Richard L. Scott: Trials And Tribulations At Columbia/HCA

May 12, 2009 11:05 am ET

After building Columbia/HCA into a health care megapower, Richard L. Scott was ejected amid a federal investigation.  While Scott was never accused of a crime, Columbia/HCA admitted to "systematically overcharging the government" and increasing "Medicare billings by exaggerating" illnesses.

Columbia/HCA, Inc., 1987-1997

"The future belongs to whoever best measures quality of care and then markets it the best. Whoever does will absolutely control the market, and everyone who doesn't will disappear." - Richard Scott [Business Week, 4/8/96]

Richard L. Scott Founded Columbia Hospital Corporation/HCA, Inc. In 1987.  According to the Richard L. Scott Investments, LLC website: "In 1987, Richard L. Scott founded Columbia Hospital Corporation (later renamed HCA, Inc.) and began a decade-long effort to build an integrated health system designed to meet the needs of the healthcare consumer." [RLSI.net, accessed 2/26/09]

Scott Teamed Up With Richard Rainwater To Launch Columbia Hospital Corporation.  Business Week reported, "on Oct. 19, 1987, the day of the stock market crash, [Richard E.] Rainwater launched Columbia Hospital Corp. with a rambunctious health-care buyout specialist named Richard L. Scott. Putting up $ 125,000 each, they formed a partnership to buy two hospitals. Inside of a decade, the operation was the world's largest hospital company." [Business Week, 11/30/98]

  • Scott, Rainwater, And George W. Bush Jointly Owned The Texas Rangers. According to the Houston Chronicle, Richard L. Scott "was a limited partner with Haddock, Rainwater and Bush in the Texas Rangers." [Houston Chronicle, 8/16/98]

By 1991, Scott's Stock In Columbia/HCA Was "Worth More Than $80 Million" And He Wanted More.  The Dallas Business Journal reported: "[Richard L.] Scott's Columbia Hospital Corp. is leading the industry with his physician partnership approach to acquiring hospitals--a tactic he helped put into play on a smaller scale for Republic. Scott gained the attention of Fort Worth investor Richard Rainwater, and the pair put together a company that currently has a market value of about $ 230 million. Scott's stock in the company is worth more than $ 80 million. Scott says he'll direct his ambition to growing Columbia into an even bigger company. 'I have a large interest in Columbia and I want to spend my time building the company.'" [Dallas Business Journal, 9/27/91, emphasis added]

In Ten Years, Scott Turned Two Hospitals Into A $20 Billion National Corporation.  The New York Times reported: "Richard L. Scott, once celebrated as a visionary reformer of the hospital industry but more recently criticized for his aggressive tactics, resigned under pressure as chairman and chief executive, as did his top lieutenant, David Vandewater...In less than a decade, Mr. Scott had built a company he founded with two small hospitals in El Paso into the world's largest health care company -- a $20 billion giant with about 350 hospitals, 550 home health care offices and scores of other medical businesses in 38 states." [New York Times, 7/26/97]

Scott Made Questionable Decisions As Leader Of Columbia/HCA

Rick Scott's "arrogance and disdain for concern for communities...are appalling." -Paul Torrens, MD, UCLA School Of Public Health

Scott Aimed To Market Health Care In The Most Profitable Way.  Business Week magazine reported that Richard L. Scott, CEO of Columbia/HCA said: "The future belongs to whoever best measures quality of care and then markets it the best. Whoever does will absolutely control the market, and everyone who doesn't will disappear." [Business Week, 4/8/96]

Richard L. Scott Had A Reputation For Dismissing The Needs Of The Community. NurseWeek.com reported: "'Rick Scott created a public relations nightmare for himself. He created an image, which may or may not be fair, of a grand buccaneer,' said Paul Torrens, MD, MPH, professor of health services management at the UCLA School of Public Health. 'His arrogance and disdain for concern for communities, which had been a part of health care, are appalling.'" [NurseWeek.com, 9/10/97]

"Scott Has No Qualms About Closing Hospitals If They Compete With Facilities His Company Owns."  In an article discussing the Columbia/HCA merger and the possible effects upon Texas medical facilities, the Austin Business Journal reported: "The president of that new corporation would be Richard Scott, a former attorney who lives in Fort Worth. Media reports from across the nation have noted Scott has no qualms about closing hospitals if they compete with facilities his company owns or if the facilities are not performing up to par." [Austin Business Journal, 10/18/93]

