Friday, June 15, 2012

The Rise and Fall of Businessman Rick Scott - 2/2

Rick Scott
by Nomad

IPart One of this two-part series we took a close look at the rise of Rick Scott who, through its aggressive business tactics built the largest for-profit healthcare provider network.
Before the scandal which was to rock the company to its foundations, the corporation had grown to more than 340 hospitals, 135 surgery centers and 550 home health locations in 37 states and two foreign countries. 
And then, in a matter of months, it was out of Scott's hands.

Scott's Sudden Fall 
Scott's prestigious empire all came a-tumbling down when, on March 19, 1997, FBI agents, in conjunction with the Internal Revenue Service, the Health and Human Services (which oversees Medicare), and the Defense Department's Criminal Investigation Service raided Columbia/HCA facilities in El Paso, Texas. Eventually the seizure of documents regarding the case would expand across the country. At issue were allegations that Columbia/HCA had knowingly bilked Medicare and Medicaid.

In fact, according to the Justice Department, ten different kinds of fraud were charged and were filed in five different federal courts in four different states. The search warrants also included dozens of doctors with suspected connections to the alleged fraud.
Incidentally the reason why the Defense Department was involved in this investigation is because Columbia/HCA, through TriCare, managed the healthcare needs of veterans. So we can add the enlisted to the list of victims.

At the time, California Rep. Pete Stark, known for his stand on healthcare issues, expressed the hope that Columbia/HCA executives "will all be in jail soon." He had repeatedly urged that the company's practices be investigated.

By July of 1997, Rick Scott, president and CEO of the company, had been forced to resign. (Scott's website seems fond of the phrase "parted ways" like lonesome cowboys on the wide prairie)  
Dr. Thomas Frist Jr., a founder of the original Hospital Corporation of America and the brother of U.S. Sen. Bill Frist, R-Tenn., was brought in to replace Scott as chairman and CEO. 
According to Politi-fact, Scott resigned before the public got wind of the depth of the charges.
Company executives said had Scott remained CEO, the entire chain could have been in jeopardy. At issue, Scott says, is that he wanted to fight the federal government accusations. The corporate board of the publicly-traded company wanted to settle.
And settle, Columbia/HCA did.
How Scott actually planned to fight the fraud charge remains a mystery. If true, it certainly would have meant disaster for him and the company since the evidence of fraud was overwhelming. (He had, after all, signed corporate reports, noting that he was aware of the possibility his company was committing fraud, at the same time, widespread fraud was found to be going on.)  

It was a moot point in any case; Scott negotiated a sweet severance package, which reportedly included a settlement of $9.88 million. Additionally he left with 10 million shares of stock worth over $350 million, mostly from his initial investment, and a ten-year consulting contract. (This contract would no doubt have involved a non-disclosure agreement). In 1999, Columbia/HCA changed its name back to HCA, Inc. and that was that. 
Was Scott close to going to prison for his part in the case?
It appears not at all.
The former CEO was never indicted and was never questioned in the case, he says. He may have been a target of the investigation — an ABC News report from 1997 says he was — but that never translated into charges.
In December 2000, three years after Scott's "parting of ways" with Columbia/HCA, the company admitted wrongdoing, pleading guilty to 14 felonies -- most committed during Scott's tenure. Then in 2003, another settlement was reached that settled all further claims for $881 million. All told, the fines and restitution totaled just over $1.7 billion.
U.S. Attorney General Janet Reno said about the plea deal, "It's a simple message--if you overbill the U.S. taxpayer, we're going to make you pay it back, and then some."
According to a Forbes article:
As part of the plea agreement, the company will cooperate in the ongoing probe that Deputy Assistant FBI Director Thomas Kubic called "one of the FBI's highest priority white-collar crime investigations."
Specifically the documents in the case revealed that:
  • Columbia billed Medicare, Medicaid, and other federal programs for tests that were not necessary or ordered by physicians;
  • The company attached false diagnosis codes to patient records to increase reimbursement to the hospitals;
  • The company illegally claimed non-reimbursable marketing and advertising costs as community education;
  • Columbia billed the government for home health care visits for patients who did not qualify to receive them.
"Health care providers and professionals hold a public trust, and when that trust is violated by fraud and abuse of program funds, and by the payment of kickbacks to the physicians on whom patients and the programs rely for uncompromised medical judgment, health care for all Americans suffers," Robert D. McCallum, Jr., Assistant Attorney General for the Civil Division said. "This settlement brings to a close the largest multi-agency investigation of a health care provider that the United States government has ever undertaken and demonstrates the Department of Justice's ongoing resolve and commitment to pursue all types of fraud on American taxpayers, and health care program beneficiaries."
Hip-hip...But the back-patting and champagne toasts were, it seems for all parties, including the guilty. Polit-Fact fills us in on the whole story:
Four Florida based Columbia/HCA excutives ultimately were indicted as part of the fraud investigation, but not Scott.

