Rick Scott vs. Alex Sink
Summary: As regular HealthBeat readers know, Rick Scott, the former CEO of Columbia/HCA, a for-profit hospital chain that was raided by the FBI in 1997, is now in the running to become governor of Florida. (See links below to earlier HealthBeat posts.) As the election approaches, it appears that Scott might well win. Even the Florida Medical Association (FMA) is endorsing him.
Why would Florida’s physicians back someone associated with the largest case of Medicare fraud in U.S. history? Perhaps because Scott was never forced to testify, and thus there is no evidence that he knew what was going on in the company that he oversaw. (Though if he was, in fact, unaware of pervasive fraud in his own company, this might be another reason why he wouldn’t be an ideal chief executive for the state of Florida.)
Nevertheless, Florida’s doctors support Scott, in large part because he agrees with them on the issue that they put first: tort reform. Meanwhile, nurses have lined up behind Scott’s opponent, Alex Sink. While the FMA is focused on a single issue, nurses are concerned about a wider range of problems.
Meanwhile, Sink and Scott run neck-to-neck. It seems that voters don’t know what to think, or as Flaglerlive.com puts it, they’re “still on Mars.”
Below, I describe how Scott managed to walk away from Columbia/HCA without ever disclosing what he did or didn't know.
Florida Attorney General Bill McCollum finally has announced that he is endorsing fellow Republican Rick Scott to become Florida’s next governor. Following their bruising GOP primary battle, McCollum withheld his support for two months. But the endorsement, which was announced Saturday, comes as no surprise. The race between Scott and Alex Sink, the state’s chief financial officer, remains tight. Even though Scott has spent $60 million of his personal money on the campaign, the contest is still considered a toss-up.
But I must admit that I was thrown for a loop earlier this month when I learned that the Florida Medical Association (FMA) had put its considerable weight behind Rick Scott.
Let me be clear: I’m not picking a candidate in the Florida race. I don’t know enough about Alex Sink, Florida, or the issues at stake, to suggest that she would be a strong governor. But I do know enough about Rick Scott’s history as a health care executive to be astonished that he might become governor of any state—let alone that he would be backed by Florida’s physicians.
As regular HealthBeat readers know, in the early 1990s, Rick Scott became CEO of Columbia/HCA, a for-profit hospital chain that, under his direction, would snap up hospitals across the nation, becoming one of the largest health care companies in the world.
In 1997, the FBI raided Columbia/HCA offices in seven states. A few days later, the Board of Directors ousted Scott. Ultimately the company pled guilty to no fewer than 14 felonies and paid a total of $1.7 billion in criminal and civil fines, making this the biggest case of Medicare fraud in U.S history.
Meanwhile, whistle-blowing nurses at Columbia/HCA hospitals charged that, in an effort to hike profits, Columbia/HCA didn’t just cheat Medicare. It downsized its nursing staff, putting patients in danger. As I reported in Money-Driven Medicine, “in California, some nurses protested ‘filthy conditions’ and being ‘stretched to the limit’ as the hospital slashed the ratio of nurses to patients . . . ‘I sometimes had to watch 72 patients’ heart monitors at a time,’ one nurse explained. ‘I was told, either do it, or there’s the door.’” In Indianapolis, nurses complained to state authorities that babies in the neonatal unit were left unattended for as long as three hours. Once, the only nurse caring for seven ill infants was so busy she failed to hear an alarm when a baby stopped breathing. A parent dashed to the baby and stimulated breathing, the state report said. Columbia settled the case without admitting any wrong-doing, paying a $12,500 fine.
Scott was never charged with any wrong-doing either. Instead, he walked away from Columbia/HCA with cash and stock worth over $300 million. Years later, he would use that money to win the Republican gubernatorial nomination in Florida.
How Scott became CEO of Columbia/HCA
I first met Rick Scott in 1993, when I interviewed him for Barron’s. He had just become CEO of Columbia/HCA and, at the time, he seemed to me an unlikely choice. Just a few months earlier, Scott had been the little-known chief exectuive of Columbia Hospital Corp., a chain that owned just 26 hospitals. Granted Columbia had recently scored a major coup by taking over Galen Health Care and its 73 hospitals. But Scott had no experience running a large organization; he was not a corporate leader, he was a deal-maker, an M&A (mergers & acquisitions) lawyer. He had little hands-on background in health care. When he talked about hospitals, he compared them to fast-food restaurants. Nor did he possess the larger-than-life charisma that, in the corporate world, sometimes substitutes for experience and competence. Now, as head of HCA/Columbia, Scott would be in charge of 190 hospitals with 42,000 beds in 26 states. Who had picked him to run Columbia/ HCA, I wondered, and why?
As I explained in this earlier post, I later learned that Dr. Tommy Frist, Jr., chairman of HCA (the hospital chain that he had founded, along with his father, Dr. Thomas Frist Sr.,) had hand-picked Scott to take over the family business.
