The Rise and Fall

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 Columbia Story

Corporate Philosophy

Allegations of unsavoury behaviour at the time of the FBI raids

1. PACMAN activity
2. Shortchanging the community and patients
3. Relationships with doctors
4. Misusing integrated systems
5. Market control
6. Marketing
7. Billing practices

Useful sources

Columbia Healthcare was formed in July 1988 by Richard Scott, a lawyer and Richard Rainwater, a financier. It was formed in partnership with 120 physicians. It bought two hospitals in El Paso, Texas. In May 1990 it bought a laboratory company and listed on the stock exchange.

In September 1993 Columbia merged with Galen Health Care which had earlier been spun off from Humana. It now owned 99 hospitals in the USA and internationally. It expanded its policy of selling ownership stakes to physicians in order to bind them to the corporations profit mission

In February 1994 Columbia merged with Hospital Corporation of America (HCA) to form Columbia/HCA, now a US $10 billion company. Scott becomes president and CEO. HCA's chairman and CEO Thomas Frist MD Jnr became vice chairman. Columbia/HCA now enjoyed the political support of the two Frist family US senators.

A year later Scott moved the headquarters from Louisville to Nashville.

In April 1995 Columbia/HCA acquired Healthtrust for US $ 5.6 billion. McWhorter, Heathtrust's CEO became chairman but was later replaced by Scott.

In a contentious purchase which divided the church Columbia/HCA acquired half of a Roman Catholic group in Cleveland in May 1995. During 1995 Columbia/HCA purchased or formed joint ventures with 33 not for profit hospitals.

In March 1996 Columbia moved to purchase the not for profit HMO's Blue Cross and Blue Shield. This was met with a public outcry. Columbia/HCA persisted in its efforts but when the FBI raided its hospitals in March 1997 it was forced to abandon the deal.

In August 1996 the New England Journal of Medicine published two articles by Robert Kuttner attacking Columbia/HCA's business practices and its corporate philosophy.

In October 1996 the 60 Minutes national TV program screened a hard hitting exposure of Columbia/HCA's practices.

In November 1996 Columbia/HCA's PACMAN activity in purchasing not for profit community facilities received another setback when the California's attorney general blocked its $202 million bid for the assets of San Diego-based Sharp Healthcare. He claimed that Columbia/HCA undervalued the system.

By December 1996 attorney generals across the country had stepped in to scrutinise and check Columbia/HCA's purchase of not for profit hospitals. It had acquired only 17 during 1996.

Frustrated in its profitable PACMAN activities Columbia turned its eyes elsewhere. It made a bid to acquire Value Health, a benefits management company. It also looked to expand its international operations. It bought a managed care group in the United Kingdom.

Representative Pete Stark, who years before piloted the Stark anti-kickback legislation into law was particularly critical of corporate for profit medicine and of Columbia/HCA. He 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." 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."

In February 1997 Scott claimed that 1996 was the company's best year ever. Its net income was US $1.5 billion on US $19.9 billion revenues. Its stock reached US $43.88, an all time high. It owned over 350 hospitals. It announced its plans to spend US $1 billion to enter and rejuvenate the Australian health care marketplace. It bid to buy the French company Generale de Sante Internationale (GSI), the largest in Europe.

In March 1997 federal agents raided Columbia/HCA's El Paso operations, the facilities where Columbia first began its controversial policy of encouraging doctors to buy stakes in its hospitals. This circumvented the intention of the Stark anti-kickback laws.

There was widespread adverse publicity about the company's billing practices and its relationship with doctors. The New York Times published the results of its analysis of the company's disturbing billing practices.

Columbia/HCA abandoned its attempt to enter Australia and its bid for GSI was rejected. Australia, France and medical associations in Europe were all well informed of the concerns about the company and in possession of documents.

Scott arrogantly declined to talk publicly about Columbia/HCA's fraud problems and it was left to Thomas Frist to placate critics.

In July 1997 Federal agents executed search warrants across the USA seizing documents relating to laboratory and home care services. Scott resigned and was followed soon after by David Vandewater, president and COO. Thomas Frist became chairman. Columbia approached Tenet/NME with the view to am merger. This would have enabled it to capitalise on Tenet/NME's experience in a similar situation. The merger fell through.

The company saw itself as providing "fast-medicine". It modeled itself on Macdonald's and Walmart. In promoting the Macmedicine model of care Scott followed NME's John Bedrosian in arguing that "free market, competitive forces should be the driver". He was scathing about not for profit health care and did not think that they should be in business. His attitude to the community's health, to preventive medicine and to the care of the poor is reflected in his rebuttal of the concerns of others . He stated "We are not in the health care business. We are in the sick care business."

Columbia/HCA adopted a very aggressive commercial approach. It paid little service to the ethics of the professions and employed teams of lawyers to stretch the law as far as it could. Profit and growth were the measures of success and dominated all decision making.

PACMAN activity:- Columbia/HCA's lawyers allegedly moved in and opened secret negotiations to buy or merge with not for profit community hospital directors. The public and doctors were not told until the sale was completed. Often the sale price was not made public.

Regulations required for profit chains to continue preexisting services after buying not for profits. To circumvent this non paying community services run by not for profits were quietly terminated prior to the sale. Community assets were bought at prices well below their market value. Board members and executives selling not for profits benefited financially. There were concerns that they were offered inducements which may have violated laws against bribes. There were claims that money intended for community projects was subverted.

Shortchanging the community and patients:- Columbia was accused of anticompetitive behaviour and of giving financial considerations priority over community needs. Decisions were made centrally and not at the community level. There was a lack of commitment to any particular community.

