Deconstructing The Columbia/HCA Investigation

PROLOGUE: Until the federal government descended upon Columbia/HCA in the spring of 1997, the rapid rise of this corporation health giant was a saga of success for its hard-charging chief executive, its private investors, and those physicians who bought equity stakes in the enterprise. At the time, Columbia/HCA was acquiring hospitals at a rate of almost one a week, growing from two hospitals in 1988 to become the tenth-largest employer in the country, with some 380 hospitals, 200 home health agencies, and 130 surgery centers. Now, one year later, the dreams of Columbia/HCA's founder, Richard Scott, lie in tatters. The company has become the focus of multiple federal investigations, Scott has long since been forced to resign by the board of directors of Columbia/ HCA, and the whole health system is waiting for the government's other prosecutorial shoe to drop. In this lead essay J.D. Kleinke sets out a rationale for the strategy that Columbia/HCA aggressively pursued, arguing that its market-driven reform plan and what he characterizes as Medicare's antiquated payment policies put this for-profit company and the government on a “collision course.” Kleinke is a medical economist and author based in Denver. At the time this paper was written, Kleinke was vice-president of corporate development at HCIA Inc., a publicly traded health care products and systems company. Columbia/HCA is a major HCIA client. Kleinke's book, Bleeding Edge: The Business of Health Care in the Next Century , will be published this summer. Kleinke holds a degree in finance from the Johns Hopkins University in Baltimore. ABSTRACT: Every issue raised by the current investigation into the business practices of Columbia/HCA serves as a signpost for the progress and problems inherent in market-driven health care reform. Actions against Columbia/HCA by regulators reveal deeply rooted resistance to the profit-motivated reforms embodied in the company's philosophy: the public's reluctance to accept necessary reductions in excess hospital capacity; the legal and cultural obstacles to the overdue alignment of physician and hospital economic interests; and the myriad reimbursement and accounting problems involved in the vertical integration of health care delivery. The investigation also underscores the antiquation of the reimbursement mechanisms and control systems in place for financing the delivery of care to Medicare beneficiaries.