Columbia/HCA Healthcare Corp. plans to implement far-reaching reforms of its business practices and dismantle major portions of its operations, marking a profound shift in its business strategy.
The Nashville-based company will sell off its $1 billion home-care division and loosen its close ties with many physicians as part of an "action plan" issued in response to an avalanche of legal troubles that has enveloped the company.
"All items in the action plan do not imply we have found wrongdoing or a series of errors," said Columbia's newest hire, President and Chief Operating Officer Jack Bovender Jr. "As the document indicates, we are working with a legal firm, we are going to investigate past practices*and hopefully get recommendations on new policies and procedures."
The plan comes after federal agents raided Columbia facilities in March and July looking for evidence of federal healthcare fraud. So far, three employees have been indicted on charges involving an alleged overbilling scheme; their arraignments will be Aug. 19 in federal court in Fort Myers, Fla. (Aug. 4, p. 2).
Also, Alabama, Florida and Texas are investigating the company for Medicaid fraud.
Columbia's plan also includes eliminating the annual cash incentive compensation for company employees; abandoning selling financial stakes in hospitals to physicians and unwinding current physician investments; and adopting a comprehensive program to comply with federal and state laws (See chart, this page).
While the company focuses on developing a system to prevent future missteps, observers believe the company's overall strategy of developing full-service integrated delivery systems is about to be altered.
"I guess you could call it a disintegration," said John Runningen, a healthcare analyst and principal at Cordova Capital, an Atlanta-based venture capital firm.
In February of this year, company executives said Columbia was "no longer just a hospital company." Analysts now say it's looking like hospitals again will be the company's bread and butter.
The action plan doesn't mean there won't be any acquisitions, and the company will pursue deals it has under way, said Thomas F. Frist Jr., M.D., Columbia's chairman and chief executive officer. "But this is a definite change in emphasis from rapid growth to operational mode for the next 18 to 24 months," he added.
Columbia has 342 hospitals, 150 outpatient surgery centers and more than 570 home healthcare centers in 36 states, England, Spain and Switzerland.
While the federal government focuses on the company, Columbia has stepped up an internal examination. The national accounting firm Deloitte & Touche will be working with law firm Latham & Watkins to conduct an internal audit of the company and its practices, eventually recommending new policies and procedures.
"Our commitment is to a comprehensive program that ensures integrity in all that we do," Frist said.
Columbia confirmed its attorneys met with government officials last week to pass along its reform plan.
"Our lawyers did meet with government officials," said Victor Campbell, Columbia senior vice president. "We hope that it will be viewed as a positive step, but we had no indications of that one way or the other."
Bovender said he expects Columbia employees from the Nashville headquarters, as well as employees from across the country, to team up with Deloitte & Touche employees to investigate and create action plans for each of the points in the strategic plan.
This week, in what he calls a typical "block and tackle" move, Bovender plans to meet with most of Columbia's five regional presidents in an informal setting to explore regional issues, capital projects, competitive pressures and growth opportunities.
When it comes to future hospital acquisitions, Bovender said he and Frist plan to talk to hospital executives and board members "to get them comfortable with who we are and what we are." That's a stark contrast to past practices that included threatening hospital officials with lawsuits or the construction of another hospital nearby.
When the dust settles and Columbia is able to remove programs and policies focused on the aggressive acquisition style of old, the new company will have room for growth, Bovender said.
In the meantime, the company will be operating "as lean as we possibly can be," he said.
Bovender said there won't necessarily be layoffs, but certain corporate programs, such as the national branding campaign, will be "significantly reduced or eliminated," saving a significant amount of money.
An analysis will be done of several operations, including the home-care division, and the physician-ownership strategy known as syndications, which allow doctors to purchase financial stakes in subsidiaries that run Columbia hospitals.
The syndications, started by former chairman and CEO Richard Scott when he founded Columbia in El Paso, Texas, nine years ago, have been criticized by U.S. Rep. Fortney "Pete" Stark (D-Calif.). The site of March raids by federal agents, El Paso was Columbia's laboratory of physician ownership.
Campbell didn't seem concerned about unraveling the physician syndications, perhaps because only 4% of 75,000 physicians have made this investment. A third party-possibly an investment bank-would help devise a fair plan for divesting the physician stakes, Bovender said.
Campbell added there isn't too much concern about splitting off the home-care division because it only constituted 5% of total company revenues last year.