Columbia/HCA’s $745 Mil Settlement Announced

Here’s more to the story, with lessons for study by the clin laboratory industry

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CEO SUMMARY: Although Columbia/HCA will pay the feds $745 million as part of its recent settlement, the facts of “Medicare fraud” are far from convincing. Wall Street Journal analyst Holman W. Jenkins, Jr. makes a strong argument that the government was able to pick on Columbia/HCA for a variety of reasons, most tied to former CEO Rick Scott’s unpopular efforts to consolidate and reform the hospital industry.

IT WAS LONG-AWAITED NEWS. On May 18, officials from Columbia/HCA Healthcare Corporation announced basic details of an agreement to settle, subject to certain conditions, the long-standing civil claims against the company alleging Medicare fraud.

A careful reading of the terms of this agreement indicate that the federal government will not get a whole lot more money than the $745 million specifically mentioned. Many experts had confidently predicted that Columbia/HCA would pay somewhere between $1.5-$2.0 billion to resolve the host of Medicare fraud and abuse claims filed against it.

Unwarranted Persecution

Probably the most cogent analysis of the Columbia/HCA “scandal” was published by the Wall Street Journal on May 24, 2000. Opinion page writer Holman W. Jenkins, Jr. characterized the government’s case as an unwarranted persecution of a company that played the upcoding game according to the unofficial “rules” of the Medicare system and its administrators. Holman points out that, in the 1980s and up until 1997, Medicare “routinely reduced payment levels to counter hospital upcoding, usually to the tune of 1% per year, or the equivalent of $2 billion in current dollars.”

He continues, writing “what this means is that any hospital that doesn’t cheat will actually get less money than it should. And thanks to the scare the Columbia crackdown put into hospital administrators, Medicare [per the Medicare Payment Advisory Commission recommendation] is pondering doling out an extra $1 billion a year to compensate [hospitals] for an epidemic of non-cheating.”

Holman offers as evidence these facts. During the years when Columbia’s alleged “frauds” occurred, Medicare intentionally underpaid hospitals, knowing that hospitals would shift costs onto the bills of private-pay patients. For example, in 1993, Medicare only paid hospitals 89% of the true cost of providing care to Medicare patients. In contrast, during 1998, the most recent year for such numbers, Medicare paid hospitals an average of 102% of the cost of treating Medicare patients. This change in Medicare funding was a direct result of HMOs squeezing dollars out of the hospital industry during the 1990s.

Good Guy/Bad Guy Roles

Another interesting observation of Holman’s was the good guy-bad guy roles assumed by Rick Scott and Columbia/HCA’s current CEO, Thomas Frist, Jr., M.D. Holman notes that Rick Scott directly challenged the hospital industry to change its business practices and consolidate unnecessary facilities.

Consequently, Scott was branded as the villain by the media, allowing Dr. Frist to wear the white hat and clean up the “scandal.” However, Holman observes that one of the key claims against Columbia/HCA, that they kept “two sets of books” for reserve accounting, was a business practice not followed at Columbia prior to its acquisition of HCA (then owned by Dr. Frist) in 1994. But it was part of HCA’s business operations, and was imported into the post-merger Columbia/HCA after 1994.

Politicized Management

The entire Columbia/HCA mess is an example of politicized management of the government healthcare system. Holman’s characterization of how Columbia/HCA responded to this situation is a classic example of the bureaucratic Catch-22. He states “Dr. Frist, in short, has made lemonade out of the lemons. If his company was guilty of overcharging Medicare, it did so when Medicare was deliberately underpaying. Now he’s kicking back a modest rebate at a time when Medicare is finally carrying its own weight. This is the Medicare reimbursement equivalent of buying low and selling high.”

For the clinical laboratory industry, there are some interesting lessons in the Columbia/HCA experience. First, laboratory reimbursement pricing and guidelines are not established to be fair and reasonable. Quite the contrary, they are created to game the system in favor of the Medicare program. A look at the past 15 years of changes to laboratory reimbursement bears eloquent testimony to this fact.

Second, the clinical laboratory industry and the pathology profession will never attain negotiating strength with HCFA until there is uniformity of action. The disparate interests of commercial labs, hospital labs, specialty labs, and pathologists have failed, during the past two decades, to blunt the effectiveness of HCFA bureaucrats at carving money out of the lab industry’s reimbursement schedules.

A Feeding Trough

Third, it is time for laboratory executives and pathologists to set aside their rose-colored glasses and see the government healthcare system for what it really is: a highly-politicized feeding trough for voters and healthcare providers. Since the 1960s, money from Medicare and Medicaid has fueled explosive growth in the American healthcare system. There are vested interests who want to see this money continue.

For these reasons, THE DARK REPORT believes that the Wall Street Journal’s assessment of the Columbia/HCA “scandal” is on target. It is a timely lesson that the operation of the Medicare program is fraught with its own byzantine politics. For the laboratory industry to get a better financial deal in the 2000s than the 1990s, it will have to become a lot more pragmatic about making its case with Congress.


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