Background--The USA--Australia--Business Practices--Mayne--Conclusion--References
The three parts give a broad view of Columbia/HCA's unsavoury conduct. Many of their unethical and antisocial practices were legal. The fraud investigations unearthed additional material. The finally paid US $1.7 billion but no one went to prison.
Part 1 (written in 2000) describes Columbia/HCA's history as it became the largest and most successful hospital chain in the world until the first of the FBI raids on the company. Its disturbing practices and the anger which they engendered are described.
Part 2 (written in 2000) tells the second part of the Columbia/HCA saga. The story of the government investigation and prosecution of Columbia/HCA after the FBI raids in July 1997. It lists the allegations made.
Part 3 (written in 2003) examines the 10 year investigation, its problems, the role of whistle blowers, its outcome, the criminal guilty plea, the US $1.7 billion settlement and the company's recovery under its new name HCA. It looks at Olsten and KPMG who played a part in the fraud.
- The July 1997 FBI raids
- I told you so
- A new chairman and a new approach
- HCA's track record
- Using this information to press issues in Australia
- Vindicated again
- One whistle blowers battle -- James Alderson
- Court actions
- The unfolding investigations
- Breaking up the company
THE NATURE OF THE FRAUD ALLEGATIONS AND PRACTICES
- Billing fraud
- Patient care
- Relationships with doctors
- Accreditation processes
- PACMAN activities
The July 1997 FBI
raids:- Following the FBI raids on Columbia/HCA across the USA in
July 1997 Richard Scott arrogantly rejected the allegations of
misconduct and refused to speak publicly. He insisted they had done
nothing wrong. He obviously believed this. Thomas Frist was forced to
do the public speaking. Soon after the board forced Scott and his
henchman VanderWater to resign. Scott received a $12.4 million
severance package and the company later bought him a mansion to live
in. He eventually walked away with more than US $17 million. Over the
succeeding months there was a purge of a number of senior staff and
I told you so:- I used the opportunity presented by the July raids to write an "I told you so" letter and circulated it to drive home how accurate my past assessments had been and the messages for Australia. I later turned this into a web page.
The New York Times (18/11/97) 3 months later quoted a health-law analyst with CCH Inc., a business-law publishing company. "Fraud is a natural result of the system itself." This is what I had been arguing for years.
-- to link to "I told you so" and
more information about Columbia/HCA's practices.
A new chairman and a new approach:- Thomas Frist, the past chairman of HCA became the new chairman of Columbia/HCA. He stopped denying the allegations. Instead he claimed that he was radically restructuring the company and making major changes in policy and philosophy. In doing so he implicitly admitted to many of the complaints made about the company. (see part 1)
Frist claimed that he was going to make the company more like the HCA which he had run, implying that HCA was some sort of a role model. It would be less aggressive and more patient centred. I was very critical of Frist and pointed out that his statements were no more than a public relations exercise - a facade. If Columbia/HCA actually abandoned its practices its profits would fall and it would lose the support of the market.
Unlike Tenet/NME Columbia/HCA under Frist has not tried to reject or deny the allegations. Instead it has made conciliatory noises and sought to reach some sort of early settlement with government. Frist claims that he had been unhappy with Scott's style. Frist publicly set aside US $1 billion to settle with the government and promised shareholders that it would be settled by March 2000. By April 2000 the government had not yet taken the bait.
On 25 October 1997 The Dallas Morning News
reported "We have zero tolerance for anything wrong," Dr. Frist said,
pounding his fists on the lectern. "We have got to have the public
trust." Frist had been chairman of HCA and vice chairman of
Columbia/HCA while all of the matters referred to on this page and on
1 were occurring. There is no
evidence that he ever did anything about it.
HCA's track record:-
In my submissions I pointed out that HCA under Frist had an appalling
track record. It was a disturbing role model. The 1993 DAY ONE
television program had exposed misleading advertising, fraudulent
admission of patients who did not need admission and the misuse of
teenagers for profit. HCA had paid a large settlement for similar
practices in Texas.
Using this information to press issues in Australia:- In August 1997 Queensland was revising its state hospital licensing regulations. I used Frist's admissions and planned changes to press Queensland and other states to set in place regulations which would give probity regulations teeth and control corporate behaviour by forbidding similar business practices (e.g. incentives). The letter gives more information about Columbia/HCA's statements at this time and quotes from articles.
