Background--The USA--Australia--Business Practices--Mayne--Conclusion--References
IMPLICATIONS OF THE ENTRY OF COLUMBIA/HCA
(written 31 March 1997)
Part 4 : Columbia /HCA's Business Practices
A review of the concerns about Columbia/HCA's
practices as revealed in documents and in the US press. At the time
of writing Columbia/HCA's facilities in El Paso had been raided and
it was under investigation. None of the matters had come to court and
information was limited.
History of Columbia
The FBI raids
A leader in a dysfunctional system
Being both managed care company and provider
Objective Evaluations of Columbia/HCA's Claims
Relationships with physicians
News Reports 24-28 March 1997 - Impressions
Contents of the New York Times and Wall Street Reports
Financial Relationships with doctors
Practices during buying sprees:
Control of US Health system
Disenchantment with Columbia/HCA
Standards of care
Evidence of closed minded or sociopathic behaviour
Back to main Columbia/HCA access page
Part 5: - Mayne Nickless in Australia
References - (Best opened in a separate window)
[Top] - History of Columbia:- 1, 5, 10, 56 Columbia/HCA, known for the ferocity of its business tactics is almost an overnight phenomenon. Columbia was founded by Scott in 1988 with only 3 hospitals. Since that time it has embarked on one of the most aggressive and successful buying and takeover sprees ever seen. It now owns in excess of 350 hospitals and is the largest and most powerful health group in the USA. It is far from clear how this was accomplished or where the money has come from.
The 1994 merger of Columbia and Health Corporation of America (HCA) a company founded by the politically powerful Frist family in the 1960's seems to have been a genuine merger. Frist remains one of the big three and Columbia/HCA enjoys the link with two Frist family US senators. 56 HCA was one of the major players in the fraud which exploited vulnerable people and so shocked the USA in 1991 and succeeding years.19, 20, 26, 54 The power of HCA's legal and political links is alluded to in a DAY ONE video which shows HCA practices in Nevada in June 1993. 54 As far as I am aware HCA was never prosecuted in Nevada for the events shown on the video. Kuttner indicates that Columbia/HCA's political muscle is legendary.5
Scott has claimed that "free market, competitive forces should be the driver" to reform the health system.5 Columbia/HCA disdains a public health mission. "We are not in the health care business. We are in the sick care business." 5 Both Scott and Rainwater, cofounders of Columbia regard Columbia/HCA as the medical equivalent of a Macdonald's fast food business and that is the way the company seems to behave. 56
Columbia/HCA has been extremely aggressive in securing and controlling market share, in securing the cooperation of doctors and in eliminating competitors. 5 Doctors who own stakes in Columbia/HCA hospitals in Florida are alleged to have indulged in "cream skimming", referring only the profitable patients to Columbia/HCA hospitals. 114
Columbia/HCA pays little if any service to the values of the health profession nor to its ethics. It has a powerful legal team which allows it to attain its corporate ends within the limits of the law. 5 Its practices have caused much angst among the medical profession, not for profit hospitals, academics, politicians as well as consumers. These groups see the care of the sick as a humanitarian endeavour in which the patient's interests are given priority over profit. 28, 99
Of particular concern has been the aggression displayed and the tactics employed by Columbia/HCA in its competitive PACMAN approach to the purchase of not for profit hospitals and the conversion of community assets into corporate assets and corporate profits. 5, 114 Federal and state legislators are bringing in a rash of so called "PACMAN" laws to control the practices.75 Representative Stark said "the for-profit chains have the minds of piranha fish and the hearts of Doberman pinschers." He indicated that Columbia/HCA was "the PACMAN of the industry."114
Regulations will ensure that backroom deals which provide large personal rewards to directors of the selling not for profits will now be exposed to public scrutiny. Opportunities for further expansion in the USA have been severely restricted. Columbia/HCA's continued phenomenal success on the stock market is dependent on continuing expansion. This has been curtailed and this is why it is moving internationally and why Australia has become a corporate target.4
Columbia/HCA makes claims to high standards of care, to providing care to indigent's, to providing community services and to reducing costs by economies of scale rather than cutting services. 5, 94, 108, 109, 110, 121, These claims are not supported by most of the data available. We are entitled to question the integrity of their claims. The other large US corporation Tenet Healthcare (at the time National Medical Enterprises) was shown to be repeatedly dishonest in its public statements and in its marketing. NSW Health department accused NME of a lack of frankness and candour. A video showing HCA's practices in Nevada at the time Frist was chairman of HCA suggests a similar willingness to deceive. One portfolio manager referring to Columbia/HCA's practices and the steps which are being taken to restrict it said "I don't think regulators want a player like that in their market". 126
[Top] - The FBI raids Columbia/HCA on 19/3/97:- 111, 112, 113 Representative Pete Stark has expressed the hope that Columbia/HCA executives "will all be in jail soon." 56 He has repeatedly urged that the company's practices be investigated. The Internal Revenue Service has been interested in its practices.27 There have been concerns that its business practices are not competitive, that its deals with doctors may breach anti-kickback laws and that it has used its influence on doctors to "cream skim" profitable patients. 5, 114
On 19 March 1997 the FBI in conjunction with the Internal Revenue Service, the Health and Human Services which overseas medicare, and the Defense Department's Criminal Investigation Service raided Columbia/HCA facilities and offices in Columbia/HCA's original home El Paso Texas. Like NME before it the company claims to be cooperating and asserts that the investigations are localised to El Paso. This seems unlikely and newspapers have information which indicates that "investigations of Columbia were also proceeding in other cities."
