Columbia/HCA Healthcare Corp. plans to hire a national accounting firm to conduct a sweeping examination of all aspects of the troubled company's business, its new chief executive officer disclosed last week.
In an interview with MODERN HEALTHCARE, Thomas F. Frist Jr., M.D., also vowed to build a new value system and corporate culture at Columbia, which was rocked earlier in the week by indictments of three of its executives.
Although Frist praised Richard Scott, he also criticized the departed Columbia chief's management style and questioned the company's strategy, especially its physician ownership deals and national branding campaign. He said he had warned Scott earlier this year that Scott's aggressive style was becoming a liability.
During the interview at Columbia's Nashville headquarters, Frist declined to discuss details of a 10-point corrective action plan the company is preparing to present to federal officials. Sources close to the company say, however, that the plan likely will call for divesting some businesses, including the home-care unit.
Frist said Columbia would be hiring one of the nation's top six accounting firms to help its new outside legal counsel, Los Angeles-based Latham & Watkins, find out exactly what went wrong with alleged Medicare overbilling practices. He declined to say which firm might be retained.
"This is a new approach, a new management and a new commitment not to be adversarial," Frist said. "This will be more than an entrepreneurial leadership. It will be more operational."
The action plan will be "very substantial," Frist said, and will back up his July 25 commitment to the federal government to cooperate fully with ongoing federal investigations into the company's business and billing practices. Frist said the steps Columbia will take will be more than bringing in a "Richard Kusserow. None of this will be fluff."
With great fanfare, National Medical Enterprises hired Kusserow, the former HHS inspector general, in 1993 to help the company out of its fraud problems with the federal government. NME became Tenet Healthcare Corp. in 1995, and is still settling private lawsuits in connection with the government's investigation (See story, p. 16).
"There will be no holds barred," Frist said of the to-be-named accounting firm's investigation. "We want to find out-give me and others-the true information."
Frist, 58, Columbia's largest shareholder with 14.6 million shares, vowed to stay at the company's helm until issues with the government are resolved. He also said he will not take a salary or any stock options in his new position.
The new Columbia will not be a reincarnation of Hospital Corporation of America-the company Frist co-founded with his father, Thomas Frist Sr., and a local businessman in 1968, the new CEO said. HCA merged with Columbia in 1994.
Frist said he wanted to inject a new value system and culture at Columbia, something the employees were "starving for years" to get. While he repeated his past accolades of Scott for making Columbia the nation's largest for-profit healthcare company, Frist-for the first time publicly-was equally critical.
"(Scott's aggressive style isn't) the foundation for operating a company in the long term," Frist said. "We need to take a deep breath and get in an operational mode."
As Frist talked in a conference room at Columbia headquarters, the neighboring office that had been Richard Scott's was empty, with a shelf being taken apart and picture frames on the floor, leaned up against the walls.
"This is a style issue that needs to be changed," Frist said. "We have to put in a new culture . . . a value system."
For as far back as October 1995, Frist said, he was telling Scott to tone down the company's aggressive style. But Frist said the Columbia style under Scott and Vandewater lit a fire under a "highly fragmented not-for-profit sector to come together.
"The reality is that 80% of the hospitals (that are not-for-profit) are driving this (consolidation)," Frist said. "It's arrogant to think we are going to drive it."
In January of this year, Frist said, he told Scott that he was thinking of ending all involvement with the company and its board because his suggestions weren't taken seriously. At the same time, Frist said, he dropped Scott hints that the younger executive was pushing too hard. The Scott style was beginning to harm the company, Frist said.
He did not say how Scott reacted to this criticism.
Frist said the company's national branding campaign, which he described as an "in-your-face" effort, was not going to work for the long haul. The company last week said it terminated a letter of intent to acquire America's Health Network, a 24-hour cable channel intended to build Columbia's name recognition.
Columbia allocated nearly $200 million for advertising in 1995 and 1996, the largest ad spending in healthcare provider history. In addition, Columbia had budgeted $90 million for this year to promote the Columbia name (March 10, p. 2).
Frist said he told Scott that Columbia couldn't take on the same branding image as a Coke or other popular consumer items, mostly because it wasn't like other consumer products. People eventually would judge Columbia on its style.
Frist also said the company will unwind the company's controversial physician partnerships. He didn't give a schedule for when that would be completed.
"You don't need financial ties," with physicians, Frist said.
Frist said the physician partnerships, which were criticized by Columbia competitors and government regulators, weren't necessary, and only gave people another reason to target the company.
"Take them off the table," he said.
All the syndications have buyout clauses that allow Columbia to unravel the deals with physicians by purchasing their stakes. Columbia has said only 4% of physicians affiliated with the company's hospitals have an ownership interest (May 26, p. 8).
Any changes his regime will make won't harm the earnings of the company, Frist claimed.
"The industry we're in is a not-for-profit industry," Frist said. "I don't think (Scott) ever understood that."
Scott's "if you don't join me, I'll beat you" mentality doomed Columbia from ever building a strong, healthy foundation for long-term growth.
Plus, it left the company with few friends in its time of need, Frist said.
Frist said he wants to discard Columbia's fast-moving competitive edge and rejuvenate the company's operations. In his first week as CEO, Frist met with top regional presidents, to target the most important, and the highest value-added, elements of the company. He said he wants to see whether it's better, for example, to slowly introduce new systems when needed, instead of an abrupt jump into new technology.
Frist said he wants to move carefully and "relax a little bit."
That is something of a switch from early speculation that he might embark on a wide range of new initiatives in a matter of days.
His focus, Frist said, is to first work with the federal government and get to the bottom of the allegations of Medicare overbilling. Next on the priority list is to take care of employees and patients, in effect becoming a kinder, gentler Columbia.
-With Bruce Japsen