Two executives, Jay Jarrell and Robert Whiteside, were convicted of defrauding Medicare in 1999 and were sentenced to prison. Jarrell was sentenced to 33 months in prison; Whiteside got 24 months. Those convictions, however, were overturned on appeal.

Two other executives also were prosecuted in the case. A Tampa federal jury acquitted Michael Neeb and failed to reach a verdict on Carl Lynn Dick.

"With the reversal of the Whiteside and Jarrell convictions, not a single individual has been convicted as a result of this seemingly limitless cost-report investigation,'' Columbia/HCA's lawyers wrote in a March 2002 court filing.

Walter P. Loughlin, HCA's lawyer during the investigation, said Whiteside and Jarrell were the only two executives ever convicted.

And while Columbia/HCA did plead guilty to 14 felonies, those were corporate convictions -- meaning no one served prison time.

We did find an ABC News transcript from August 1997 in which reporter Brian Ross said Scott was a target of federal investigators. On World News Tonight, Ross said: "Columbia has denied the fraud allegations. But its chairman -- Rick Scott -- and five other top corporate executives have resigned. And federal investigators told ABC News today that Scott is now considered a prime target of the investigation."
However, Scott was miraculously unscathed and against all odds, walked free. For its own reasons, the Bush administration decided not to pursue any indictments against him.
So when Rick Scott boasts about not being charged or convicted, he is quite correct. Technically.