The situation bears a remarkable similarity to the events which engulfed NME (now Tenet Healthcare) between 1991 and 1994. 152 Unhappiness and complaints were apparent from news reports and from court actions by individuals. State attorney generals took action and this was followed by the insurance companies and by FBI raids. Criminal actions ensued and the Security and Exchange Commission secured court injunctions.
[Top] - Columbia/HCA as a leader in a severely dysfunctional system:- 5, 9, 50 The health care corporate environment in the USA has been one of the most aggressive and uncaring business environments in the world. Costs have spiraled and trusting people have been ruthlessly exploited for profit. Criminal practices have flourished. Corporate healthcare is driven by a duty to shareholders and the manner in which this duty is accomplished has been described. That it is totally unsuited to humanitarian and caring health care cannot be rationally disputed, but rationality has nothing to do with economic priorities. Columbia/HCA has been the most aggressive and successful player on this uneven playing field. Its success did not come from caring for sick people. Its success is based on marketing, purchasing and market control.
Columbia/HCA and Tenet Healthcare dominate and control the Federation of American Health Systems which represents the corporate hospitals and acts as a lobby group for them. David T Vandewater, president and COO of Columbia/HCA is chairman of the federation. The federation has refused to acknowledge documents when supplied with allegations made in court by a doctor. These allegations implicated a member of their quality assurance board and indirectly one of their directors, in an attempt to trade in patient admissions. None of the persons named by the doctor gave evidence to challenge his allegations.6, 7
[Top] - Concerns about Columbia/HCA's acquisition practices:- 5, 61, 63, 64, 65, 122, 123 A major concern in the USA has been the manner in which Columbia/HCA's pacman expansion has targeted community not for profit hospitals and the strategies employed by it to secure these hospitals at bargain prices. Publicly listed companies have to go through a complex system of public scrutiny and independent assessment before takeovers are permitted. Unlisted companies are not subject to this.
The power to make decisions in community hospitals is vested in the board of directors and they do not have to consult with benefactors. The only person with any power to intervene is the state attorney general but he may not know of the transactions.
Columbia has been aided by its legal strength and its political might. It has built a formidable team of outside talent. 61 Its executives are described as "sharp, smart operators" who use a carrot and stick approach. Critics grouse about its success with hired legal guns who use hardball tactics when entering the market it covets.
Columbia/HCA's lawyers come up with "creative deals". The purchase of the not for profit company Sharp Healthcare in California is representative of what has been happening and has received most publicity. More information is consequently available. 14, 57, 58, 59, 81-93, 122, 123, 138 This is not because the proposed purchase was unique but because public awareness and concern about what was happening required that the issue be addressed and a line be drawn.
Columbia/HCA used its wealth and its competitive market strategies to crush its intended victims. The chairman of a not for profit hospital in Texas said "in our minds, there was no way we could survive in the long haul given the changes coming in health care. Columbia/HCA is a very aggressive corporation".121 Purchases and joint ventures by Columbia/HCA have been characterised by their speed, their organisation, their silence, their legal ingenuity and their suddenness.5, 61 They go to great lengths to discourage competitive bids. Teams of lawyers are followed by powerful lobbying. Negotiations are clandestine. Board members not disposed to such a sale are either removed or pushed. This even occurred in hospitals owned by the catholic church. 28, 67
Negotiations then proceed behind closed doors. The terms and conditions of the joint venture only become public after the sale has been accomplished. Such mergers always give Columbia/HCA control. The chairman of a Texas hospital, secretly sold to Tenet, a company which has followed Columbia/HCA's lead admitted that even doctors on the board of his hospital were not told of the negotiations. Financial reports were not released. These doctors were "kept in the dark" because they would have been "vehemently opposed". The final sale price was never disclosed to the public who had over the years donated the money to build up this community hospital.
