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Learning from the Past - Hospital Corporation of America (hca)

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In 1986 Hospital Corporation of America (HCA) was founded by a team doctors, Dr. Thomas Frist, Sr., Dr. Thomas Frist, Jr., and Jack C. Massey. HCA began providing health-care services to Park View Hospital in Nashville, Tennessee, and the firm quickly grew over several years by purchasing and constructing new hospitals. In addition, HCA was contracted to provide the same services to several facilities, and in 1994 HCA merged with another health-care service provider, Columbia Hospital Corporation, to become Columbia/HCA Healthcare Corporation. With the merger of both companies Columbia/HCA became the largest health-care service provider in the United States which included 350 hospitals, 145 outpatient surgery centers, and about 550 home care agencies (www.hcahealthcare.com, 2011, May 25). The services were offered to thirty-seven states, and it expanded the United Kingdom and Switzerland. Columbia/HCA was managed by Columbia founder Richard Scott, and his vision was to work with employees and physicians to focus on the well-being of people by providing advance technology, information systems and cost-effective healthcare. Richard Scott's vision changed, and Columbia/HCA was able to build a large chain of hospitals based on financial performance and cost effectiveness.


Upper management soon lost their ethical standards and focused solely on performance and new business acquirement. This lead to critics challenging Columbia/HCA's ethics, and accusing them of putting profit ahead of the well-being of people.

Issues and stakeholder analysis

In 1997, the Inspector General's Office of the Department of Health and Human Services was considering fining Columbia/HCA for "patient dumping". Patient dumping is when a hospital discharges or transfers emergency-room patients from the hospital before they are in a stable condition. "A hospital with 100 beds or more can be fined as much as $50,000 per patient violation," stated Thomas Herrmann, chief of administrative litigation in the office of the counsel to the Inspector General (Bloomberg Business News, 1997). In addition to the alleged patient dumping, Columbia/HCA faced a government investigation for filing false cost reports. The reports were centered on Fawcett Memorial Hospital in Port Charlotte, Florida, where a raid was conducted on July 1997 (Lutz and Gee, 1998, p. 12). The FBI discovered that Columbia/HCA was gaining profit by overcharging Medicare and other federal health programs. This was done when an executive would bill the government for non reimbursable interest expenses. Moreover, fraudulent overstated or mis-categorized expenses would inflate the amount for which the firm sought reimbursement. The FBI also found that the hospital had set aside money to return to the government in case auditors caught the inflated figure. This was common among several hospitals because medical billing can be interpreted differently and some expense clams could be related. These related expenses could then fall within the realm of allowable Medicare reimbursements. For this reason some hospitals keep two sets of accounting books. One set is provided to Medicare, and the other includes the records with money aside in case auditors interpret the Medicare cost differently (Lutz and Gee, 1998, p. 14). The problem with this, and the reason why Columbia/HCA ended up in hot water, is that certain claims are not allowed yet they were still filed in the second set of accounting books. Reporter Liz Freeman states that John Schillings, a former reimbursement supervisor of Columbia/HCA found the two books with the overcharges. She reported:

[Columbia/HCA] district executives conspired to keep the mistake under wraps and keep the ill-gotten gain. [Schilling] soon found record irregularities going back at least 10 years.

"I exposed a double set of books," [Schilling] said, adding that one set was inflated cost reports for the federal government and the second was for internal purposes.

"The second was stamped confidential and don't show to Medicare auditors," Schilling said. "We estimated alone in 10 years over a billion in overpayments to the chain." (Freeman, 2010)

Schilling along with James Alderson, an accountant at a Montana hospital, alarmed the FBI to conduct the investigation. Soon after the investigation CEO Richard Scott and COO David Vandewater resigned, and Dr. Thomas Frist Jr. became chief executive officer.



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