Columbia Hca Medicare Scandal

Case Study: Columbia / HCA and the Medicare Fraud Scandal

Central Facts of the Case

„X In 1997, Columbia/HCA Corporation was the largest health care company in the world

„X In 1996, Columbia Hospital Corporation was named the ÐŽ§Most Admired CompanyЎЁ by Fortune magazine

„« Clearly they were a well-respected, well-trusted company not too long before they were raided, and during a time that they were under investigation (not known to the public at the time) for fraudulent activity

„X Columbia was buying up as many hospitals and other health-related business as it could

„X Became a public company in 1990

„X Physicians were allowed to own a stake in Columbia/HCA hospitals

Major Overriding Issue / Related Questions

The overriding issue is that Columbia/HCA acted illegally and unethically in their dealings with the Medicare program. This raises the following questions:

„X Should doctors be allowed to be shareholders in hospitals? Physicians are not allowed to refer patients to institutions, such as home-health providers, that they own a stake in ÐŽV should this law be extended to hospitals as well?

„X Should hospitals / provider institutions even be allowed to be publicly-held, publicly-traded institutions?

„X Is the government at all at fault for fraud at institutions that administer their Medicare programs, due to cut backs that may have led to weak enforcement of the program?

„X Should a company be expected to abide by rules / regulations set forth by a program such as Medicare, without any outside enforcement?

„X Was the compensation system employed by Columbia/HCA the best-suited for their organization?

„X Was Board oversight sufficient ÐŽV could they have gotten involved sooner?

Evaluation of Company Actions

„X Went public ÐŽV allowed physicians to be shareholders

„« Physicians who were stakeholders have reason to watch their spending and comply with directives put in place by hospital management

„« Physicians should always have the interest of their patient in mind and this could cloud their point of view and their actions. They may be more apt to refer a patient to Columbia/HCA facilities whereas without a financial stake they may have referred them elsewhere. This is clearly a conflict of interest.

„« I questioned earlier whether hospitals should be allowed to be publicly-held. I realize that it is not Columbia/HCAÐŽ¦s responsibility to decide if it is legal for hospitals to be publicly-held, however, they could have decided that it is was not ethical or in the best interests of society as a whole, and for their patients, for their hospitals to be publicly-held.

„X Vertical Integration

„« An ÐŽ§integrated system of affiliated providersЎЁ can provide patients with continuum of care. Often times once a patient gets used to a particular hospital system they will use it for all of their care needs

„« Because they owned such a broad spectrum of services, the opportunity for ÐŽ§cost shiftingЎЁ presented itself ÐŽV and though illegal ÐŽV they took advantage

„X Compensation Strategy

„« Employees, specifically hospital administrators, were salaried below that of the competition ÐŽV although bonuses had the potential to double their earnings ÐŽV at the same time however, there was just as equal the chance to receive no bonus at all

„« At risk of receiving no bonus and with salaries already under market value ÐŽV hospital management had great incentive to do whatever it took to meet their goals

„« Ethical and legal grounds aside ÐŽV ColumbiaÐŽ¦s compensation structure was basically an open invitation for fraud

„X Warnings

„« The company knew trouble was on the horizon (raid in El Paso, NY Times article, etc.)

„« They could have initiated mitigation efforts but did not, rather they took the position of ÐŽ§business as usualЎЁ

Recommendations

„X Merge with another health system

„« As the case suggested, merging with another health system would allow for the other companyÐŽ¦s CEO to take the reins and allow Rick Scott to walk away

„« It is unknown how far-reaching Medicare fraud goes ÐŽV another health system may have the same issues that as of yet, have not surfaced

„X Sell off all non-hospital business

„« Would lessen the risk of cost shifting

„« However, with better oversight and audit, cost-shifting shouldnÐŽ¦t even cross someoneÐŽ¦s mind

„X Replace Rick Scott

„« Could be good from a public perception angle that a new leader is necessary to start over

„X Replace top management