Some of the legal provisions were circumvented and an allusion of continued community involvement was maintained by entering joint ventures, rather than purchasing outright. This was cheaper for Columbia/HCA but had little advantage for the community as Columbia/HCA insisted on control. The information about the sales suggests that contracts were sometimes ignored and legal requirements not always fulfilled. Money derived from the sale of community assets should by law have been directed to similar projects. This did not always occur and legal strategies were developed to circumvent the requirements. Community assets were sold at prices well below their market value. The board members who sold the not for profit facilities it is suggested benefited personally, sometimes to the extent of millions of dollars. This is illegal but Columbia/HCA seems to have found legal loopholes.
For profit corporations taking over not for profit hospitals are required to continue community services including charity care. Not for profits seem to start terminating charitable community services some time before the sale.122 By doing so Columbia/HCA will not be required to continue these charitable activities after the sale. In addition it seems that Columbia/HCA did not always fulfill its obligations and in some instances closed community hospitals once it had secured market dominance in the area.
There were complexities in changing from a tax exempt organisation to a tax paying one and it seems that the required legal steps were not always taken. 66 The Internal Revenue Service has been taking an active interest and was "very concerned that no hospital executives receive any form of direct or indirect payment or other consideration to induce the sale of their hospital to a for-profit company". 17 The IRS have now joined the FBI in raiding the company. 111
Attorney generals have alleged a breach of trust and a breach of fiduciary duty by those involved in the transactions. The Catholic church has taken a stand in the USA forbidding members of the Catholic hospitals group from having dealings with Columbia/HCA. One must ask whether, even if only some of these matters have substance, Columbia/HCA's described conduct indicates that Columbia/HCA will prove a fair and honest competitor on the Australian level playing field.
[Top] - An attempt to be both managed care company and provider:- 5, 11, 12, 60, 61, 76, 77, 78, 79, 125, 126, 128, 134, 135 Carl Ginsburg56 writes "Add Columbia's growing interest in owning managed care systems, which control health care access, and every piece of the patient for profit puzzle is in place." One can only shudder at the consequences should Columbia/HCA, the MacDonald fast food corporation of medicine display the same sort of aggression and ruthlessness in rationing care as it has displayed in its other activities.
One of the deals which has caused most concern is the attempt by Columbia/HCA to take over Blue Cross and Blue Shield in Ohio. These companies are insurers and managed care companies. As is revealed in the DAY ONE video Blue Cross also act as fraud investigators. 54 This takeover was accomplished with all the stealth which characterised other Columbia/HCA purchases and partnerships. Once again the information suggests massive benefits to the board of the selling companies. This purchase had it been successful would have made Columbia/HCA the managed care company responsible for restricting services as well as the provider. It would have become its own fraud investigator. A rash of lawsuits followed the attempt to buy Blue Cross and Blue Shield. The attorney general stepped in to stop what was happening.
Columbia/HCA is reported to be buying Value Health a US managed care company.80 The sale is to be completed by July 1997. In the UK Columbia has entered into a joint venture with PPP Healthcare, a situation where it appears that it will once again be both managed care company and provider of care, a conflict of interest situation. PPP provides services in aged care and also runs nursing homes. These are areas where patient vulnerability led to extensive exploitation and fraud in the USA.
One must ask whether being the managed care company deciding on who will receive care in its hospitals and also its own fraud investigator is appropriate conduct on the sort of level playing field our minister espouses. Kuttner states that "Columbia/HCA insists that medicine is a business, and increasingly imposes its rules on the competition game." 5 It has the muscle to do so.
[Top] - Objective Evaluations of Columbia/HCA's Claims:- Columbia/HCA has an aggressive and costly advertising campaign. It claims to match or exceed its not for profit competitors and to have many advantages. Objective evaluations have now been performed by a reputable and independent firm of lawyers using available figures. 107, 108, 109, 110
The findings reveal that there are major differences between the business practices of for profits and not for profits. In for profits important decisions are made centrally and not at the community level. The conduct of Columbia/HCA shows a lack of commitment to any particular community.
Not for profit companies reinvest profits in humanitarian endeavour and so provide a broader range of services, particularly those services which are costly and do not pay well. For profits do not invest in costly services as readily as not for profits. Shareholders take 20% or more in profits and considerable resources leave the community to benefit shareholders.
Charges are consistently higher at for profit hospitals and Columbia/HCA's charges are the highest. The amount of charitable and indigent care provided is much lower in for profit hospitals, particularly those run by Columbia/HCA. The broader services provided by not for profit hospitals provide employment for many more people in the local community. Not for profit hospitals provide far more community benefits. Contrary to Columbia/HCA's claims these community benefits are much greater even when account is taken of the tax exemptions granted to not for profits.
Claims to cost efficiencies in purchasing as a result of size are not sustained. Ancillary costs and the costs of supplies are lower at not for profits. Any cost savings at Columbia hospitals have been due to one factor only, staff reductions. Not for profit hospitals invest more of their resources in staff.