Columbia/HCA was alleged to have closed needed local community hospitals once it had secured market position with control of all hospital facilities in the region.

It was claimed that when compared with not for profit services it did not invest in costly services as readily and the amount of charitable and indigent care provided was much lower. Charges were consistently higher and any cost savings were due to one factor only, staff reductions. This was not as claimed due to purchasing power. They were accused of cherry picking profitable admissions, cream skimming and patient dumping

Larger profits were made by Columbia/HCA through charges which were substantially higher, by not providing expensive and less profitable services, and by reducing staff levels. These profits were passed to shareholders and did not benefit the community.

Relationships with doctors:- As with Tenet/NME control of the profession by a variety of financial strategies was critical to Columbia/HCA's success. The business community saw nothing wrong with such unethical and often illegal practices. The Wall street journal reported that Columbia/HCA received plaudits from Wall Street for its ability to form beneficial alliances with local doctors.

The company allegedly offered doctors incentives to secure their compliance, ensure their loyalty and their patients. Doctors were offered investments in the hospital in such a way that the profits made would be linked to their increased utilisation.

There are allegations that doctors were offered fishing and hunting trips in Texas, Mexico, the Caribbean and Alaska as inducements. They were paid illegal kickbacks including vacations, free offices, rent and opportunities to invest. These were exactly the sort of allegations made about Tenet/NME 6 years earlier. Columbia/HCA allegedly used its power over physicians to secure profitable patients for their hospitals by "cream skimming".

Columbia/HCA's business strategies in dealing with doctors were particularly unpleasant. It is claimed to have used confidential information obtained during failed merger negotiations to improperly recruit physicians. It assured doctors joining its clinics that the company would use all their resources to ensure that any competing medical services failed. They were alleged to have used uncompetitive strategies to destroy competition from rival clinics.

Misusing integrated systems:- While Columbia/HCA strongly promoted its integrated system this served the company's shareholders and not the community. Instead of integrating with other services it was claimed that its "sole goal was to divide and conquer and protect their company profits."

Its behaviour was anticompetitive. Robert Kuttner analysing its conduct indicated 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."

It used its own integrated system to maximise services and profits. It had a higher number of payments for costly outpatient services like home care. It charged more for these services and used the services more. This was facilitated by agreements with doctors which circumvented the anti-kickback laws by giving them a financial interest in local integrated systems. One competing home care service went to court alleging unfair practices in an attempt to exclude them from the market in Texas and nationwide. They accused Columbia/HCA of offering hospital staff incentives to refer patients to home care facilities affiliated with Columbia/HCA

Market control:- Kuttner stated that "Columbia/HCA insists that medicine is a business, and increasingly imposes its rules on the competition game." It attempted to become a managed care company while remaining a provider. Carl Ginsburg writing in The Nation said "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."

Marketing:- Like Tenet/NME the company considered marketing as a most important activity and central to success. Its marketing budget sometimes exceeded US $100 million a year. It was particularly aggressive in attacking its competitors in its advertising. Its public relations campaigns portrayed not for profits as social parasites.

In prosecuting its PACMAN activities the issues were often obscured by crafted press releases and public relations campaigns which misrepresented the nature of the "joint ventures".

There were concerns about the way in which hospitals obtain their accreditation and the way they advertised some of this. They allegedly falsely advertised suggesting that they had won the Baldridge accreditation award.

Billing practices:- The New York Times analysis identified "upcoding" occurring in Columbia/HCA hospitals. 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. This practice of inflating the seriousness of the illnesses was very profitable because of the large numbers of codes allowed

At the end of March 1997 the FBI raided Columbia/HCA's hospitals and there was a rush of sometimes confusing press reports describing what the company had been doing. At the time I tried to bring all of it together as part of a submission. I have put this on the www. It explored the allegations in greater depth.

CLICK HERE to go to this section of the submission.

I used the information which became available at this time and during the next 6 months as well as information about Kaiser as a means of saying "I told you so". I wanted to show how valid the assertions and predictions I had made over the preceding years had been and draw them together. This also addresses some of these problems in Columbia/HCA in more detail and links them to the behaviour of others and the operation of the marketplace. By this time things had started to sort themselves out.

CLICK HERE -- to link to "I told you so" and more information about Columbia/HCA's conduct.

Kuttner R. "Columbia/HCA and the resurgence of the for-profit hospital business" New Eng. J Med. 1/8/96 p 362, 8/8/96 p 446

The patient as a profit centre: Hospital Inc. Comes to Town. The Nation 18/11/96

The New York Times and The Wall Street Journal - articles Columbia/HCA 24-29 March 1997

Bruce Japsen "COLUMBIA'S HIGHS AND LOWS" Modern Healthcare July 28, 1997 Page 3 - News

US Congressional Record

• The Raiders are coming - and I don't mean the football team -- 10/9/96
• The pursuit of profit: Nonprofit hospitals become the big public giveaway of the nineties - 9/1/97
• The Accreditation accountability act of 1997 - 13/2/97
  
  contents . . . . . . Go to Part 2

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LINKS TO MAPS
Central Map ..... Initial Map ..... USA Map ..... Australian Map ..... International Map ..... Corporate Practices Map..... (to print)

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Path
Home Page .... US Corporate Page .... Access to Columbia/HCA

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Overview 1 (1997) ... Overview 2 (2000) ...Overview 3 (2003) ... Patients ... I told you ... Licenses

Columbia/HCA submission pages
Background--The USA--Australia--Business Practices--Mayne--Conclusion--References

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This page created April 2000 by Michael Wynne
Minor editing August 2003