  • Columbia/HCA Eliminated 1,000 Hospital Beds In Dade County, Florida. According to the Omaha World Herald, "Columbia/HCA has bought eight general hospitals in Dade County since December 1988. It closed two hospitals and transferred some general medical services out of a third to eliminate 1,000 acute-care hospital beds." [Omaha World Herald, 3/19/95]

Scott "Became Respected And Reviled" For His Cost-Cutting Activity As Head Of Columbia/HCA.  The Rocky Mountain News reported that during his time heading the Columbia/HCA Hospital system, Richard L. Scott "became respected and reviled as one of the hospital industry's most aggressive cost-cutters. In many instances, he would buy two neighboring hospitals and then shut one." [Rocky Mountain News, 11/20/03]

Columbia/HCA Said Shareholders Would Benefit From Hospital Closings.  The New York Times reported: "The $5 billion merger that Columbia/HCA and Healthtrust Inc. announced Tuesday night would involve a swap of stock valued at $3.6 billion and an assumption of Healthtrust's $1.8 billion in debt...Columbia/HCA said that the deal would be profitable for its shareholders from the outset and that further profits would come from increasing efficiency and taking competitors' market share, not from raising occupancy levels by closing hospitals in areas where both chains operate." [New York Times, 10/6/94]

Columbia/HCA Allegedly "Reneged On A Commitment To Invest Money And Expertise In The Framingham Hospital." In an article discussing the possible acquisition of two Neponset Valley hospitals, the Patriot Ledger reported that "two officials of the only Massachusetts hospital owned by Columbia/HCA, Columbia/MetroWest Medical Center, also have left amid controversy. Former chief executive Lawrence Kaplan and trustee Lauren Rikleen said Columbia/HCA reneged on a commitment to invest money and expertise in the Framingham hospital." [Patriot Ledger, 7/30/97]

  • "With Columbia, Whatever You Get, You'd Better Get On Paper." According to the Patriot Ledger: "Despite these developments Neponset Valley officials haven't changed their minds, board Chairman Anthony Andreotti said this week...As for the allegations that Columbia/HCA didn't keep some of its promises to MetroWest, Andreotti said Neponset Valley drew its own conclusion: 'With Columbia, whatever you get, you'd better get on paper.'" [Patriot Ledger, 7/30/97]

 Under Scott, Columbia/HCA "Squeezed Blood From" Each Hospital It Purchased.  According to Forbes: "Under former Chief Executive Richard Scott, [Columbia/HCA] bought hospitals by the bucketful and promised to squeeze blood from each one." [Forbes, 12/15/00]

Under Scott, Columbia/HCA Sold "Doctors Stakes In Columbia Hospitals."  The New York Times reported: "In the first hours after Mr. Scott's departure Columbia began to undo some of his legacies. For example, it has vowed to be more cooperative with Federal authorities in their investigation, and to halt its widely criticized practice of selling doctors stakes in Columbia hospitals." [New York Times, 7/26/97]

During His Columbia/HCA Tenure, Scott Dragged The Company Through An Anti-Trust Investigation

Columbia/HCA Involved In $5 Billion Utah Hospital Merger.  According to the Caller Times: "Shareholders of Columbia/HCA Healthcare Corp. and HealthTrust Inc., in separate votes on Tuesday, approved a proposed $ 5.4 billion merger that could involve eight area hospitals...The Federal Trade Commission has expressed concern that the merger would hinder competition in the Utah area in and near the cities of West Valley City, Layton and West Jordan." [Corpus Christi Caller Times, 3/1/95]

Columbia/HCA Suspected Of Dominating The Hospital Market.  According to the Associated Press: "Columbia-HCA Healthcare Corp. and HealthTrust Inc. said Wednesday they have agreed to sell three Utah hospitals in connection with the proposed merger of the two hospital chains...The FTC is investigating the antitrust implications of the merger. The commission wants to make sure it doesn't allow the combined company to dominate hospital care in any particular region." [Associated Press, 2/15/95]

  • Scott Justified Consolidation Of Power By Predicting Greater Control Over Costs. The Associated Press reported: "Richard L. Scott, president and chief executive officer of Columbia, and R. Clayton McWhorter, chairman, president and chief executive officer of HealthTrust, said the merger will cut health costs. 'We anticipate annual savings of approximately $ 125 million from cost reductions and improved efficiencies resulting from our consolidation,' they said. 'By leveraging our economies of scale and collective strengths and efficiencies, we believe that we can greatly control health care costs while maintaining quality patient care.'" [Associated Press, 2/15/95]