It was the summer of 1993: “Clinton was in office, serious healthcare reform was apparently careening toward passage, and the industry was responding with a sudden burst of consolidations,” Joe Flower explained in a 1995 profile of Scott. Tommy Frist, the brother of Senator Bill Frist, was keenly aware of what was happening in Washington. He spotted an opportunity. As he later explained: “I felt that there would be a window of 36 to 48 months in which a large, well-financed, aggressive organization that had access to equity . . . would be the most significant player in the reform process. That's when I picked up the phone and called Rick Scott. He was out there putting together exactly the kind of local networks that I envisioned.”
Scott had developed a reputation as a serial acquirer who didn’t take “no” for an answer, and as Frist watched Scott put together his small chain of hospitals he realized that the 40-year-old was more than ambitious: he was hungry. “He had the commitment,” Frist said. “And now” with the acquisition of Galen, “he had a good group of assets. He was a very attractive partner.’"
Within a month, Columbia/HCA Healthcare Corp was a reality. Scott was named CEO of the operation; Tommy Frist stayed on as Chairman. The new company would be four times bigger than any other acute-care hospital company in the U.S., and Scott will be the boss of one of every 1,000 workers in the nation.
My questions remained unanswered. Why turn control over to Rick Scott—someone who knew how to buy hospitals, but had no experience running them? Granted, Scott was driven, and an extremely hard worker, but why not put him in charge of mergers and acquisitions while naming someone else CEO—someone who could oversee what those hospitals, and Scott himself, was doing?
Over the next few years, Scott exceeded my expectations– or so it seemed. His hospitals reported eye-popping profit margins in the high double-digits. Whatever Scott might say about how free market competition could rein in health care spending, that was not his goal. Nor was he interested in making health care affordable for all of us.
Nevertheless, many in the media bought into the notion that Scott was a brilliant free-marketeer. By 1996, he had become an icon, a man Time magazine praised as one of the 25 most influential people in America, alongside Jerry Seinfeld and Sandra Day O'Connor. "In an industry notorious for waste and inefficiency, Scott aggressively consolidates operations and imposes cost controls," Time gushed.
As I noted in an earlier post, a few years later, Forbes would put it somewhat differently “Under Scott, Columbia/HCA ‘Squeezed Blood From’ Each Hospital It Purchased.”
Sometimes that blood was the blood of patients. Late in 1995, Columbia/HCA assumed control of Presbyterian/St. Luke's as part of a five-hospital deal. Although hospital revenue tripled, savings came at the expense of the nursing staff, which was slashed by 10 percent. Medication errors mounted, and sometimes they proved fatal. .
Why was Scott Never Forced to Testify?
Flash forward to 1997, when the FBI unleashed its massive criminal investigation of Columbia/HCA.
As the company’s stock plunged, outraged shareholders charged that executives inside the company saw trouble coming—and sold their shares.
The Miami Herald points out that “Scott owned 9.4 million shares of Columbia/HCA. He had sold 128,000 shares from 1995 to 1997, including 90,000 in one day. That $2.65 million payday was flagged by plaintiffs, who noted the sale came 23 days before Columbia/HCA offices were raided by federal agents as part of a long-term investigation.”
Florida’s pension fund filed a lawsuit, accusing Scott and his fellow hospital directors of profiting from a culture of corruption and selling stock just weeks before the FBI raided the company’s offices in Texas. Ultimately, a judge dismissed the insider trading charge. There was never a trial.
Meanwhile, a bigger federal suit involving numerous other state pension funds was filed against Scott and 10 other Columbia/HCA officials. It, too, never went to trial. At one point, a federal judge threw the whole case out. Then an appeals court reinstated much of the case—but not the insider trading claims.
The Miami Herald reports; “According to the evidence presented in the lower court, Scott and his colleague, Thomas Frist, were active in the company's mergers and acquisitions operations. The appellate court said in its 2001 ruling that while there was ‘nothing improper or illegal per se’ about 'expansion by acquisition'…the ‘participation of Scott and Frist implies knowledge of the arrangements that allegedly violated health care laws and regulations.’''
The appellate court added there was not enough evidence to support an insider trading complaint. But, it concluded, that the members of the Columbia/HCA board, many of whom had experience running other hospitals, could have known that the goals Scott set out for the chain's hospitals—achieving a 15- to 20 percent growth in reimbursement from Medicare—would have been unrealistic. The Miami Hearald adds: "As a result of those profit targets, critics say, the company helped encourage fraud that ultimately led to the federal investigation."
In its written opinion, the court indicated that the facts "are sufficient to create a reasonable doubt'' that "at least five of Columbia's directors, including Scott, should have known their actions could have drawn a federal investigation.”
Scott has said that he should have hired more auditors to flag the practices that led to the charges against his company. But, since the case never went to trial, it was never determined how much he or other company executives knew.
As for the federal government’s charges of Medicare fraud, that case also never went to trial. Thus, Scott was never forced to testify.
The FBI did want to talk to him, but during the FBI investigation, Scott failed to respond to official requests to be interviewed. How did he get away with that?
How Much Did Tommy Frist Know ?