HERE -- to go to the letter re
again:- Within the next 12-18 months my assertions about HCA were
more than confirmed. Billing irregularities are the easiest of the
major fraudulent practices to identify and prove. The fraudulent
practices used by Columbia/HCA had been introduced into HCA and into
Quorum and Healthtrust while the latter were owned by HCA. The
allegations went back to 1984. Frist was chairman of HCA during this
period. The investigation into these practices had started as early
as 1993. The Qui Tam whistle blower lawsuits which the government
joined had been lodged by James Alderson in 1993 before Columbia
merged with HCA in 1994. Clearly many of the criminal practices had
come to Columbia from HCA with Frist. More than 200 hospitals from
the HCA stable in at least 37 states were named as defendants in the
lawsuit against Columbia/HCA.
One whistle blowers battle:- The NY Times 18/10/98 told the fascinating story of James Alderson against "the huge Hospital Corp. of America and three of its corporate spinoffs" who "had cheated the government with bogus expense claims." The paper described it as "a battle so far fetched -- one man versus four huge corporations". The discovery "made by one man at a small rural hospital ultimately unraveled a nationwide, systemwide scheme". The story of health care fraud is the story of regulatory failure. It is the story of citizens who have had the courage to act against the powerful, and their persistence in the face of overwhelming odds.
While the press reported this news
prominently it was extremely kind to Frist. No one has confronted him
with his claims about a benign and patient centred HCA under his
stewardship or with his personal involvement in all this. His father
and his brother were respected and admired US senators. The Frist
family has enormous political power.
Court actions:- Much
of the initial evidence used in court came from staff in the company.
Some had cooperated with police, wearing hidden recording devices
while speaking to company executives The first court action was taken
against four executives in Florida. A fifth was given indemnity in
return for evidence. The case came to court in July 1999. Some
executives were jailed in December. The justice department commenced
civil and criminal proceedings against Quorum and Columbia/HCA in
October 1998. It joined a whistle blowers Qui Tam suit. Healthtrust
and HCA were now part of Columbia/HCA. Over 12 separate Qui Tam
actions had been taken by whistle blowers.
unfolding investigations:- There were further FBI raids in El
Paso Texas in February 1998, and in Las Vegas in May 1998. The tax
office was involved and demanded a multimillion payment. The US
Securities and Exchange Commission (SEC) started investigating in
1998 to determine whether the executives gave investors accurate
figures. A number of shareholder suits were also commenced and
insurers later advised that they too suspected that they had been
overcharged. More whistle blower suits were unveiled and by 1999 11
states had joined in the investigations. The St. Petersberg Times
(25/2/99) reported that the justice department had asked for another
US $5 million to fund its investigation of Columbia/HCA "where fraud
has been alleged in virtually every aspect of the largest health care
conglomerate in the U.S."
Breaking up the company:- Faced with a massive fraud settlement Frist started to break up the company and make it much smaller. Plans to buy Blue Cross and other groups were abandoned. Large number of hospitals and subsidiaries were sold. The PACMAN activity was reversed. Many hospitals were sold back to not for profit groups. Not for profit groups had banded together and successfully discredited Columbia/HCA. Its interest in the catholic hospitals, which had had caused so much angst, were sold. It reversed its integrated health care policy and sold off its Home Healthcare subsidiary. In addition it spun off 64 hospitals as two separate not for profit companies - Triad (42 hospitals) and LifePoint.
This gave it a war chest for its legal
battles and fines. It bought back US $1 billion in shares. It is
difficult to know if it has been fulfilling conditions required by
government prior to reaching a settlement which would allow it to
continue receiving Medicare funding. In the same situation Tenet/NME
sold all its rehabilitation hospitals and subsumed its other
specialty hospitals into its psychiatric division most of which was
then sold as a condition of the settlement. This allowed it to plead
guilty in the name of a single subsidiary, retain Medicare funding
and claim that this one division was an infected appendage which had
Practices:- On 11 May 1997 before the second FBI raids the New York Times echoed my assessment of the impact of market principles on health care. It summarised Columbia/HCA's enormous financial success by saying "At the heart of that achievement is an aggressively competitive vision of medical care, one that applies the practices of corporate America to an industry still dominated by not-for-profit institutions."