Scott Offered The FTC His "Candid Appraisal" Of The Investigation.  During his testimony before the Federal Trade Commission, Richard L. Scott said: "You have investigated Columbia up, down, and sideways.  You and the Justice Department have together required us to supply literally over two thousand boxes of documents, and pay for the time and expense of countless lawyers and economists, in order to justify our competitive activities.  You have forced us to divest ten hospitals and one surgery center and undo one joint venture.  You have used a great part of your staff resources investigating us and the healthcare industry.  Thus, we are particularly pleased that you have invited us to testify in your present hearings.  In the spirit in which I know these hearings have been convened, I want to give you a candid appraisal of how we see your work, and how we believe it could be improved upon." [Testimony of Richard L. Scott before the Federal Trade Commission, 11/7/95, emphasis added]

  • Richard L. Scott "Handled Previous Federal Investigations With A Disdain That Is Remarkable." According to the New York Times: "Indeed, Mr. Scott had handled previous Federal investigations with a disdain that is remarkable for the head of a public company. When Federal investigators in Tampa, Fla., asked for him to be interviewed regarding certain accusations during an investigation in 1995, Mr. Scott not only did not agree to the interview, neither he nor the company even replied to the repeated requests. Beginning last March, articles about Columbia's business practices began to appear in the New York Times...But again, when directors questioned Mr. Scott about the issues being raised in the articles, Mr. Scott dismissed them, people familiar with the discussions said." [New York Times, 7/26/97]
  • Under Scott's Management, Columbia/HCA Was "Combative With The Government, Competitors, Its Employees And The Press." According to the New York Times: "People close to Mr. Scott characterized his downfall in terms suitable for a Greek tragedy, portraying him as a brilliant and incisive businessman who was undone by his fatal flaws. Those flaws, they said, included an arrogance and aggressiveness that permeated the company. Indeed, in interviews yesterday, Dr. Frist, who has agreed to work without pay, went to great lengths to emphasize that the Columbia of old was dead, and what was emerging was a gentler company that intended to be less combative with the Government, competitors, its employees and the press." [New York Times, 7/26/97]

Under Scott, Columbia/HCA Was Investigated For Defrauding Medicare

Columbia/HCA Investigated For Medicare Fraud.  According to the New York Times: "Officials at a number of Federal agencies began investigating whether Columbia hospitals engaged in practices such as fraudulently overstating their expenses to increase their compensation from Medicare, and regularly conducting unnecessary blood tests. Last week, law enforcement agents raided Columbia offices and hospitals in seven states, seizing documents related to business practices." [New York Times, 7/26/97]

Evidence Collected In Columbia/HCA Investigation Included Documents "Stamped With Warnings That They Should Not Be Disclosed To Medicare Auditors."  According to the New York Times: "The investigation of HCA's cost reporting began in 1993, when James Alderson, a former chief financial officer of one of its former hospitals, filed a whistle-blower suit contending that the expense documents were rife with fraud. The government began a civil investigation and obtained critical evidence: second sets of cost reports and worksheets maintained at HCA hospitals that contained significantly lower expenses than in reports submitted to the government. Some of those documents were stamped with warnings that they should not be disclosed to Medicare auditors." [New York Times, 12/18/02]

Columbia/HCA "Hospitals Were Knowingly Inflating The Numbers Reported To The Government." The New York Times reported: "In particular, these people said, investigators are examining accusations of significant differences between the cost reports submitted by certain Columbia hospitals to the Government and separate reports -- known as reserve cost reports -- that were kept at hospitals. Investigators were said to believe that these second reports, along with work sheets prepared by analysts working with the company, provided evidence that at least some hospitals were knowingly inflating the numbers reported to the Government in the cost report to improperly raise total compensation." [New York Times, 7/17/97, emphasis added]

  • Defrauding The Government Could Include Accounting Administrative Costs As Patient Care Costs In Order To Receive Higher Reimbursement Rate. According to the New York Times: "Medicare pays far more for capital improvement costs than for administrative expenses. And only expenses related to patient care qualify for such payments...Part of that could be accomplished by shifting expenses unrelated to patient care into the cost reports, or by accounting for some expenses that would be reimbursed at a lower rate, like administrative costs, as expenses reimbursed at a higher rate, like capital improvements." [New York Times, 7/17/97]

