Columbia/HCA Healthcare Corp.'s wallet is beginning to take a hit from the ongoing federal investigation into the hospital chain's billing practices.
Nashville-based Columbia has spent $60 million for severance pay and legal fees this quarter because of the investigation, it said last week. The company expects third-quarter earnings to drop by half from the year-ago period at least partly because of those payouts.
Meanwhile, the human toll of the investigation continues to grow as another upper-level Columbia executive resigned. William S. Hussey, 48, the Tampa Bay division president who supervised three Columbia employees now indicted in Florida, reportedly notified his superiors by e-mail of his resignation. A Columbia spokesman confirmed that Hussey had resigned effective immediately last week.
His duties will be handled temporarily by Joe Swedish, president of Columbia's central Florida division.
In addition, the company's associate general counsel, Rachel Seifert, and its vice president of litigation, David Bradford, also resigned.
And in its latest canceled deal, Columbia dropped its planned acquisition of 125-bed Southwest Hospital in Little Rock, Ark., saying the facility isn't a market leader. Acquiring Southwest Hospital, Columbia said, would not fit its new emphasis on patient care.
On Sept. 9, Columbia announced it expects third-quarter earnings to drop to between 20 cents and 25 cents per share from 46 cents per share in year-ago period. That day, its stock tumbled 12%, or $3.94, to close at $28.75.
About 5 cents to 6 cents of the earnings decline is directly related to the $60 million the company spent as a result of the federal probe. Columbia Senior Vice President Victor Campbell declined to say how much reflects severance pay for former Chairman and Chief Executive Officer Richard Scott.
Revenues are expected to fall slightly below the 1996 third-quarter mark of $4.9 billion.
Speaking at a Wall Street healthcare conference last week, new Columbia Chairman and CEO Thomas Frist Jr., M.D., said he doubts the company's annual revenues will grow beyond $20 billion given its decision to divest some business lines.
Columbia's 1996 revenues rose by $2.2 billion to $19.9 billion, with more than half the increase coming from newly acquired facilities. Revenue growth is certain to slow as Columbia significantly slows hospital acquisitions and divests its home-care business, which also contributed to previous increases.
In an interview with MODERN HEALTHCARE before his presentation at the Bear, Stearns & Co. conference, Frist said by putting patient care first Columbia will "end up with a fair return for investors."
Columbia's Campbell added, "We are not dependent on buying hospitals or other businesses to deliver reasonable returns."
Campbell said 13 of the 26 analysts following Columbia stock still issue a "buy" recommendation for it and the remainder are neutral.
Both major credit-rating agencies, however, took action last week reflecting concerns about Columbia's future.
Moody's Investors Service downgraded Columbia's long-term debt to Baa1 from A3, and Standard & Poor's Corp. placed Columbia's A-2 commercial paper rating on CreditWatch with negative implications. Columbia's long-term-debt ratings remain on Standard & Poor's CreditWatch with negative implications, where they were placed July 24. The company has about $7.5 billion in debt.
According to newpaper reports, federal officials will extend their investigation to more than 200 Columbia facilities nationwide. Meanwhile, the same reports said, HCFA has suspended processing annual Medicare cost reports by any Columbia hospital with a home healthcare division.
Also last week, Columbia eliminated two divisions: Quantum, which provided strategic planning and education, and Continuum of Care, which helped hospitals set up other lines of business.
-With Associated Press reports