Also "These practices include not only in-your-face marketing, but hospital takeovers, cost-cutting and layoffs, volume purchasing, complex pricing strategies and large monetary incentives for managers who meet financial targets."
and "In 1995, 25 percent of Columbia's administrators won bonuses of at least 80 percent of their salaries, according to the Advisory Board, a consulting company. Thirty percent received none."
Staff were sent score cards setting out their monthly targets. Administrators who failed to attain their monthly budgets had to write extensive reports explaining what happened and how they planned to boost profits. The 10 lowest performers had to meet with Scott and senior managers
Similar incentives were at the heart of the
problems in Tenet/NME's empire. They called it "plan". Bonuses and
job prospects were based on "meeting or exceeding plan". This
severely dysfunctional practice is central to microeconomic reform.
Incentives linked to financial performance are universally adopted
even in Australian health care corporations.
Billing fraud:- Some expenses incurred by companies in running hospitals are claimable against Medicare. Columbia/HCA claimed reimbursement for advertising and marketing, for expenses incurred in recruiting doctors from competitors, and for running hospital gift shops and cafeterias. None of this was legal. It also illegally shifted its hospital overhead expenses to its home health care operations then claimed them. It used its integrated system of acquired corporate subsidiaries to fraudulently obtain federal reimbursement. There were allegations that staff were told to hide documents from Medicare
An affidavit claimed that Columbia/HCA acquired a group of Olsten home care agencies for a price far lower than comparable deals, but then entered into management agreements with the seller. These allowed Columbia to shift acquisition costs that are not reimbursable by the government into administrative costs that are. In April 1999 Olsten paid US 61 million to settle a fraud action related to one of the rackets involving Columbia/HCA.
The Internal Revenue Service's demanded $267 million in taxes for 1993 and 1994 to pay among other things back taxes on a reserve fund kept in case Medicare challenged Columbia/HCA's bills. Columbia/HCA hospitals had prepared two costing documents - one actual costings to fall back on and another allegedly fraudulent set to try out and see if Medicare would accept it. If Medicare had objected they would have offered the other.
A 1997 affidavit alleges the Texas division of Columbia/HCA made false billing's for hospital supplies and set up a shell medical laboratory to funnel kickbacks to doctors. Senior staff it appears knew of the practices.
In December 1998 a second whistle blower suit was unveiled. After lodging his suit in 1995 this whistle blower returned to his job gathering information for the government. The suit alleged that Columbia/HCA routinely submitted false documentation to Medicare, Medicaid and CHAMPUS, a civilian health-insurance program for the military. Interestingly the allegations in this suit were limited to about 100 hospitals owned by Columbia prior to its merger with HCA in 1994.
The NY Times (31/12/98) reported that "the latest suit also for the first time brings claims that Columbia hospitals manipulated expenses to increase reimbursement for outpatient services like home care, sometimes by misreporting expenses associated with the acquisition of companies involved in those businesses".
In February 1999 the government filed an amended claim accusing " - - - the hospital groups of falsifying claims in every report submitted since 1985."
The NY Times (9/4/99) reported that the Justice Department had joined a third Qui Tam lawsuit alleging that Columbia/HCA Healthcare Corp. and Curative Health Services Inc. defrauded Medicare. Curative managed wound care centres at 42 Columbia/HCA hospitals. They allegedly charged Medicare for costs to which they were not entitled, including excessive over-inflated management fees, advertising and even for US $400 kickbacks which Columbia/HCA was paying Curative Health for referrals.
Columbia/HCA was accused of ordering unneeded
lab tests, giving illegal inducements to
Texas doctors and inflating costs elsewhere. Columbia hospitals
operating throughout the United States were claimed to be involved in
fraudulent bills for laboratory tests.
Patient care:- A study in 1996 comparing Columbia/HCA hospitals with not for profit hospitals had shown deficiencies in the range of care, staffing, and service to the community. After the FBI raids current and former hospital employees claimed that Columbia's aggressive profit first practices began "affecting patient care immediately after Columbia's 1994 takeover of Hospital Corp. of America".