Something Wrong
The most damning charge against the company involved widespread bribery of physicians. This type of fraud wasn't, of course, unique to Columbia/HCA. Such practice was growing more and more common and Columbia/HCA, as the largest in the industry, just happened to be doing more of it.
Specifically, the corporate practice was to bribe doctors by granting them partnerships in company hospitals, and other inducements. 
According to Forbes,
In addition, it gave doctors "loans" that were never expected to be paid back, free rent, free office furniture, and free drugs from hospital pharmacies.
The physicians would, in exchange, increase Medicare billings by referring more patients and by exaggerating the seriousness of the illnesses they were treating. Unnecessary treatment for imaginative diagnosis. According to one source:
Among the major factors in steadily rising health care costs are unnecessary tests and treatments. By some estimates, one-third of all health care dollars are spent on treatment with little or no value.
In the industry it is called over-treatment- meaning when patients are given unnecessary medical treatment for a condition that causes no symptoms and will go away on its own. Or the term can describe intensive treatments for a condition that could be remedied with very limited treatment. 
Combined with over-prescription and unnecessary tests and it is easy to see how healthcare costs can get out of control. (There's also the all-important question of actually doing harm to the patient in the process.)
When Medicare or Medicaid are footing the bill, an unscrupulous CEO may well view it as an opportunity too good to pass up. It's no wonder that healthcare costs are driving the nation to bankruptcy.
*       *       *       *
Questions about how business was conducted surfaced very early on, nearly from the time Scott's company was founded. From the very start, Rick Scott, as CEO of Columbia, had reportedly received numerous reports that warned of certain possibly illegal business practices, involving anti-kickback laws. These laws attempt to limit conflicts of interest in Medicare and Medicaid. 
Before Columbia merged with Hospital Corporation of America (HCA), Columbia executives were warned as early as May 1988 that the payments to doctors may be illegal, according to a 2001 Justice Department lawsuit against Columbia/HCA.
Nevertheless, Rick Scott maintains that he would have immediately stopped his former hospital company from committing Medicare fraud — if only "somebody told me something was wrong." Hardly the kind of response we’d expect from anybody seeking the public’s trust. And yet, isn’t this the very same excuse that Rupert Murdoch has made regarding the phone hacking scandal in the UK. (“I simply had no idea what was going on”)
Nell Minow of the Corporate Library, a watchdog group, put it this way: ``Being ignorant of all that doesn't inspire confidence.'' In judging a CEO, she said, ``it's no better to be a schnook than a crook.''
As CEO and founder of this healthcare empire, it was surely Scott’s duty to know what was going on in his corporation. 
That's if you believe that Scott didn't know. One whistleblower, John Schilling of Naples, Florida, just doesn't buy what Rick is selling. Schilling worked for Columbia as a Medicare reimbursement supervisor in Fort Myers, and says that Scott must be lying if he didn't know about the corporate fraud going on under his nose.
“He’s pulling the wool over your eyes if he says that he wasn’t aware of this and he would have fired anybody if he would have been aware of it. I think it’s a bunch of malarkey."
When Schilling filed a lawsuit on behalf of the federal government against the company he helped bring this sordid story to light.
Schilling first discovered the company’s fraudulent billing practices in 1993 after a call from a Medicare auditor about a cost reporting issue with Fawcett Memorial Hospital in Port Charlotte. Schilling describes a meeting he had with Columbia administrators, during which he was instructed to “throw federal auditors off the track.”That included offering one of the auditors a job.
Schilling's conscience prevailed and he immediately reported what he had uncovered to the authorities, sparking a FBI-led undercover investigation.

Records of the warnings Scott was given were found in the company's annual public reports to stockholders that Scott signed as Columbia/HCA's president and chief executive officer. As one source explains:
The reports said the company believed it was complying with the spirit of the law. But as far back as 1994 — three years before the FBI began scrutinizing the company — Columbia/HCA acknowledged that it might not be following the letter of complex health care rules.

"Certain of the Company's current arrangements with physicians … risk scrutiny" from investigators and "may be subject to enforcement action," the 1994 report said — a precaution echoed over the years in documents filed with the Securities and Exchange Commission.

Scott today says he doesn't remember the reports he signed, but that the warning language sounded like "boilerplate, written by SEC lawyers just to cover all bases."
Acknowledging the possibility of breaking the law is not an excuse for breaking it, as Rick Scott was soon to learn. As an defense, it isn't very satisfying nor convincing. Basically, Scott says, nobody told him and he didn't pay attention to the warnings and he didn't read the reports which gave details to misconduct. 
And following the disaster, Scott said he took responsibility for the mistakes that were made by everybody.. except himself. A non-apology apology.

