Hospitals burned by dishonest executives have tightened financial controls and imposed strict audit reviews of transactions in an effort to regain respect in the aftermath of financial scandal.
These hospitals now scrutinize spending at the department level for patterns of waste or fraud, experts familiar with the institutions say. Boards of trustees now require close oversight of the bid process to ensure it's not colored by conflict of interest or rigged bids.
In many cases, board members have mandated that top executives sign annual conflict of interest statements and pledges to refuse improper gifts and gratuities from vendors.
"Healthcare has become a tainted industry," said Jonny Frank, managing director of Decision Strategies International, a private security firm in New York. "There are very few financial controls within the industry."
Frank said hospitals need to institute financial controls and set up independent monitoring programs after a scandal has been exposed.
"Hospitals need to look at every single department and function that involves money," Frank said. "They have to assume that every person is corrupt."
Paul Roddy, an auditor and partner with Ernst & Young in Orlando, Fla., said hospitals are learning valuable lessons from horror stories of corrupt healthcare executives. And they are utilizing records and data within hospitals as benchmarks.
"Because there is so much more information, it is more likely that even the smoothest operator with a bent toward misappropriation of assets will have his (or her) additional costs cause red flags to go up," Roddy said.
Once such warning signals as unusual expense increases are discovered, Roddy said it is relatively easy for experienced healthcare auditors to go through records and identify embezzlement, misspending or simple waste.
"If you have collusion or if you are absent appropriate internal controls, it is very difficult for an auditor to discover fraud," Roddy said.
In the wake of financial scandals, Manatee Memorial Hospital in Bradenton, Fla., and Cape Coral (Fla.) Hospital have overhauled their financial controls and re-emphasized ethical standards.
Cape Coral implemented internal auditing safeguards and set up a compliance program to monitor purchasing, said Chris Rolle, an attorney with Foley, Lardner, Weissburg & Aronson.
Rolle investigated corruption at Cape Coral and developed a report that became the basis for a criminal investigation and federal convictions of three former executives.
"(Cape Coral trustees) also hired two management companies to help them reel in power," Rolle said. During separate periods over the past two years, Cape Coral was managed by Quorum Health Resources, Brentwood, Tenn., and Health Management Associates, Naples, Fla.
James Nathan, president and chief executive officer of Lee Memorial Health System, Fort Myers, Fla., said Cape Coral will undergo further changes when it is acquired by the public hospital system this summer.
"There were no controls two years ago," Nathan said. "We have a public board and internal standards that require an even higher level of openness and accountability (than most private community hospitals)."
At Manatee Memorial, the hospital's in-house attorney accepted an all-expenses-paid trip to the 1995 Super Bowl, according to indictments of several of the co-conspirators. The attorney, who no longer is employed at the hospital, should have reported the trip to corporate executives at Baptist Hospitals and Health Systems, Phoenix, according to testimony at the trial. Baptist owned Manatee Memorial at the time.
If the trip had been reported, as required by hospital policy, Baptist executives would have mounted an immediate investigation, said a source familiar with the case.
Under ownership of Universal Health Services since September 1995, Manatee Memorial operates under much tighter financial and ethical controls, said Michael Marquez, its new president and CEO.
Marquez said purchasing and construction activities are handled through the UHS corporate office in King of Prussia, Pa.
"What happened at (Manatee Memorial) would not be possible under our current practice," he said.
Universal also hired an auditor to ensure that the company's financial controls were effective, Marquez said.
Employees also are required to provide conflict of interest statements. With few exceptions, gifts and gratuities from vendors have been banned, he said.
Following the financial scandal, Marquez said he underestimated the emotional toll the crimes had on employees, physicians and the community.
"My immediate reaction was this happened before this management team got here, (and therefore) we can't be accountable. That was a mistake on my part."
Marquez said the more he spoke with people, the more he realized a sense of "betrayal and resentment" about what had occurred. As a result, it's critical for the company "to do what is right from here on out," Marquez said.
Roddy said ultimately it is up to the community board of trustees to set an example of honesty and integrity for the organization.
"I have personally recommended boards require key decisionmakers to sign conflict of interest statements," Roddy said. "Ask them if they have had any contact with vendors or if they are doing business with companies they have an interest in. It's the job of the board to set the stage and send a positive message."