There are concerns that corporate staff reductions are at the expense of the quality of care. Nursing bodies are publicly claiming this, but there is no objective data. It seems that there are substantial changes in mission, governance, accountability and service to the community. Larger profits are made by Columbia/HCA through charges which are substantially higher, by not providing expensive and less profitable services, and by reducing staff levels. These profits are passed to shareholders and do not benefit the community. It seems that not for profit hospitals provide superior value to their communities. Care is not compromised by restricting the hospital's services to those which are profitable.
An additional investigation reported in the March/April issue of the journal "Health Affairs' reached similar conclusions.129b Interestingly they found that public and major teaching hospitals performed best when community benefits were evaluated. A recent investigation reported in the New England Journal of Medicine found that for profit hospitals were costlier and less efficient. Administrative costs at for profit hospitals were much higher and less was spent on staffing the hospitals. "They save money by laying off nurses, then hire consultants and bureaucrats to figure out how to avoid unprofitable patients and maximise revenues. For profit hospitals increase costs, decrease care and generate windfall profits."
[Top] - Relationships with physicians:- 5, 30 There are many methods by which corporations can offer doctors incentives to secure their compliance. The material indicates that Columbia/HCA uses this strategy by offering doctors in the community up to 20% partnerships in the local hospital. This ensures their loyalty and their patients. By claiming that this is an integrated service they exploit a loophole in the anti-kickback laws. 5 A doctor in Texas has commenced a lawsuit alleging that Columbia/HCA uses other strategies to illegally pay hidden referral fees. There are also allegations that doctors in Colorado were offered investments in the hospital in such a way that the profits made would be linked to their increased utilisation.30 Such unethical practices are prevalent in the US market driven system. Over half of NME's hospitals were listed in a guilty plea to such practices in 1994 and it is clear that many corporations indulged in similar practices. Dr. Ng in his action against NME's hospitals in Singapore describes how such practices can be hidden. 7 NME has now sold these hospitals to Parkway Holdings, a Singapore corporation with a previously unblemished track record.
Columbia/HCA assures doctors that they will use all their resources to ensure that any competing medical services fail. Whether this is intended as an assurance or a veiled threat is unclear. There are allegations that the company has employed uncompetitive strategies to destroy competition from rival clinics. Columbia/HCA has sponsored Physician Hospital Organisations, through which doctors receive referrals. This gives it some control over doctors referral's and their incomes. When doctors have been critical of Columbia's practices they have been forced to resign. 56 It is alleged that Columbia used its power over physicians to secure profitable patients for their hospitals by "cream skimming". 114
Wichita Clinic in Kansas is suing Columbia/HCA alleging that the company used confidential information obtained during failed merger negotiations to improperly recruit physicians and so "reduce or eliminate competition".97 The suit alleges that Columbia/HCA offered excessively high salaries and bonuses. Columbia offered $170,000 annual salary guarantees. A good relationship between the clinic and the hospital was destroyed when Columbia/HCA purchased it. One authority commented that "Building integrated systems with hospitals and physicians has so little to do with patients that it is unreal" and "The motivation in acquiring physicians is protectionist." Three lawsuits have been filed as a consequence, three markets where the atmosphere turned decidedly unfriendly. 97 Is this in the interests of patients or the community?
[Top] - Business practices:- When speaking of corporate medicine in parliament Rep Stark described for profit chains as having "the minds of piranha fish and the hearts of Doberman pinschers." He said that Columbia/HCA "is characterised as the PACMAN of the industry". On another occasion referring to Columbia/HCA executives he stated "Hopefully they will all be in jail soon for the crimes they have committed across the country."
Columbia has been accused of anticompetitive behaviour and of giving financial considerations priority over community needs. A typical example of this was in Destin, Florida. 106 Once Columbia had established control and market share by purchasing facilities in neighbouring areas it shut down emergency services and then closed the hospital. Patients were forced to travel a considerable distance and this was compounded when a cyclone struck the town.
Other providers were prepared to buy the empty hospital facilities and provide the services asked for by the community. Columbia/HCA refused to sell. Columbia has a track record of closing local community hospitals once it has secured market position with control of all hospital facilities in the region.
In Fort Myers, Florida ill children were sent to another hospital over 100 miles away rather than send them to a nearby competing not for profit hospital which supplied paediatric services. 5 While Columbia/HCA claims to supply an integrated service, its competitive practices fragment the local system and "everyone suffers, not for the benefit of the patients but for the benefit of Columbia/HCA".