Neither David nor Goliath
The truly repentant sinner uses his time in exile for reflection, while the unrepentant one spends his  hours searching for some other person to blame and to reconstruct reality to his advantage. 
It's easy to see which category Rick Scott fell into.
Scott would like to portray the scandal as a battle between a free marketeer David against the big hairy Goliath of federal regulations. This plays very well with the Tea Party people who harbor a pathological hatred for big government and regulations.
His slick website gives Scott's version of history. 
In 1995, the Clinton Administration announced a “crackdown” on Medicare billing practices across the health care industry (source: Philadelphia Inquirer, May 4, 1995). The number of Medicare investigations increased from around 600 in 1992 to more than 2,200 investigations by 1996. At the time, there were tens of thousands of pages of Medicare regulations, and virtually all health care companies were affected by the government crackdown.
Those statements are true, as far as they go. Still, the vital question that Scott avoids is "why was there a crackdown?"
It actually started in the year before the raid, in September, 1996, when Clinton signed an executive order underlining the administration's commitment to improve the quality of the nation's health care system. The administration was forced to crack down on an industry that had seen major frauds cases year after year and only after a flood of complaints. 
Indeed, Clinton had very legitimate reasons for launching a "crackdown" as the Los Angeles Times from 1997 explains:
The president took the action in response to recent studies showing that fraud has reached alarming proportions in the home health care business, the fastest-growing segment of the $200-billion Medicare program.

The administration believes the government is bilked out of billions of dollars of Medicare expenditures every year.

A report released earlier this summer by the inspector general of the Health and Human Services Department concluded that a staggering 40% of services provided by home health care agencies in California and three other states should not have been reimbursed by Medicare. That represents $2.6 billion of the $6.7 billion spent on those services over a 15-month period ending March 31, 1996.

The government paid for an array of improper expenditures, the report showed, including excessive treatments, bills for services never performed and charges for patients who were not homebound and therefore not eligible.
Enforcing the laws, prosecuting the most flagrant violators of the regulations and developing committees which investigate how to protect consumers in the future. This is how good government is supposed to operate but, it seems this is what Rick Scott objects to. 
Apparently Clinton was absolutely correct about the Medicare fraud as the Columbia/HCA case conclusively proved. Unfortunately, Rick Scott sees only the big bad government coming to crash his party. 

Especially galling is the last sentence in his statement "tens of thousands of pages of Medicare regulations." (Too many rules to follow, too many regulations to mind, too many laws to obey- why it's enough to make a shiny head spin.) Never mind that there are valid reasons to have regulations in an industry directly involved in the health of millions of citizens, including children, and the elderly, and the poor. 
You really want us to go through these 2,700 pages? And do you really expect the Court to do that? Or do you expect us to — to give this function to our law clerks? Is this not totally unrealistic? That we are going to go through this enormous bill item by item and decide each one?
Is it possible that these people are unable to read? 

Here's another bit history turned inside out from Scott's website:
By 1998, the government “crackdown” was becoming controversial. The health care industry started pushing back, complaining that the Federal government was classifying many honest mistakes as “fraud,” and playing a game of “Gotcha!”
Hiring a auditor in order to keep him from reporting fraud or bribing doctors with free furniture and free rent is hardly what anybody would classify as an "honest" mistake. "A game of Gotcha" is the usual name the corrupt corporate heads (or failed vice-presidential candidates) use when they are exposed and can't think of any other excuses. The rest of us just call it "justice."

Here are some excerpts from Scott's two hour deposition regarding allegations of anti-trust violations by Columbia/HCA. Quite a difference but then this was before his Tea Party transformation. In the clip, his inability to answer even basic questions would seem to call into doubt his qualification to be head of the corporation. (In the full video, Scott seems both strangely detached and uncooperative. Professional readers of body language would undoubtedly have a field day with this video.)

