Columbia/HCA Healthcare Corp.'s chief laboratory for physician ownership was raided last week by federal agents reportedly looking for evidence of Medicare or Medicaid fraud.
The raid on Columbia's hospitals and offices in El Paso, Texas, was a double legal whammy for the nation's largest for-profit hospital chain, which also saw its acquisition of Ohio Blue Cross and Blue Shield thwarted by state regulators.
For two days last week, agents from the FBI, the Internal Revenue Service, the U.S. attorney's office, HHS and the Defense Department's Criminal Investigation Service seized box after box of medical and financial documents from four Columbia hospitals and at least 30 physician offices in El Paso.
El Paso is where Columbia Chairman and Chief Executive Officer Richard Scott began the company nine years ago, purchasing two hospitals. And it's with those facilities that Nashville-based Columbia pioneered its strategy of selling ownership interests in some hospitals in key markets to physicians.
Authorities wouldn't disclose the nature of the criminal investigation. Warrants issued by federal agents remained under a court-ordered seal.
"Because the company has not been informed of the allegations underlying the search warrants, the scope and nature of the investigation is unknown," company officials said in a prepared statement.
Because the raid was on the company's El Paso operations, however, it suggests that the investigation may be linked to physician ownership. Bolstering that possibility is the fact that HCFA and HHS' inspector general's office have been under congressional pressure to investigate whether Columbia's physician-ownership strategy violates federal anti-kickback statutes (Aug. 12, p. 1996, p. 6).
The statutes bar any form of remuneration to induce Medicare or Medicaid patient referrals. Violations can be civil, punishable by suspension or expulsion from the two programs, or criminal, punishable by fines and imprisonment. Also, any claims submitted to Medicare or Medicaid resulting from such prohibited activity can be considered a violation of the federal False Claims Act.
Congress also passed a law in 1993 that bars physicians from referring Medicare or Medicaid patients to 10 types of healthcare facilities or services in which they have a financial interest, including inpatient and outpatient hospital services. However, HHS has never issued regulations that would outline how the law will be enforced.
The author of that law, Rep. Fortney "Pete" Stark (D-Calif.), said last week he understood the investigation that resulted in the raid was "fraud-based" and encompassed Columbia's entire system. Stark has been pushing HCFA and HHS to investigate patient referral patterns at Columbia hospitals.
Asked whether the investigation would expand to other Columbia-owned facilities across the country, company spokesman Jeff Prescott said, "We don't know for sure."
Since July 1988, when the company purchased its first two hospitals in El Paso from Healthtrust, the Southwest city of some 700,000 people has been a laboratory for the replication of the Columbia model across the country. Columbia now owns almost 350 hospitals.
The El Paso hospitals, which operate in Columbia's west Texas division, have enjoyed extraordinarily large admissions growth when compared with other hospitals.
Columbia's El Paso facilities saw a 21% increase in the fourth quarter of 1996 vs. 1995's fourth quarter. By comparison, Columbia's other hospitals owned for more than a year saw admissions rise 4.8% in the fourth quarter of 1996.
Physician partnerships are a critical part of the Columbia philosophy. Physicians are offered an opportunity to invest in a Columbia subsidiary that runs the hospital, but not in the entire company.
In August 1993, Columbia's Scott said in an interview that the company would seek physician investors in five markets, including some in Texas. Those efforts have since expanded to other markets including Alabama, Florida and Louisiana>