Columbia/HCA owns 14 hospitals in the Tampa bay area in Florida. In Tampa Columbia/HCA's clandestine meetings with trustees of Tampa General hospital were exposed by the St. Petersburg Times. Columbia/HCA promptly withdrew all its advertisements and banned the sale of the newspaper in its hospitals. 56
Allegations suggest anticompetitive practices like cherry picking profitable admissions and cream skimming. 5 A Columbia/HCA hospital was fined $55,000 in Florida in 1995 for patient dumping. Columbia proclaims its adherence to market discipline but market efficiency is consequent on the consumers freedom to shop around, and our minister of health has affirmed that this is the basis for his level playing field.44 Kuttner indicates that "Columbia's strategy works not just to produce cost economies but also to prevent shopping around and to allow Columbia/HCA to impose conditions that doctors and patients might otherwise resist." 5
Columbia/HCA is alleged to make every effort to scuttle the oppositions business ventures and mergers in order to maintain its market dominance. It has allegedly employed lawyers to induce the Federal Trades Commission to scuttle such a merger. It ran a critical advertising campaign and threatened to sue if the merger went through.95 It is suggested that they tried to trade a hospital sale to Columbia in return for "calling off the dogs". In a second case in Mississippi they lost an action which sought to prevent a merger, also in a battle for market share.97 The merging group claimed that Columbia/HCA were "recruiting like crazy to get our doctors. Columbia's sole goal is to divide and conquer and protect their company profits." The alleged use of confidential information in Kansas to poach the oppositions physicians has already been referred to. 97
When making overtures to physicians Columbia/HCA is alleged to have pledged that it "will utilize all appropriate resources to ensure the failure of any competing surgery centre in our community." 5 How appropriate this will be on our ministers level playing field.
In Columbia/HCA's takeover of not for profit hospitals it is alleged that the issues are often obscured by crafted press releases and public relations campaigns which misrepresent the nature of the "joint venture". 63, 64, 65, 66 Millions have been spent on public relations, on lawyers and on lobbying in order to resist oversight.
When the St. Petersberg Times learned of Clandestine negotiations between Columbia/HCA and the publicly owned Tampa hospitals it published this information. Columbia/HCA withdrew all its advertisement and banned the sale of the newspaper in its other hospitals. 5 In a similar childlike display of anger Columbia/HCA pulled out of the state hospital association in Georgia when other hospitals opposed its attempt to modify state laws. How appropriate is this for a player on Australia's level playing field?
Like NME much of Columbia/HCA's success is built on successful and very aggressive marketing. Mr. Vandewater has indicated that the market managers "are the fundamental reason we're better."10 Mr. Scott indicates a management philosophy of a "no jerks" hiring rule. (NME in contrast instructed its interviewers to "look for a shark".) Columbia/HCA's marketing expenditure was US $85 million in 1995, US $106 million in 1996 and it has budgeted to spend US $90 million in 1997. 105 It has launched a $50 million "branding campaign". It has been particularly aggressive in attacking its competitors in its advertising. Its public relations campaigns have portrayed not for profits as social parasites. 5 Richard Scott declared that "Nontaxpaying hospitals shouldn't be in business." Not for profits have been forced to respond by employing more managers and by entering the advertising battlefield. 94 The moneys spent cannot be put back into the community. Once again the question arises as to whether our minister feels that such public brawling about medicine between Columbia/HCA and our Australian church hospitals will represent productive competition on his level playing field.
Columbia/HCA has energetically advertised its hospitals accreditation record. 13, 16, 94 That there are serious concerns about the way in which hospitals obtain their accreditation is now clear. A July 1996 report from the public citizen health research group charged that the joint commission is "a captive of the industry whose quality of service it purports to measure."114 Legislation is being introduced to deal with this. Kuttner indicates that Columbia/HCA falsely advertised suggesting that they had won the Baldridge award for ambulatory surgery.5 When the Commerce Department wrote requesting that it cease the misrepresentation this was to no avail.
That senior Columbia/HCA staff have previously permitted fraud or looked the other way is revealed by the DAY ONE video. This video showing the misuse of advertising, the fraudulent admission of children, their retention in hospital and their abuse in search of profits in HCA hospitals was shown over a year after the whistle was blown on these practices by a doctor at a US House of Representatives Inquiry in April 1992. The practices continued and the hospital used the peer review process to rid itself of the whistle blower. Dr. Frist, was chairman of HCA at the time and became one of the big three in Columbia/HCA when it amalgamated soon after this. He could hardly have been unaware of what was happening.
Kuttner asserts that "A market culture and a market idiom are becoming pervasive, even among nonprofits" and " - - big nonprofits are now defensively emulating Columbia/HCA and other for profits."
[Top] - News Reports 24-28 March 1997 - Overall impressions:- 154 I have today (31/3/97) received faxed copies of extensive news reports from the New York Times and from The Wall Street Journal, national US papers. These are incomplete and not clear enough to copy. They give some indication of the basis for the FBI raids. Like NME these centre around medicare fraud and the ability of corporations to offer incentive arrangements with doctors which will induce them to comply with corporate practices which benefit the corporation financially.