During Scott’s tenure as CEO, HCA co-founder Dr. Tommy Frist Jr. stayed on first as chairman and later as vice-chairman, while earning a total of $800,000 in 1995 and 1996. As I note in Money-Driven Medicine it was only in 1997—a few months before the first FBI raid—that Frist began to disassociate himself from the company. That year he stopped attending management meetings and took a pay cut that brought his salary down to $50,000.
Frist later denied knowledge of any wrongdoing. After Scott was ousted from the company in 1997, he took his place and pledged to sever financial ties between the hospitals and doctors who, allegedly, had been receiving kick-backs from Columbia/HCA.
Nevertheless, as the Wall Street Journal pointed out at the time, “As a senior corporate officer, board member and owner, along with immediate family members of about 25 million shares, it is awkward for [Frist] to argue that he didn’t know what was going on at the company, or was largely powerless to curb any excesses.”(Lagnado, 4 September, 1997).
Some of the financial abuses went back to the years preceding the Columbia/HCA merger, before Scott was involved with the company. In 1993, a year before the Columbia-HCA marriage, James Alderson, an accountant who served as the chief financial officer of a small HCA hospital in Montana, blew the whistle on an HCA accounting scheme. Alderson would testify that his bosses at the hospital had asked him to keep two sets of ledgers: one set showing the expenses the hospital claimed when billing Medicare, the second containing more accurate information regarding reimbursement claims. When Alderson refused, he was fired.
Out of work and short on money, Alderson’s family was forced to sell their home. Their children’s college fund evaporated. Alderson would be locked in a battle with his former employer for years. In the end, however, he helped the government recapture $1.7 billion in fines and under the whistle-blower law, he won an $8 million reward.
When the FBI raided Columbia-HCA, they found two sets of books, one labeled “Do not show to Medicare.” While I was writing Money-Driven Medicine, Sheryl Skolnick, a highly respected Wall Street analyst told me that HCA had set the pace for accounting practices long before Rick Scott met Frist. “It was the HCA accounting bible that had them keeping two sets of books. Did Scott ever go in and clean up the accounting? Absolutely not. Did he create it? Absolutely not.”
When the scandal broke: “Frist sure moved fast to get Scott out of there,” Skolnick added. “Scott talked about fighting the government. Frist did not want that. He did not want anyone to go to jail.”
In December of 2002, five years after the FBI raid, HCA finally settled its case with the government—shortly before attorneys were scheduled to depose Dr. Frist. Some questioned the timing of the settlement. As it happened, at that moment Dr. Frist’s brother, Senator William Frist, had just emerged as the administration’s candidate to replace Trent Lott as Senate majority leader. (William Frist had never been involved in running the family company, though as of 2004 he, his wife and children reportedly owned shares worth up to $30 million.)
Skeptics suggested that the White House urged investigators to wrap up the settlement before the Senator’s brother was deposed. Others argued that it was HCA that was eager to close the deal, and that the company threw in the towel to avoid the spectacle of Dr. Frist being questioned about the family business. [Tommy] Frist didn’t want to be put under oath to explain what they knew about the worms under the rocks that were being uncovered,” speculated Stephen Meagher, a San Francisco attorney who represented two HCA whistle-blowers. Company spokesman Jeff Prescott denied charges that politics determined the timing, saying that the company agreed to settle because it was “comfortable” with the amount that it would have to pay. “It was about the numbers” he told the Tennessean.com (19 December, 2002)
Only Rick Scott knows how much Tommy Frist knew, and he isn’t talking. Conceivably, this is why he declined to be interviewed by the FBI. It might also explain why he was never deposed. Or perhaps prosecutors were saving that deposition for the end of that investigation, and were surprised when the case was settled.
Rick Scott Remained Silent
According to whistle-blower John Schilling, the FBI had hoped to nail Scott. In his 2008 book, Undercover: How I Went from Company Man to FBI Spy — and Exposed the Worst Healthcare Fraud in U.S. History, Schilling states, “[FBI Agent [Joe] Ford held no pity for the men who had been indicted and told me he hoped the FBI investigation might eventually lead to an indictment against Rick Scott.”
In the same book, Ford is quoted as saying: “‘After Columbia/HCA, I realized people, individual corporate officers, had to be held accountable for the actions of their companies. Instead of just giving us (the government) money, people need to go to jail. I learn from my mistakes and this was my first big one.’"
But of course neither Scott, nor any other Columbia/HCA executive went to jail. Instead, Rick Scott may become governor of Florida.
Ford went on to become a FBI assistant director, and later led the Enron investigation. He is now retired from the FBI. Over the past two months, I have tried, repeatedly, to reach him. Ultimately, I did manage to track him down, and explained that I was interested in confirming what he had told Schilling. Ford didn’t hang up on me, and he didn’t deny what Schilling reported. He simply said, "I'll have to get back to you." But he never did. This is probably understandable. Ford doesn’t have sworn testimony from Scott, so there is little that he can say.
In Part 2 of this post I will expand on what the Florida Medical Association and Rick Scott have in common, the allegations regarding the medical clinics that Scott’s new company has set up in Florida, and why Florida nurses are less than enthusiastic about his candidacy.