Feature

A licence to bill?

A private health care company guilty of fraudulent billing in the US is now busy in the UK. Geof Rayner asks whether it can be trusted

The Wellington, the Portland, the Princess Grace, London Bridge, the Lister, the Harley Street Clinic – the flagship hospitals of London’s private health care sector draw their wealthy clientele not just from the UK but worldwide.

A less well-known fact, however, is that despite the upper-crust associations, they are all owned by Hospital Corporation of America. This US company, founded in the 1960s to apply the lessons of the fast-food industry to hospital care, went on to become the largest private hospital management company in the world.

An equally little known fact about HCA is that for much of its life it has been dogged by allegations of fraud, only recently agreeing to forfeit more than $840m (£580m) for defrauding US federal health care programs.

HCA – The Healthcare Co. (previously Columbia/HCA) has been trading in the UK for 20 years. Initially, it maintained only a toe in the water but in 1996, in conjunction with the insurers PPP Healthcare, it purchased four major hospitals. In May 2000 it bought out PPP’s share and, in June, purchased three other hospitals from the St Martins Hospital Group.

The HCA grew big in the US – at its peak it owned around 400 hospitals – by building on its intimate understanding of the political economy of the health care business and raising vast amounts of capital on Wall Street. It also made massive misjudgements which, allied to a poor reputation, shrank its business to less than 100 hospitals in the 1980s.

The fact that HCA – amid a massively damaging court case – was willing to invest heavily in the UK during a period of Labour government speaks volumes about how it sees investment opportunities here, and certainly suggests that the company feels it has little to fear from Labour.

This is a marked turnaround from the 1980s, when Labour opposition figures such as Frank Dobson, who later became health secretary, railed against the growing influence of US hospital companies in Britain.

The value of the private hospital business has grown slowly but surely, doubling to £1,600m in the ten years to 1998. More recently, it has put on a growth spurt, and now pins its hopes on the latest occupant of the health secretary’s post, Alan Milburn. New Labour’s NHS Plan and the ‘public-private concordat’, drawn up between the NHS and the Independent Healthcare Association (see box), represent a significant U-turn in Labour’s thinking about commercial health care.

Labour’s 2001 election manifesto promised to create ‘a new type of hospital – specially built surgical units, managed by the NHS or the private sector – to guarantee shorter waiting times’. Even the Conservative government under Thatcher, always wary of being seen as too pro-private, never went as far as that. But the question that begs to be asked is this: are there now new opportunities for the kind of profit-by-any-means corporate that the HCA represents in this new public-private landscape?

Of course, Britain is not the US – but the US authorities are far more experienced than the British in tracking down financial irregularities.

The latest round of litigation against the HCA began in 1997 when various US states and the US Department of Justice uncovered fraudulent billing practices in over 100 of its hospitals. Two former executives were jailed in July 1999 for their part in the fraud. In December 2000, Columbia/HCA paid out a total of $840m in guilty pleas – $745m criminal and $95m civil – as the first stage in the settlement of the fraud actions.

At the same time, the US government backed a whistleblowers’ suit against KPMG, the accounting firm that had assisted Columbia/HCA. And the Quorum Health Group, America’s largest hospital management company, turned out to be involved in the fraudulent schemes and had to pay out $95.5m.

These settlements were welcomed by the company’s shareholders, and the HCA is once again making large profits. Dr Thomas Frist, HCA founder and board chairman, says it has now has put the past behind it and is beyond reproach. ‘As far as I’m concerned, our company is as well-run and highly principled as any, especially in health care.’

In recent years, the Office of Fair Trading in Britain has sharply criticised private health insurance organisations. It is concerned about the differences in prices charged to those patients paying for treatment themselves and those with private medical insurance. As the HCA grows in the UK market – as it undoubtedly will – it will look to use its vast experience in bargaining with public payers to extract maximum benefit for its shareholders.

The only question that remains to be asked is whether the British authorities will be as vigilant as their US counterparts. Given the vast profits rapidly extracted at public expense from a number of the PFI schemes Labour has championed, this already seems questionable.