As has been repeatedly emphasised by the stock market it is compliance by doctors in corporate practices and not the care provided to patients which generates profits. The article in the Wall Street Journal (2? March 1997) refers to the plaudits received by Columbia/HCA from Wall Street for its ability to form beneficial alliances with local doctors. The more care given cheaply and inadequately, the larger the profits. Patients captured by the managed care system have no choice. They get what the company decides to give them. This is the secret to success in a market driven health care system.
NME became enormously wealthy by buying doctors allegiance and it did not hesitate to break the law when it felt it could get away with it. Columbia/HCA works within the same marketplace. One of its strengths is its legal might and its political clout. Its lawyers have crafted their actions to attain the desired end of physician compliance without, they believe breaking the law. Representative Stark feels that they have broken the laws which he introduced to stop exactly what Columbia/HCA is doing. Clearly the FBI and other agencies believe that they will be able to prove a breach of the law, but this remains to be seen and it will be very costly.
The likely outcome is indicated by the fate of Tenet/NME. 252 Here a negotiated criminal plea was promptly followed by massive support from financial institutions as Tenet/NME went back to doing what it had shown it was so good at, forming partnerships with physicians and sharing values with them. The business community saw Tenet's skills in getting doctors on side as a key financial attribute and not as a failing. Criminal convictions were irrelevant and only the cost of doing business. This is what would be expected from closed minded business groups when social control is deficient. Tenet was very successful at finding alternate ways of accomplishing its goals and is now the second largest healthcare company in the USA.
Columbia/HCA is likely to enter into a negotiated, no wrongdoing proven settlement with the justice department paying a largely token settlement and then back to the business of circumventing the intention of the regulations some other way. This will be followed by more laws and more regulations in an attempt to patch the cracks in the system, as corporations find them.
The whole issue exemplifies the difficulties in regulating a process where the driving force, marketplace competition and profits is in direct conflict with the intended humanitarian objective of the process, patients care. The flaw lies in the misinterpretation and the misapplication of the presuppositions which underpin concepts of capitalism and democracy in US society, by viewing them in purely economic terms.
The USA has the Gringrich bit between its teeth and it is not ready to challenge this. Corporations have the financial resources, the lobbying might and the marketing skills to ensure that politicians don't challenge the concepts and to see that voters continue to vote out real change. Our government has set its sights on the same path. Tinkering with the US system as it is introduced into Australia will not address the fundamental conceptual deficiencies.
The critical issue however is not whether Columbia/HCA has overstepped the fine line between legal and illegal but whether its practice are ethical, and whether this is the sort of conduct which we would consider to be fit and proper within the Australian context. More broadly we need to look very hard at what is happening and decide whether this is the path which Australia should follow.
[Top] - Contents of the New York Times and Wall Street Reports:- 154 The New York Times has been studying Columbia/HCA for over a year monitoring its medicare billing and comparing its charges and practices with those of adjacent hospitals carrying out the same services. It found that the billing practices differed and that Columbia made much more money out of Medicare by the way patients were handled and by its billing practices. These figures it seems were made available to authorities and the current inquiries are a consequence.
[Top] - Billing practices:- The practices suggest "upcoding". About 100 illnesses such as pneumonia could be coded as simple pneumonia ($3150) or as complex pneumonia ($6800). Columbia gave employees doing the billing "focus codes" on which to concentrate. Columbia/HCA hospitals had a very much higher proportion of complex pneumonia codings. Large numbers of codes allowed this practice of inflating the seriousness of the illnesses. It is likely that doctors had to sign these codings. They would certainly have been aware of them.
Columbia/HCA also had a far higher number of payments for costly outpatient services like home care. They charged more for these services and used the services more. It was suggested that this was because physicians had an interest in these integrated Columbia/HCA services and so were rewarded financially when using these services. The concerns relate to runaway costs in this area. The concerns were that these services mostly benefited Columbia/HCA and not patients.
[Top] - Financial Relationships with doctors:- Tenet has agreements with doctors which circumvent the anti-kickback laws by giving them a financial interest in local integrated systems. Many contend that this is against the law but it has not yet been contested. The alleged consequence is that doctors refer patients to these services more often and even when they are not required. Competitors whose charges are less are not supported.
A lawsuit against Columbia/HCA by a firm which provides competing home care services has gone to court alleging unfair practices in an attempt to exclude them from the market in Texas and nationwide. They accuse Columbia/HCA of offering hospital staff incentives to refer patients to home care facilities affiliated with Columbia/HCA. The case alleges that physicians with staff privileges at acute care facilities were pressured and that there were collusive agreements and other arrangements with staff physicians.
A whistle blowers case against Columbia/HCA alleged that illegal kickbacks were paid including vacations, free offices, rent and opportunities to invest. The judge ruled that the case failed to substantiate that medicare or federal antifraud statutes had been violated. This case is perhaps representative of a number of others where medical whistleblowers have spoken out about medically unethical practices which the judiciary have not found to be illegal. 40, 43
There are concerns that like Tenet, Columbia/HCA paid doctors in part on the basis of the number of privately insured patients admitted. This practice apparently stopped in 1989 because some of the doctors were opposed to it. It nevertheless reveals the patterns of thought which drive Columbia/HCA's practices.
Columbia/HCA offered 20% investment in local hospitals allegedly to "steal" physicians from competitors and also to ensure the support of their own doctors in admitting paying patients to Columbia and nonpaying to not for profit hospitals (cream skimming). There are further allegations that Columbia/HCA offered inducements to doctors. These included fishing and hunting trips in Texas, Mexico, the Caribbean and Alaska. Some physicians were not comfortable with this.
The Wall Street Journal describes the case of Dr. Aboud who was offered $200,000 and entry into a 50% partnership in the provision of an oncology service in an El Paso hospital because he was a big admitter and money spinner. Columbia/HCA connived with him in circumventing his prior obligations entered into with another doctor. The doctor found out quite incidentally that he had been defrauded and eventually won his case against Aboud and Columbia.
[Top] - Practices during buying sprees:- There are concerns that executives in hospitals being sold to Columbia/HCA were offered inducements which may have violated laws against bribes. Persons in positions of responsibility received millions of dollars arguably for the purpose of affecting decisions. Executives knew that sums of money were available to people who delivered a hospital to Columbia. One Florida executive describes how he was offered a position at a Columbia hospital with investment opportunities to make him wealthy. The offers ceased when the hospital at which he worked was sold to a competitor. Another described how he was offered a trip to the super bowl with all expenses paid.
[Top] - Control of US Health system:- Columbia/HCA and Tenet Healthcare dominate the Federation of American Health Systems. This is a powerful and wealthy group which protects the interests of for profit hospitals.
[Top] - Legal record:- Columbia/HCA has settled actions taken by the Texas attorney general in regard to fraud in HCA hospitals similar to that in which NME was implicated. It has settled court actions with shareholders similar to that taken by NME shareholders following revelations about the way in which executives had run the business.
Columbia/HCA faces a rash of court actions and investigations relating to its purchase of not for profit hospitals, its alleged anti-competitive conduct and its dealings with physicians
In California the attorney general alleges that the joint venture proposal between not for profit Sharp Healthcare and Columbia/HCA is a breach of the charitable trust under which the hospitals were founded. 93 The board of directors of Sharp were considered to be in breach of their fiduciary duty and duty of loyalty to the hospitals. The hospital's assets were markedly undervalued in the sale and would cost the hospital's charity beneficiaries between US $100-200 million. The attorney general indicated concerns about the process of the sale which suggested a bias to one party. Essential information was denied to interested parties which raised issues of a breach of trust. Sharp entered into a standstill agreement with Columbia/HCA rather than face legal proceedings. They then abandoned the venture. An independent evaluator has been appointed to determine if laws have been breached.
In Michigan the attorney general took action in order to stop a joint venture between not for profit Michigan Affiliated Healthcare System and Columbia/HCA.104 The allegations indicated that an attempt was made to enter the venture without consulting the attorney general as was required by Michigan law. The attorney general was entitled to information under the regulations. This information was requested but had not been supplied in spite of four meetings in this regard; a breach of the "Supervision of Trustees for Charitable Purposes Act". The failure of the group to give a proper accounting of its assets was a further breach of this act. The company was also in violation of the Charitable Purpose Corporations Act in that the required 45 days notice had not been given to the attorney general and a certificate of need application had not been filed.
The action also alleges that the directors of the not for profit have violated their fiduciary duty in not giving adequate attention to alternative options. The participants had failed to obtain the required Private letter ruling from Internal Revenue Service. This was a breach of fiduciary duty. The transaction was in breach of the terms of gifts given to the not for profit organisation. It defeated the charitable purpose of these gifts. A court order was required before the charitable purpose of such gifts could be altered.
The transaction was also a violation of the Uniform Management of Institutional Funds Act. A court order was required before charitable donations could be used for any other purpose. The proposed transaction violated the terms of an earlier merger with another not for profit. The attorney general indicated that the agreement had been negotiated "behind closed doors, in secret meetings and conferences." The public and the attorney general were excluded. The attorney general called for a public disclosure. The attorney general asked for a restraining order and for an order requiring the parties to meet their legal responsibilities and requiring the attorney general to hold public hearings.
I am aware that there are a number of other legal actions being taken by community groups, by hospitals, by attorney generals and by doctors in regard to Columbia/HCA's conduct.5 I have heard that some of these actions allege unethical dealings with doctors. I do not have details yet and none of the actions have come to court.
The FBI and other government agencies raided Columbia/HCA's facilities on 19 March 1997 and reports indicate more widespread investigations. What charges will eventuate is not known.
