected as restricted cash on the Consolidated Balance Sheet).

        We are currently in compliance with all covenants in our letter of credit facility and the indentures governing our senior notes. (See Note 7 to the Consolidated Financial Statements.) At December 31, 2005, we had approximately $194 million of letters of credit outstanding under the letter of credit facility. In addition, we had approximately $1.373 billion of unrestricted cash and cash equivalents on hand as of December 31, 2005.

OUTLOOK

        In late 2002, Tenet was confronted with severe operating challenges. These challenges arose in the areas of clinical quality at our hospital in Redding, California, an aggressive pricing strategy that resulted in unusually large amounts of managed care stop-loss payments and Medicare outlier payments, and reviews by government agencies into physician relationships at some of our hospitals. This scrutiny has had a negative effect on our relationships with physicians, patients, communities and, to some extent, our employees, and has adversely impacted our operating performance. However, with a new senior management team in place, we have worked to make extensive changes to the company and to build a sustainable foundation that is based on the integrity of our people, the strength of our hospitals, a comprehensive clinical quality agenda, high governance standards, a revitalized compliance program, and consistent efforts to rebuild our relationships with key constituents.

        We have launched initiatives to align the objectives of our hospitals and physicians in the areas of clinical quality and service. To that end, we have several ongoing initiatives as part of our Commitment to Quality program that address the implementation of evidence-based medicine, efficiency in our operating rooms and emergency rooms, and key roles of our physician leaders and members of our governing boards. Separately, several large managed care companies have initiated a system of profiling hospitals based on both cost and quality in order to generate a "value rating" in a given market. The payers provide access to this data to both physicians and patients, allowing them to utilize the data in making their hospital selections. Our goal is to attain center of excellence status at as many of our hospitals as possible based on each payer's individual standards. Our efforts to achieve volume growth in 2006 will also include a targeted growth initiative that focuses our hospitals on offering the clinical services most needed by their communities. In 2005, this initiative caused some volume loss due to intentional elimination of unprofitable or uncompetitive services and it may continue to do so in 2006. However, we believe the initiative will ultimately have a positive impact on our profitability.

        We believe our efforts to repair the damage that resulted from our prior pricing strategy have begun to achieve their intended results. Since early 2003, we have generally held our hospital charges steady in the majority of our hospitals, and our charges are now closer to or at market level in many of our geographic areas. We continue to monitor pricing in conjunction with industry trends to achieve pricing transparency and to meet the needs of our patients. We also now offer discounts to uninsured patients at all of our hospitals so that the bills those patients receive reflect rates comparable to those of managed care patients. In addition, we have worked diligently to align our managed care contracts with our current pricing strategy. We have transitioned the majority of our key managed care contracts to more predictable market-based per diems with lessened dependence on stop-loss payments, which are based on a hospital's billed charges. Throughout this renegotiation process, we have achieved

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higher base rates in line with market increases, resulting in a higher overall managed care portfolio yield. The challenges associated with managed care pricing are ongoing and we must build patient volume in order to improve operating performance during 2006.

        Pricing and volume growth are key drivers of our profitability, but improving our profit margin is also heavily reliant upon controlling our costs. Our current initiatives in this area are designed to improve productivity and gain efficiency. We are working with our hospitals to reduce their non-contracted purchasing and to utilize systems to effectively adjust their spending levels based on expected volume and utilization. We will continue to focus on supply costs, particularly in the areas of implants, blood products, prosthetics and pharmaceuticals, which have experienced the highest growth in cost or utilization or both. Consistent with our approach for group-purchasing of supplies, we are also looking at similar methods for negotiating purchases in areas of company-wide spending, other than supplies. In addition, we have implemented initiatives intended to control the rising costs of salaries, wages and benefits. We have adjusted our staffing levels and will continue to make adjustments as necessary and appropriate based on patient volumes.

        Overcoming our challenges and positioning ourselves for improved future financial performance will continue to take time. We have numerous initiatives in place and additional actions designed to improve our operating performance will be implemented during 2006. We believe we can make progress in our effort to improve profitability and margins through initiatives to grow volume, our sustainable pricing approach and effective cost control measures. Simultaneously, we intend to further strengthen the foundation we have built over the past three years with our continued focus on integrity, operating strength, clinical quality, corporate governance, compliance, and rebuilding relationships.

SOURCES OF REVENUE

        We receive revenues for patient services from a variety of sources, primarily the federal Medicare program, state Medicaid programs, managed care payers (including preferred provider organizations and health maintenance organizations), indemnity-based health insurance companies, and self-pay patients (patients who do not have health insurance and are not covered by some other form of third-party arrangement).

        The table below shows the sources of net patient revenues for our general hospitals, expressed as percentages of net patient revenues from all sources:

(1)

Includes Medicare Advantage and Medicaid managed care.

(2)

Percentages for December 31, 2003 have been restated as a result of the restatement of revenue described in Note 2 to the Consolidated Financial Statements. There was no impact on the year ended December 31, 2004.

        The decrease in indemnity, self-pay and other net patient revenues during 2005 is due primarily to the implementation of the discounting components of the Compact. Payer mix on an admissions basis

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for our general hospitals, expressed as a percentage of total admissions from all sources, is virtually unchanged as shown below:

GOVERNMENT PROGRAMS

        The Medicare program, the nation's largest health insurance program, is administered by the Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services ("CMS"). Medicare is a health insurance program primarily for individuals 65 years of age and older, certain younger people with disabilities, and people with end-stage renal disease, and is provided without regard to income or assets. Medicaid is a program that pays for medical assistance for certain individuals and families with low incomes and resources, and is jointly funded by the federal government and state governments. Medicaid is the largest source of funding for medical and health-related services for the nation's poorest and most vulnerable populations.

        These government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease government program payments in the future, as well as affect the cost of providing services to patients and the timing of payments to facilities. We are unable to predict the effect of future government health care funding policy changes on our operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers is limited, if we are required to pay substantial amounts in settlement pertaining to government programs, or if we, or one or more of our subsidiaries' hospitals, are excluded from participation in the Medicare or Medicaid program or any other government health care program, there could be a material adverse effect on our business, financial position, results of operations or cash flows. The government is investigating various matters, including Medicare outlier payments we received in prior years, as discussed under Part I, Item 3, Legal Proceedings, of this report.

Medicare

        Medicare offers beneficiaries different ways to obtain their medical benefits. One option, the Traditional Medicare Plan, is a fee-for-service payment system. The other option, called Medicare Advantage (formerly Medicare + Choice), includes managed care, preferred provider organization, private fee-for-service and specialty plans. The major components of our net patient revenues for

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services provided to patients enrolled in the Traditional Medicare Plan for the years ended December 31, 2005, 2004 and 2003 are set forth in the table below: