Bad Practices

FLORIDIANS EXPECT A HURRICANE now and then. But none ever hit the Sunshine State like Columbia/HCA Healthcare Corp. In four years, the Nashville, Tenn.-based hospital chain went from owning six hospitals to 67, or one of every three beds in Florida. Columbia poured lobbyists into Tallahassee, and profoundly altered the practice of medical care in the health-obsessed state, home to millions of retirees. Medicine became big business. Patients turned into profit centers; their many ailments, product lines. Columbia offered doctors equity partnerships, allegedly in return for referring patients to its facilities. The health-care giant scarfed up sleepy, local not-for-profit hospitals, many of which never knew what hit them. Wall Street cheered, and Florida's editorial writers screamed. ""Columbia really pushed the envelope here,'' says Richard Rasmussen of the state's Association of Community Hospitals and Health Systems. ""There was a serious clash in values.''

Why the rush into Florida? Medicare, most likely: about half the state's hospital users are on it, billing procedures are loose and Florida's elderly were a rich trove waiting to be exploited. But last week Florida struck back: federal prosecutors in Ft. Myers charged three Columbia execs with defrauding the U.S.-government insurance plan for senior citizens. The move came only days after Columbia's ambitious cofounder, Richard Scott, resigned under pressure from a nationwide federal investigation into Medicare abuses.

Now the $20 billion hospital chain, the largest in the nation, faces a torrent of troubles. Investigators say many of the practices being cited in Florida occurred nationwide. A senior Justice Department official told NEWSWEEK that more Florida indictments are likely in coming months, probably followed by others elsewhere. He says it's too early to say how far the probe will go - or whether it will extend to Columbia's top officers in Tennessee - but he adds that it's ""safe to assume'' the indicted execs are being ""squeezed'' to implicate higher-ups. Meanwhile, major private insurers, prompted by the federal probe, have begun their own investigation of similar alleged abuses by Columbia/HCA. Among them: ""upcoding,'' or pressing hospitals to bill for more expensive procedures than are justified or performed, and ""unbundling,'' or billing separately for tests and treatment that are really part of the same diagnosis. One possible result: a slew of lawsuits from insurers.

All this is a comeuppance for Columbia/HCA, which critics say displayed an unhealthy thirst for profits among the nation's for-profit hospitals. ""Columbia got carried away,'' says Rep. Pete Stark, Democrat of California, who's on the House subcommittee on health and is a longtime critic of the company. ""They got too greedy. They got too smart. They crossed over the line.'' Even Thomas Frist, Columbia/HCA's new chairman, agrees that the company's main problem was the frenetic pace of its growth under Scott. ""If the prior management had just slowed down . . .'' he told NEWSWEEK. Frist, a doctor himself, says he plans to cleanse Columbia's corporate culture. He has ordered an end to doctors' equity stakes in hospitals - declaring them a conflict of interest. ""Those things are within the letter of the law as far as I know,'' Frist says. ""But if you're going to be leader in any industry, you have to put yourself to a higher test.''

That might be smart. For prosecutors, Columbia/HCA has become the test case in a major federal assault on Medicare abuse. ""This is just the beginning of an extraordinary effort on our part to get fraud out of the system,'' says Donna Shalala, secretary of health and human services. Last month, for the first time ever, Health and Human Services' (HHS) Health Care Financing Administration issued a report documenting serious abuse - $23 billion worth of ""improper'' payments - in Medicare. Why so much? Because until now, Medicare has been an easy target for scams.

With murky billing rules and scant enforcement, Medicare abuse became a gushing revenue stream for the medical industry. Hospitals nationwide have inflated Medicare bills, especially as HMOs and private insurance companies slashed fees and Congress cut back on funding. ""Diagnosis creep,'' or upcoding, was one tactic. So was an explosion in the number of lab tests, for which the markup is huge. No company was more aggressive than Columbia/HCA in pursuing such angles, sources say, but even august teaching hospitals like the University of Pennsylvania have been caught in the act (Penn paid $30 million back to the government after being audited last year). ""It's endemic,'' says Shalala. ""There are consultants around the country that went around and taught institutions how to maximize their profits'' by jacking up Medicare claims.

Abuses are so much a part of the system that investigators say many big health-care concerns simply factor anticipated fines into their budgets. ""For these big private hospitals, a fine is like a drug dealer losing a load,'' says Sherrill Frew of the FBI's Miami office. ""It's just the cost of doing business. We're not going to let that happen anymore.''

The newest, and some say biggest, scam is home health care. Another HHS audit out last week suggested that in four states - New York, California, Texas and Illinois - a full 40 percent of home-care visits claimed under Medicare were not justified. ""I think that's appalling,'' says June Gibbs Brown, the HHS inspector general. ""It's a very worrisome figure: this is the fastest-growing area of health care.'' Until the new budget bill passed by Congress last week, there were no restrictions on nurse visits funded by Medicare.

Critics say much more is going to change. The FBI has increased its health-care fraud probes from just 365 cases in 1991 to 2,200 last year. Criminal prosecutions have soared from just 83 in '92 to 246 last year. Now the Feds will push for more prison sentences. Hospitals have been running scared since last year's Kennedy-Kassebaum bill, which mandates $500 million in fiscal '98 for Medicare ""integrity'' probes. Even in south Florida, where drug- and gang-related violence is rife, a stunning shift has occurred in the past two months. In the FBI's Miami field office, health-care fraud has topped violence as the main priority, after high-level drug deals, says Frew.

""A lot of for-profit health services are going to get religious real quick,'' says Stark. ""It's one thing to risk ridicule for not making your quarterly profit projection. It's another thing to risk going to a minimum- security prison.'' That's a distinction that Columbia/HCA execs may learn soon.


Improper payments of Medicare benefits for 1996 are estimated at $23.2 billion, or 14% of the more than $168 billion in fee-for-service payments reported.

                                        ESTIMATED DOLLARS   PERCENT

Lack of medical necessity                     $8,529        36.78%
Insufficient documentation                     7,596        32.75
No documentation                               3,250        14.01
Incorrect coding                               1,978         8.53
Noncovered or unallowable services             1,219         5.26
Other                                            620         2.67
Total                                        $23,192       100.00%

FY 1996
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