Modern Healthcare (15 Sept 97) reported that "Consumer groups, nurses and labor advocates have contended for some time that Columbia reduces staffing to unsafe levels at its hospitals in an effort to control costs." Investigations in Kentucky and in California revealed staffing deficiencies resulting in problems in care. Regulations had been breached and one patient had died.
The Denver Post 4/3/99 reported that part of HealthONE for-profit system, which is co-owned by Columbia/HCA Healthcare was nearly closed in 1995 and was being reviewed again. As in the aged care industry, the allegations being made could reflect a problem with staffing levels.
A CEO of one hospital claimed that she was
fired for refusing to lay off staff or to force physicians to
discharge small babies prematurely. Both would have compromised care
Employees:- More than 2000 Healthtrust employees claim that the company improperly cut them out of a stock option program when they resigned. They are making a large claim.
The nursing unions have been in a protracted
battle with Columbia/HCA.
Relationships with doctors:- Modern Healthcare (10/11/97) reported that a CEO at one of Columbia/HCA's hospitals was dismissed for refusing to indulge in illegal conduct which was likely to jeopardise patient care. The allegations include
In 1992 a CEO at a Tenet/NME Hospital lodged a similar action which was very rapidly settled with a muzzling agreement. There was a single press report. I was fortunate to get the damning documents lodged in court to support his action. The Columbia/HCA action too has received no further publicity.
An affidavit claimed that compensation was paid to doctors "as specific inducements for patient referrals to Columbia facilities". Another affidavit claims that the company set up a shell medical laboratory to funnel kickbacks to doctors in Texas.
Reports in the NY Times and Modern Healthcare indicated that "Columbia/HCA Healthcare Corp. has ordered its hospital executives to collect back rent and other money owed by doctors, as part of its reorganization and efforts to deal with a federal investigation." It also indicated that "federal prosecutors are looking into a variety of arrangements Columbia made with doctors". The extent of the practices is clear from the structure set up to collect the money. The Times says "President Jack Bovender demanded collection of overdue money and set up a five-person team to oversee the process".
The March 9 edition of Medicare Compliance Alert, a newsletter published by Rockville, Md.-based United Communications Group, reported that some Columbia hospitals neglected to bill physicians for rented space for up to two years. Amounts of overdue rent ranged from US $70,000 and $400,000. This must have been a very strong inducement for the doctors to keep Columbia/HCA on side by bringing in patients and then manipulating them through the integrated system to maximise profits.
Tenet NME also loaned doctors large sums on very lenient terms. Team players were sometimes not expected to repay them.
Columbia/HCA owned large numbers of
physicians practices. They had contracts with the physicians and were
in a strong position to exert influence. According to the NY Times
27/8/98 it was removing 900 doctors from its payroll.
Accreditation processes:- According to the NY Times (11/2/98) "Sweeping federal investigations of Columbia/HCA Healthcare Corp. are focusing on whether the company cheated federal health programs and lied to a hospital accreditation commission"
El Paso investigators were examining whether
the company submitted false records to the Joint Commission on
Accreditation of Health Care Organisations, the main hospital
accreditation group. (NY Times 11/2/98)
affidavit claimed that officials purportedly working in public
education were in fact engaged in marketing and sales. Rather than
providing health education to the community executives charged with
that responsibility spent most of their time making sales calls to
doctors and "hunting" for patients. A document from the home care
division stated that "the primary marketing resources at the disposal
of any of the Columbia home care agencies are the community education
coordinator and home care coordinator."
PACMAN activities:- Health Line (5/3/99) reported that the Internal Revenue Service was cracking down on some of the jointly owned not for profit hospitals as they do not comply with not for profit status and so are not exempt from tax.
CLICK HERE -- if you want to go back to Part 1
The New York Times, Modern Healthcare, Houston Chronicle and St. Petersberg Times all published extensively during this period.
You might try exploring HCA's web site -- http://www.columbia-hca.com/
contents . . . . . . . Go to Part 3
Background--The USA--Australia--Business Practices--Mayne--Conclusion--References
This page created April 2000 by Michael Wynne
Minor modifications August 2003