Columbia And The Medicare Fraud Scandal Summary

Case Study: Columbia / HCA and the Medicare Fraud Scandal

Central Facts of the Case

„X In 1997, Columbia/HCA Corporation was the largest health care company in the world
„X In 1996, Columbia Hospital Corporation was named the ¡§Most Admired Company¡¨ by Fortune magazine
„« Clearly they were a well-respected, well-trusted company not too long before they were raided, and during a time that they were under investigation (not known to the public at the time) for fraudulent activity
„X Columbia was buying up as many hospitals and other health-related business as it could
„X Became a public company in 1990
„X Physicians were allowed to own a stake in Columbia/HCA hospitals

Major Overriding Issue / Related Questions

The overriding
Physicians are not allowed to refer patients to institutions, such as home-health providers, that they own a stake in ¡V should this law be extended to hospitals as well?
„X Should hospitals / provider institutions even be allowed to be publicly-held, publicly-traded institutions?
„X Is the government at all at fault for fraud at institutions that administer their Medicare programs, due to cut backs that may have led to weak enforcement of the program?
„X Should a company be expected to abide by rules / regulations set forth by a program such as Medicare, without any outside enforcement?
„X Was the compensation system employed by Columbia/HCA the best-suited for their organization?
„X Was Board oversight sufficient ¡V could they have gotten involved sooner?

Evaluation of Company
I realize that it is not Columbia/HCA¡¦s responsibility to decide if it is legal for hospitals to be publicly-held, however, they could have decided that it is was not ethical or in the best interests of society as a whole, and for their patients, for their hospitals to be publicly-held.
„X Vertical Integration
„« An ¡§integrated system of affiliated providers¡¨ can provide patients with continuum of care. Often times once a patient gets used to a particular hospital system they will use it for all of their care needs
„« Because they owned such a broad spectrum of services, the opportunity for ¡§cost shifting¡¨ presented itself ¡V and though illegal ¡V they took advantage
„X Compensation Strategy
„« Employees, specifically hospital administrators, were salaried below that of the competition ¡V although bonuses had the potential to double their earnings ¡V at the same time however, there was just as equal the chance to receive no bonus at all
„« At risk of receiving no bonus and with salaries already under market value ¡V hospital management had great incentive to do whatever it took to meet their goals
„« Ethical and legal grounds aside ¡V Columbia¡¦s compensation structure was basically an open invitation for fraud
„X Warnings
„« The company knew trouble was on the horizon (raid in El Paso, NY Times article,