Probe of Columbia/HCA Generates Indictments

Look for laboratory billing practices to play significant role as the investigation expands

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CEO SUMMARY: Hospital laboratory executives should pay close attention to how federal prosecutors develop their case against Columbia/HCA. Earlier “Labscam” settlements with commercial laboratories and hospital laboratory billing practices centered around restitution and fines for improper billing. In the case of Columbia, criminal charges against key executives will be an overarching part of this investigation.

NASHVILLE-BASED hospital giant Columbia/HCA Healthcare Corp. now dominates national headlines. FBI raids and recent indictments point to serious problems with how Columbia billed Medicare and Medicaid programs.

Of equal concern to federal investigators are referral and compensation arrangements between Columbia hospitals and physicians. Apparently any type of violation will be considered in this far- ranging investigation, as the first indictments against Columbia officials deal with how a Florida hospital owned by Columbia “submitted fraudulent reports to three fiscal intermediaries.”

Billing for CBC testing (complete blood count) is a part of the investigation. Several physicians employed by Columbia were interviewed by FBI agents prior to the July raids. These physicians told the media that FBI agents worked from prepared scripts of questions four or five pages long. Questions dealt with how blood tests were ordered by emergency room doctors. From statements by these physicians, it appears FBI agents were seeking information about whether more laboratory tests were performed than those ordered by the doctor, as well as whether those same tests were medically necessary.

“With the indictment of three executives of Columbia/HCA Healthcare Corporation, law enforcement officials are sending a powerful message to administrators and financial executives in the healthcare industry: Be very afraid.”
-Kurt Eichenwald
New York Times

During the raids, at least one hospital was specifically probed about laboratory billing practices. Columbia Tulsa Medical Regional Medical Center was asked to provide data on outpatient laboratory tests going back to 1991. This was four years before Columbia/HCA acquired the hospital.

Laboratory executives in both commercial and hospital labs should carefully follow this investigation of Columbia/HCA. Healthcare fraud has become a major priority of the Department of Justice (DOJ). Future investigations and settlements will be unlike the earlier Labscam settlements with the major commercial laboratories. In the Columbia case, federal prosecutors are coming after the alleged violator with fangs bared and claws unsheathed.

This raises the stakes for lab executives in both commercial and hospital laboratories. Earlier Labscam settlements tended to result in the laboratory agreeing to repay the amount improperly billed, plus some penalty. In only two cases were criminal charges a part of the federal settlement with the offending laboratory.

The Columbia/HCA case represents a watershed change in how federal prosecutors use criminal indictments against healthcare executives. First, there has been high visibility by the FBI in the Columbia case. Raids to seize company records in El Paso in March and 35 Columbia hospitals in seven states in July were well-publicized by the national media.

This high-profile involvement by the FBI raises the ante for government prosecutors. If they cannot make a case against Columbia, there will be criticism by both Congress and the public about undue harassment of a wrongfully accused private company.

Evidence Gathered Early

Remember Richard Jewell in the Atlanta Olympic bombing last summer? The FBI wants no repeat of that episode, so it can be assumed that evidence gathered early in this investigation gave government prosecutors a high degree of confidence that they will extract a major settlement from Columbia. Confidence in prosecutors’ belief they have a strong case is further indicated by the fact that 700 federal agents are involved in the Columbia investigation.

Second is the use of criminal indictments early in the development of this case. The three indictments unsealed in Florida last week provide graphic proof that criminal charges against individual executives at Columbia will be a major part of this investigation.

That is why laboratory executives should pay attention to the details of this case. It will provide them with knowledge about the new legal approaches used by government prosecutors to investigate and punish alleged cases of Medicare fraud and abuse. In particular, the increased attention to criminal indictments of individual managers is a key difference from earlier settlements.

Another interesting twist to the Columbia story is also a warning to laboratory executives. Private insurers are investigating as to whether Columbia overbilled them. In particular, they want to know if reimbursement claims were inflated or they were charged for unnecessary services.

Details About The Earliest Indictments Involving Columbia/HCA Executives

GOVERNMENT PROSECUTORS UNSEALED indictments last Wednesday against three Columbia executives. The indictments accuse the three of engaging in a conspiracy to defraud the government going as far back as ten years.

The charges revolve around government claims that the three executives inflated the amount of money Columbia was to be reimbursed by the federal government. Specifically, the three executives are accused of illegally manipulating cost-accounting processes to allow 100% of certain types of debt to qualify as reimbursable by federal programs such as Medicare and CHAMPUS.

Named in the indictment were Jay A. Jarrell, Michael T. Neeb and Robert W. Whiteside. All three served in Columbia’s Florida region and face prison terms of as much as 25 years and up to $1 million in fines.

This is the first round of indictments. Prosecutors’ strategy will be to get cooperation from these individuals in order to implicate higher ranking officials within Columbia/HCA. During the next six months, further indictments of Columbia/HCA executives should be forthcoming.

Lab Practices Scrutinized

Evidently an attorney representing several major insurance companies is traveling throughout the country. This attorney is interviewing ex-Columbia employees specifically to investigate possible claims in Columbia’s billing of home-health services and clinical laboratory work. However, other general billing practices are of interest.

During Labscam, the private insurance industry did not pursue possible claims against commercial laboratories. This was probably for three reasons. First, there was no precedent for considering issues of test unbundling and medical necessity as fraudulent, particularly in the private sector.

Second, the statute of limitations for civil action probably influenced decisions as to whether and how to proceed with civil recovery suits against the large laboratories.

Third, the cost of pursuing such lawsuits versus the potential recovery probably dissuaded private insurers from filing civil suits against the major commercial laboratories.

Finally, even as managed care was transforming the laboratory industry and healthcare in general, so also were private insurance companies undergoing a similar upheaval. It was not an executive priority to attempt the recovery of money from commercial laboratories for billing practices which were not considered inappropriate at the time.

New CEO At Columbia Has Ethical Concerns

BY LAST WEEKEND, Columbia’s high-profile President and CEO, Rick Scott was out. In his place, the Board of Directors appointed Thomas Frist, Jr., M.D. as CEO.

Frist and his father founded Hospital Corporation of America, which was acquired by Columbia in 1994. Frist is already pulling Columbia out of negotiations for a variety of business enterprises. It is known that both he and his father were concerned about the direction Columbia was taking and its emphasis on financial performance rather than the quality of the heathcare.

Waiting in the wings is another potential double play. A merger of Columbia with Tenet Healthcare has been discussed. Also, Tenet’s CEO, Jeffery Barbakow has been mentioned as a possible CEO for Columbia. Barbakow was originally hired by Tenet to resolve federal charges of Medicare fraud at Tenet’s predecessor company, National Medical Enterprises.

Private Insurers Investigate

So why would private insurers now choose to investigate and pursue claims against Columbia? Knowledgeable observers tell THE DARK REPORT that the potential amount of money to be recovered from Columbia is immense if it can be proved that the company billed for services not performed, unbundled or upcoded without justification.

In addition, these same individuals speculate that, as private insurance plans acquire knowledge and expertise in how to investigate such abuses, there is an equally lucrative opportunity to pursue claims against other healthcare providers. This could include clinical laboratories.

To understand why government prosecutors have become so aggressive in prosecuting healthcare fraud, it is important to look at how government enforcement works.

Problem Becomes Obvious

First, government enforcers generally do not act until a problem is so obvious that it cannot be ignored. Alternatively, publicity about a problem can create enough embarrassment over their lack of response to spur them to action.

C. Jack Dowden, the original whistleblower in the National Health Laboratories case, has told THE DARK REPORT that government regulators not only ignored his formal approaches to notify them of the abusive practices in laboratory billing of Medicare, but they even argued among themselves as to whether they should proceed after they joined Dowden’s qui tam (whistleblower) lawsuit against NHL.

According to Dowden, these spirited internal disagreements continued even up to the night before NHL signed the $110 million settlement in 1992. Dowden believes that government enforcement generally is too little, too late. When the crackdown finally comes, offenders often feel like their prosecution is unwarranted, excessive or unreasonable.

Defending “Righteousness”

The second factor which motivates government enforcers is their feeling that they are defending “righteousness.” If an offender has knowingly violated the law, then punishment should be swift and powerful. Let the offender’s sentence send a message to the public.

It was precisely this motivation to “send a message” which increased the penalties Ohio hospitals were required to pay in the investigation reported by THE DARK REPORT in July, 1996.

In that interview, Assistant U.S. Attorney James L. Bickett explained why prosecutors were seeking large penalties on top of the repayments of improperly billed amounts. “We have told hospitals that it is no longer the old ball game. Under those rules, if we catch you, you pay without interest. That is why each of these settlements contain compliance provisions. On a go-forward basis, we want to see more effective management involvement in compliance and oversight functions within the hospital. Also, the settlement amounts reflect a penalty amount and costs of the investigation are being recovered through the settlements.”

Prosecutors’ Attitude

Bickett’s comments reveal that the attitude of prosecutors becomes increasingly unsympathetic as they come to believe that healthcare executives are “gaming the reimbursement system” illegally, without fear of punishment.

For this reason, the investigation into Columbia/HCA may develop into a major case, with record fines. It is no secret that Columbia is viewed as more than the 800-pound gorilla in the hospital industry. It had become the Godzilla monster which was wreaking havoc on competing hospitals in markets where it was most aggressive. This lack of popularity and respect will not serve Columbia well during the course of this investigation.

THE DARK REPORT predicts that the hospital laboratory segment of the industry has not seen the last of federal investigators. As prosecutors continue to successfully settle additional cases of healthcare fraud and abuse, laboratory billing practices will remain in the gunsights.

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