[Top] - Disenchantment with Columbia/HCA:- 17, 18, 21, 24, 56, 63, 64, 69, 98, 114, 121, 122, 123, It is clear from the documents that there is widespread disenchantment with the business practices of Columbia/HCA. These relate not only to the purchase of not for profit hospitals, but to the secretive and uncompetitive manner in which this has been done and to the possibility that financial inducements were used to induce not for profit directors to part with public assets without considering the interests of the community.
Evidence indicates that the public claims made by the company are misleading and inaccurate, that it in fact competes poorly when compared with not for profit hospitals on all important and desirable measures, the measures which should operate on a level playing field. Its success is based on its corporate dominance in securing market share, on its anticompetitive practices, on its advertising muscle, on its high charges, on its reductions in staffing and on its ability to secure the allegiance of the medical profession. There are serious concerns and some court actions in regard to the manner in which it controls the medical profession.
There is widespread disenchantment with Columbia/HCA in the medical profession, in the nursing profession, and among the public. A number of community groups have been formed to oppose corporate activity and consumer groups have been active in prosecuting these matters. Legislation at a federal level seeks to control corporate pacman activity and to ensure community input. Legislation attempts to control the abuse of accreditation processes. Attorney generals in many states have intervened to stop mergers and purchases by Columbia/HCA. Public hearings have been held in several states including Rhode Island, Kansas, Alaska, Washington state, Colorado, Michigan, Nebraska and California prior to introducing legislation. 69,70, 71, 72, 73, 74, Submissions to some of these are included in the documents.
Pacman legislation has been introduced into several states. Legislation is being pushed rapidly into law in several other states. I have been told that 30 states are introducing pacman 75 laws to control Columbia/HCA's activities. It is therefore not surprising that Columbia/HCA is seeking opportunities outside the USA.
[Top] - Standards of care:- 5, 15, 29, 56, 114, 124b, 136, Following the revelations of the misuse and abuse of patients in the early 1990's corporations have been much more careful. No attempt has ever been made to properly evaluate the consequences of corporate conduct for standards of care. One is dependent on documents from NME, on videos such as the DAY ONE program and on allegations made by nursing staff and past medical whistle blowers.
The later consequences for doctors who successfully blew the whistle on fraudulent and dysfunctional conduct in the first few years of the 1990s is such that we will not again see doctors speaking out about criminal or substandard conduct. I believe that the US College of Medicine is conducting an investigation of for profit health care but I doubt that corporate medicine will give them the sort of access required to conduct a proper evaluation of care. At the present time there is extensive concern that standards of care may be substandard. Direct evidence is limited to the assertions by nursing groups and by accounts from individual nurses.
[Top] - Evidence of closed minded or sociopathic behaviour:- The response of Columbia/HCA's executives and staff support my assertion that people with closed minds and sociopathic characteristics will succeed in a competitive corporate health care market. The company's rigid adoption of a simple unequivocal market paradigm based on fast food outlets and its application of these principles in the face of all logic and intense opposition from the community is classical behaviour. In spite of the unethical nature and illegality in forming relationships with doctors which interfere with their practice of medicine, Columbia/HCA have sought means of circumventing the regulations in order to accomplish this.
Their business practices stretch the values and the laws of society to their limits. While claiming to be competitive on a level playing field they have made every effort to crush competition and have used their wealth and political might to accomplish this. They clearly feel that it is legitimate if they can get away with it. The uncompetitive manner in which they have conducted their purchase of not for profit hospitals is disturbing, as is their apparent willingness to accomplish this by offering inducements, whether legally or illegally. Their disregard for the responsibilities which US societies expect their hospitals to accept is reflected in corporate statements about free care and their alleged practices of patient dumping and cream skimming.
The responses to the FBI raids and the allegations published in the Wall Street Journal and the New York Times follow a closed minded dogmatic pattern. The large medicare bills for home care services "demonstrates its commitment to providing a quality continuum of care" and billing is "in complete adherence to all applicable laws". They argue that businessmen who own part of the business are more conscious of both "cost and quality".
When challenged about the offers made to executives in not for profit hospitals the response was that "the integrity of the company is impeccable". To write these responses off as deliberate dishonesty would be simplistic and miss their significance. We should entertain the possibility that the company's senior staff really do believe that their integrity is impeccable. The other explanations reflect business patterns of thought which the company adheres to. These people live in a world defined by their own language and they have developed techniques for insulating themselves from alternate points of view. Examination of NME's documents and responses showed similar patterns of belief. 152
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Part 5: - Mayne Nickless in Australia
References (Best opened in a separate window)
Background--The USA--Australia--Business Practices--Mayne--Conclusion--References
Last modified October 1998 J.M. Wynne
Minor changes in formatting August 2003