Columbia/HCA Marked Employee Social Function Expenses As Patient Care Costs In Reports.  According to the New York Times: "A 1993 report by the General Accounting Office found that Hospital Corporation of America -- the company that accounts for the 'HCA' in Columbia's name -- improperly included expenses for employee picnics, Christmas gifts and food for nonemployees at social functions as expenditures related to patient care in the cost report for its headquarters. The agency did not examine the cost reports for HCA hospitals." [New York Times, 7/17/97]

Columbia/HCA Emergency Rooms Suspected Of Charging Unnecessary Tests To The Government.  The New York Times reported: "In addition to the cost report issue, people with knowledge of the investigation said that the Government was also closely inspecting possible fraud in lab work conducted by the company...Officials were said to be investigating whether emergency room doctors were led to prescribe medically unnecessary tests, particularly screening for complete blood counts, which were subsequently billed to the Government." [New York Times, 7/17/97]

The Columbia/HCA Inquiry Spanned Several Years And Involved At Least 50 Facilities.  The New York Times reported:  "That civil inquiry, which has been under way for several years, has resulted in the Government's obtaining the cost records for at least 50 Columbia facilities, which are now being used as part of the criminal inquiry, people with knowledge of the case said...The cost reports themselves are an arcane, often overlooked portion of the Medicare system, but one that has meant billions of dollars in payments by the Government to hospitals and other health care providers over the years. Those payments come in a number of ways. For example, most outpatient services -- such as home health care -- are reimbursed on the basis of cost, meaning that the higher the costs reported to the Government, the greater the payment to the health care provider." [New York Times, 7/17/97]

Columbia/HCA Healthcare Pled Guilty To Fraud Charges Following Seven Year And Multi-State Investigation.  According to Forbes.com: "Yesterday, the nation's largest hospital chain, known until recently as Columbia/HCA Healthcare, pleaded guilty to a variety of fraud charges. It admitted to bilking various government programs and agreed to pay a total of $840 million in fines and penalties. The fraud settlement is the largest in U.S. history, breaking the old record held by Drexel Burnham...The guilty plea follows a seven-year federal investigation that resulted in charges being filed in five different federal courts in Florida, Texas, Georgia and Tennessee, where HCA is headquartered. The fraud revealed by that investigation ran deep within HCA's way of doing business." [Forbes.com, 12/15/00, emphasis added]

  • Richard L. Scott Had Previously Assured Columbia/HCA Board "The Government Had Nothing On The Company." According to the New York Times, in March 1997 "the company's hospitals and offices in El Paso were raided by Federal agents. Board members, who until then had been content with Columbia's consistent high earnings and growth, turned to Mr. Scott for answers. According to people with knowledge of the discussions, Mr. Scott handled the concerns by assuring the directors that the Government had nothing on the company, that there were no problems, and that there had been similar investigations in the past that had simply fizzled." [New York Times, 7/26/97]

Columbia/HCA Admitted To Several Serious Fraudulent Activities:

  • Overcharging: "The company admitted to systematically overcharging the government by claiming marketing costs as reimbursable, by striking illegal deals with home care agencies, and by filing false data about how hospital space was being used." [Forbes.com, 12/15/00, emphasis added]
  • Exaggerating Illness: "The company increased Medicare billings by exaggerating the seriousness of the illnesses they were treating." [Forbes.com, 12/15/00, emphasis added]
  • Kickbacks and Free "Loans": "It also granted doctors partnerships in company hospitals as a kickback for the doctors referring patients to HCA. In addition, it gave doctors 'loans' that were never expected to be paid back, free rent, free office furniture, and free drugs from hospital pharmacies." [Forbes.com, 12/15/00, emphasis added]

Columbia/HCA Paid "More Than $1.7 Billion In Civil And Criminal Penalties."  The New York Times reported that a settlement was reached in the HCA fraud investigation.  "Under the terms, HCA would pay $630 million in fines and penalties to resolve all outstanding civil litigation with the Justice Department. An additional $250 million would be paid by HCA to the Medicare program to resolve expense claims submitted by the company to the government...Combined with previous settlements HCA has negotiated with the government involving fraud accusations -- including its agreement in 2000 to plead guilty to 14 felonies -- the company will be paying a total of more than $1.7 billion in civil and criminal penalties, by far the largest amount ever secured by federal prosecutors in a health care fraud case." [New York Times, 12/18/02, emphasis added]