Defenders and Critics of Defenders
Surprisingly, perhaps, Scott has his defenders too. One notable example is J.D. Kleinke
Kleinke calls himself “a pioneering health care information entrepreneur, medical economist, author, and business strategist.” (So many hats for one smooth head.) He is also a Resident Fellow at the American Enterprise Institute. He rallies to Scott's defense with this:
"Rick Scott forced most of the system to grow up, to act like real businesses, to do difficult things with unions, with efficiency and with old sleepy bureaucratic practices," Kleinke said. "He was the Henry Ford of health care, turning the hospital into a brutally run but efficient system, a factory almost."
(The comparison to Henry Ford, I imagine, is supposed to be a compliment to Scott. I think we, nomads, have discovered how unflattering- but accurate- that remark actually is. ) 
Returning to the meme that plays so well in Tea Party circles, Kleinke defends Scott’s practices like this:
Kleinke said Columbia/HCA was more guilty of exploiting gray areas of the law — such as the doctor payments — than in actually committing rampant fraud. But he said Scott was on a crash course with the industry and the government, thanks to his drive to shake up the hospital industry and take on then-President Bill Clinton over health care.
Bribery is hardly a gray-area of the law. Ten different kinds of fraud is hardly a gray area of the law. Both of those were a white collar crimes before white collars were invented. 
In the alternate reality that apparently only Scott and Kleinke share, Rick (the rebel) Scott looked Bill (the bully) Clinton in the eye and the president blinked. That is, if blinking means "bring to justice the largest fraud case in history and forcing the corporation to pay out over a billion dollars." 
He continues:
"Rick was an outsider," he said. "And much of the hospital industry is clubby. And he wasn't a member of the club."
As head of the largest healthcare corporation in the US, Rick Scott could hardly have been considered an outsider. The "Rick the Rebel" fantasy is nearly as credible as the "Sarah the Rogue" fantasy.

Speaking of clubs, American Enterprise Institute, to which Kleinke is a member, is quite "clubby" as well. According to Right Wing Watch, 
AEI is one of the oldest and most influential of the pro-business right-wing think tanks. It promotes the advancement of free enterprise capitalism, and has been extremely successful in placing its people in influential governmental positions, particularly in the Bush Administration.
Group after group participating in the lawsuit to destroy the Affordable Care Act is a beneficiary of the Koch brothers' largess -- reflecting the outsized influence that these guys wield in our political debate. Indeed, one wonders whether this effort would be happening at all if not for these two billionaires with a direct interest in avoiding government regulation.
Thus, AEI belongs to one of the fastest growing clubs of far right think-tanks nurtured by the Koch brothers. SourceWatch also adds:
President George W. Bush has appointed over a dozen people from AEI to senior positions in his administration.
Kleinke’s defense of Scott’s methods were thoroughly torn to shreds by Jeff Goldsmith, a health care forecaster and strategist, is president of Health Futures, Inc. Of Scott's corporation, Goldsmith writes:
This was a company whose marketing executives disrupted hospital association meetings with paint guns and whose senior management proclaimed the Three A's—acquire, affiliate, or annihilate—as their corporate partnering philosophy...J.D. Kleinke’s thesis that Columbia/HCA was punished by a vengeful federal government for preemptively “reforming” the health care system reads much more like a failed Oliver Stone movie pitch than a story of miscarriage of justice by reactionary health policy.
Goldsmith’s most damning criticism of Columbia/HCA also cuts to the heart of Rick Scott’s legitimacy as a leader.
The most troubling aspect of Kleinke’s critique is its almost exuberant moral relativism. He virtually concedes that the company bought physician referrals, padded its home care charges with corporate overhead and unjustifiable markups, and systematically inflated the intensity of its services to Medicare patients. But this is acceptable because the laws need changing, and anyway, “everybody does it.”

...Not everybody does it, Mr. Kleinke. For someone who has worked extensively with investor-owned and not-for-profit systems, it is easy to distinguish truly value-driven organizations from mere opportunists.

Values matter, in this or any other corporate field.

Regardless of whether they pay taxes or not, health care enterprises are part of a community and society and cannot operate in a moral vacuum, awaiting enforcement actions to determine if their conduct was acceptable. Translating corporate values into acceptable business practice is the task of leadership. What Columbia/HCA’s story is ultimately about is the failure of leadership.
*     *    *    * 
There you have it. We have reached the end of this examination of the business career of Rick Lynn Scott, present governor of Florida. And this career (such as it is) is Scott’s sole qualification for holding political office.

I hope the good people of Florida are happy with the choice of governors. 

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