Judge Unseals FBI Papers on Columbia / HCA

From Bloomberg News

Columbia/HCA Healthcare Corp. pursued a “systemic corporate scheme” to defraud federal health insurance programs, according to an FBI affidavit unsealed Monday in U.S. District Court in Florida.

The affidavit contradicts Columbia / HCA Chairman Thomas Frist’s assurances to investors--repeated as recently as two weeks ago--that there was no evidence of “systemic” wrongdoing at the nation’s largest hospital company.

Investigators used the affidavit to obtain search warrants used in July for a raid on 20 Columbia facilities in Florida. Portions of the affidavit were unsealed Monday at the request of defense lawyers for three mid-level Columbia executives who, so far, are the only people charged with criminal offenses in the case.


The documents revealed for the first time that investigators say they found evidence of wrongdoing--including the reporting of $800,000 in “fictitious expenses”--reaching into Columbia’s Nashville, Tenn., corporate headquarters. The criminal probe extends to facilities in three other states besides Florida, according to the documents.

“It raises the ante in many ways,” said Leo Murphy, a money manager at Pioneering Management, which owned 4.2 million Columbia shares as of the end of June. “It means the cost of the settlement’s going to go up, other individuals are going to be indicted, and it makes it more difficult to sell some of the assets.”

Columbia / HCA shares fell 44 cents to close at $28.38 on the New York Stock Exchange.

Columbia spokesman Jeff Prescott said that since the affidavit was drawn up in July, “we’ve done a number of things to resolve the issues with the government.”

The company has put three of its newly acquired Value Health units up for sale and has announced plans to sell its home-health-care business. Frist told investors in San Francisco two weeks ago that he expected it would take six to nine months to sell the Value Health units.

Frist also said at the time that an internal audit he launched in July had turned up no evidence of widespread wrongdoing at the company.


“We’ve not seen anything systemic,” he said.

The newly unsealed court documents, however, say federal investigators have “uncovered a systemic corporate scheme perpetrated by corporate officers and managers” to defraud Medicare and other federal programs. The affidavit was signed by Joe Ford, the Tampa, Fla.-based FBI agent who is leading the investigation in that state.

“The FBI is currently conducting criminal investigations in El Paso, Texas, and Salt Lake City, which involve allegations of fraud by Columbia corporate officials in Tennessee,” Ford said in the affidavit. The affidavit also refers to evidence of wrongdoing at Columbia facilities in Georgia.

The documents also provide new details about the charges against the three defendants, describing efforts to submit inflated Medicare claims and to prevent federal officials from learning of excessive reimbursements for interest payments.

The affidavit said investigators first obtained information about possible illegal activities at Columbia / HCA and its Florida operations in September 1996.

Information came from cooperating witnesses, including one who was still employed at Columbia / HCA in July, the affidavit said.

Two weeks after the July raids, in which federal agents seized documents from 51 facilities in seven states, a five-count indictment accusing the three mid-level executives of Medicare fraud was unsealed. Jay Jarrell, Robert Whiteside and Michael Neeb are accused of conspiring to overbill Medicare and Champus.

The indictment focuses on alleged overbilling by the three executives on behalf of one of Columbia / HCA’s 342 hospitals.

In addition to hospital billings, investigators are also reviewing Columbia / HCA’s billings for laboratory testing, home-care services, rehabilitation units and outpatient care. The company is one of the largest home-care providers in the country, with more than 200 agencies.

Overall, Columbia / HCA relies on Medicare for $7 billion, or 35%, of its annual revenue.

In the Florida case, Jarrell, Whiteside and Neeb are accused of falsifying cost reports submitted for reimbursement. That resulted in $1.8 million in government overpayments to Fawcett Memorial Hospital of Port Charlotte, Fla., the indictment says.

The alleged overbilling dates back to 1986, when Fawcett was owned by Basic American Medical Inc. Columbia / HCA acquired that company in 1992 in a $170-million stock swap.

The affidavit said at least two other Columbia executives in Florida, who do not face charges, were part of a conspiracy to submit false claims to the government.

The affidavit said the three defendants conspired with C. Lynn Dick, 53, chief financial officer of Columbia’s Orlando division, and Donald L. Larimore, 64, of Sarasota, Florida, who was chief executive officer of Fawcett Memorial Hospital from 1990 to 1993.

Dick and Larimore could not immediately be reached for comment.

Among other things, the affidavit detailed efforts by Columbia executives to prevent Medicare from discovering an auditing error that led to the company receiving more than $1 million in Medicare reimbursements to which it was not entitled.