Scott Was Forced From Columbia/HCA By The Board Of Directors

Scott Departed Columbia/HCA Amid "A Rash Of Civil And Criminal Fraud Inquiries."  Modern Healthcare reported:  "Richard Scott left HCA in July 1997 as a rash of civil and criminal fraud inquiries into what was then known as Columbia-HCA Healthcare Corp. became public. Scott resigned less than two weeks after investigators raided 18 Columbia-HCA hospitals in six states. The HHS' inspector general's office issued the company three subpoenas and five of its employees received grand jury subpoenas. Ultimately, HCA brokered two massive settlements in 2000 and 2002 worth a combined $1.74 billion to wrap up fraud charges." [Modern Healthcare, 7/11/05]

CEO Richard L. Scott Forced To Resign Amid Fraud Charges.  According to Forbes: "The investigation and the plea is an obvious blow to a company that became a Wall Street darling by promising to bring first-class business practices to the hospital sector, still dominated by not-for-profits. Under former Chief Executive Richard Scott, it bought hospitals by the bucketful and promised to squeeze blood from each one. Scott was forced to resign in the wake of the initial fraud charges in 1997." [Forbes, 12/15/00, emphasis added]

Scott's Golden Parachute Included Nearly $10 Million In Severance And $300 Million In Stock Options

Scott Received Nearly $10 Million In Severance And A 5 Year Contract With Columbia/HCA Following Resignation.  Modern Healthcare reported that Richard L. Scott's "$9.9 million severance included a five-year consulting contract with HCA." [Modern Healthcare, 7/11/05]

  • Scott's 5 Year Consulting Contract Paid $950,000 Every Year. According to the New York Times: "The Columbia/HCA Healthcare Corporation said yesterday that it had agreed to pay its former chairman and chief executive nearly $10 million when he was forced out in July in the wake of an unfolding criminal investigation of the company. The agreement with the executive, Richard L. Scott, provided for a one-time payment of $5.13 million, as well as a five-year annual consulting fee of $950,000, for a total of $9.88 million, according to a copy of a severance agreement included in the company's quarterly filing with the Securities and Exchange Commission." [New York Times, 11/14/97]

Scott's Severance Package Included $300 Million In Stocks.  According to the Florida Times-Union, Richard L. Scott left Columbia/HCA "with a $10 million severance package and 10 million shares of stock valued at more than $300 million." [Florida Times-Union, 6/21/06]

Columbia/HCA Paid Legal Fees For Scott And Fellow Ousted Executive.  The St. Petersburg Times reported that along with Richard Scott, COO David Vandewater was expelled from Columbia/HCA.  In addition to Scott's extensive severance package, "Vandewater was paid $ 3.24-million plus an annual consulting fee of $ 600,000 over five years. Both men had the right to exercise any vested stock options within 90 days of resigning July 25. Columbia also agreed to pay legal fees for both men, assuming they are found not to have committed any wrongdoing. This policy applies to all Columbia employees." [St. Petersburg Times, 11/14/97]

  • FBI "Uncovered A 'Systemic Corporate Scheme' To Defraud Medicare" On The Part Of Columbia/HCA Under Scott And Vandewater. According to the St. Petersburg Times: "Neither Scott nor Vandewater has been charged with wrongdoing, though agovernment affidavit said the FBI has uncovered a 'systemic corporate scheme'to defraud Medicare and Medicaid. In signing the severance agreement, each man said he 'had acted in good faith and in what he reasonably believedto be the best interest of the company, and that he had no reasonable cause to believe that any of his conduct was unlawful.' Dr. Thomas Frist, who replaced Scott, has since reversed most of his predecessor's policies and put a halt to Columbia's rapid expansion." [St. Petersburg Times, 11/14/97]

Former Columbia/HCA Partner Disagreed With Scott Ouster.  Business Week reported: "By the time Rainwater left Columbia's board [in1994]  to concentrate on Crescent Real Estate Equities, his investment had grown to some $ 300 million -- a 2,400% return. [...] To this day, Rainwater says Columbia's board should never have fired Scott. 'I asked everyone the same thing: 'Why are you doing this?' Rainwater says. 'And the only reason I got was because they didn't think he was the right person to deal with the government. That's not a reason to terminate him. If that's the case, I said, let's go hire someone to deal with the government.'" [Business Week, 11/30/98]

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