WIDE RAIDS MADE ON HOSPITAL CHAIN
By KURT EICHENWALD
The multifaceted investigation centers on whether Columbia hospitals fraudulently overstated their expenses to increase their compensation from Federal programs like Medicare, people with knowledge of the investigation said. Those expense reports generate hundreds of millions of dollars in payments from the Government to Columbia each year.
The searches marked a sharp expansion of the Columbia investigations, which first became public with a search in April of the company's operations in El Paso. But people with knowledge of the investigation described the inquiry that resulted in yesterday's searches as far broader than the El Paso investigation.
The Columbia inquiry involves investigations by grand juries in several states, people familiar with the investigation said. Prosecutors have already obtained cooperation in the case from secret informants who are current and former company employees, these people said. Those employees have already offered testimony and documents to the grand juries. That information was used as part of the basis for yesterday's raid.
Indeed, several people with knowledge of the inquiry said that an investigation by Federal prosecutors in Florida was already far enough along even before yesterday's raid that indictments of some individuals are expected within three months.
Some of the Government's critical evidence comes from second sets of cost reports and work sheets maintained at Columbia hospitals that contained significantly lower expenses than in those reports submitted to the Government, people with knowledge of the investigation said. Much of that information was obtained by the Government during the course of a civil investigation into Columbia's cost reports.
In addition, the investigation was said to be examining whether unnecessary blood tests were being regularly conducted at Columbia hospitals when doctors ordered diagnostic work-ups of patients. In particular, the investigation is examining the use of tests known as complete blood counts that were billed to Medicare, people with knowledge of the inquiry said.
Through the grand jury proceedings, the Government has developed probable cause to believe that a crime has occurred, which is required before a Federal judge authorizes the use of a search warrant. Such warrants -- which differ from subpoenas, when the Government demands that documents be turned over by an individual or corporation -- are used in criminal matters to insure that records relevant to the investigation are preserved and obtained quickly.
The searches, involving about 35 warrants, were being conducted by the Federal Bureau of Investigation, the Department of Health and Human Services, Defense Criminal Investigative Services, the Postal Inspectors Service and the Utah Department of Investigation's medical fraud unit, according to a statement released by the F.B.I.
Throughout the day, agents carted documents from hospitals and other Columbia facilities in Florida, Tennessee, Texas, Utah, North Carolina and Oklahoma. People with knowledge of the investigation said that more searches might take place today.
The searches were more extensive in some states than others. For example, the search in Oklahoma was limited to the company's operations in Tulsa. But in Florida, 20 hospitals and offices around the state were searched, according to Michael Seigel, first assistant United States attorney for the middle district of the state. The facilities searched were based in Orlando, Jacksonville, Fort Myers and Miami, among other cities, Mr. Seigel said.
As part of yesterday's Columbia inquiry, the Government also seized documents in Florida from a company called Olsten Health Management, said Judy Holtz, a spokeswoman for the Inspector General of Health and Human Services. A division of Olsten provides management services to home health care agencies. Olsten said it was cooperating with the investigation.
Some critics of Columbia's business practices said that they were awed by the aggressiveness of the Government action yesterday. ''I have never known in the history of this country where 35 search warrants have been served simultaneously on a New York Stock Exchange corporation,'' said John T. Cusack, a Chicago lawyer who has represented not-for-profit hospitals that compete with Columbia.
Peter Young, a health care consultant who works for not-for-profit hospitals that compete with Columbia, added, ''This is very clearly an indication that this is an ongoing and long-term investigation.''
Investors reacted strongly. Columbia shares lost more than 12 percent of their value, falling $4.75 to close at $34.1875 in trading on the Big Board.
Senior Columbia officials said they were unaware of any connection between yesterday's search and Government concern about company cost reports.
''We do our best to prepare a complete and accurate cost report which requests the appropriate Medicare reimbursement associated to the care we provide,'' said Samuel A. Greco, senior vice president of financial operations at Columbia. ''We try to hold ourselves to the highest standards.''
Mr. Greco said that in assembling cost reports the company's hospitals relied on advice from numerous consultants, including representatives of major accounting firms.
People with knowledge of the cost-report inquiry said that in part it grew out of a longstanding investigation by the Health and Human Services Inspector General's office into the company's practices involving cost reports.
That civil inquiry, which has been under way for several years, has resulted in the Government's obtaining the cost records for at least 50 Columbia facilities, which are now being used as part of the criminal inquiry, people with knowledge of the case said. Columbia officials said that they had not heard from the inspector general's office about the matter for almost a year.
The cost reports themselves are an arcane, often overlooked portion of the Medicare system, but one that has meant billions of dollars in payments by the Government to hospitals and other health care providers over the years.
Those payments come in a number of ways. For example, most outpatient services -- such as home health care -- are reimbursed on the basis of cost, meaning that the higher the costs reported to the Government, the greater the payment to the health care provider.
In addition, the Government pays certain percentages of specified expenses such as hospital administration and the costs for capital improvements like new medical equipment and expanded wards. But the amount that is paid is not the same for all costs -- for example, Medicare pays far more for capital improvement costs than for administrative expenses. And only expenses related to patient care qualify for such payments.
The current investigation is examining whether Columbia hospitals fraudulently inflated their costs in reports to the Government for the purposes of raising compensation, people with knowledge of the investigation said. Part of that could be accomplished by shifting expenses unrelated to patient care into the cost reports, or by accounting for some expenses that would be reimbursed at a lower rate, like administrative costs, as expenses reimbursed at a higher rate, like capital improvements.
In particular, these people said, investigators are examining accusations of significant differences between the cost reports submitted by certain Columbia hospitals to the Government and separate reports -- known as reserve cost reports -- that were kept at hospitals.
Investigators were said to believe that these second reports, along with work sheets prepared by analysts working with the company, provided evidence that at least some hospitals were knowingly inflating the numbers reported to the Government in the cost report to improperly raise total compensation.
A 1993 report by the General Accounting Office found that Hospital Corporation of America -- the company that accounts for the ''HCA'' in Columbia's name -- improperly included expenses for employee picnics, Christmas gifts and food for nonemployees at social functions as expenditures related to patient care in the cost report for its headquarters. The agency did not examine the cost reports for HCA hospitals.
In addition to the cost report issue, people with knowledge of the investigation said that the Government was also closely inspecting possible fraud in lab work conducted by the company. Agents with the F.B.I. were said to have been interviewing a number of doctors at Columbia emergency rooms as part of the inquiry.
Officials were said to be investigating whether emergency room doctors were led to prescribe medically unnecessary tests, particularly screening for complete blood counts, which were subsequently billed to the Government. Several similar cases have already been settled against some large labs, including a division of Corning Lab Services and SmithKline Beecham.
At an industry conference yesterday, Richard L. Scott, Columbia's chairman and chief executive, said he had heard there had been a good deal of focus by the Government on the emergency room blood tests, and speculated that yesterday's broad search ''might have something to do with that.''
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