Doing Business: An Analysis of the Columbia HCA Fraud - Case Study Example

Doing Business: An Analysis of the Columbia HCA Fraud Case Submitted By: Submitted Submitted] Introduction Business firms are established so that individuals can gain profit and make a living. However, to what extent should it go to achieve their goals? The case study relates the fraud allegation against Columbia HCA, a hospital corporation that has seen remarkable growth and success. It is alleged that the corporation engaged in fraudulent claims to acquire more money from Medicare – a government health care support. In this paper, I will be determining the internal and external factors which led to the situation, the path that the Board of Directors should take and the mechanisms that should be employed to prevent it from occurring again (if it turns out to be true). My goal is to relate the case to the subject of Business Ethics and derive important lessons on how business should be conducted. Causal Factors Reading thru the case study, we can discern the numerous causal factors of the federal investigation of Columbia/ HCA. From what I can understand, the investigation was brought about by a combination of internal and external factors which is presented below: External Very Large Budget Consumed by Medicare It was stated in June 1996 by Treasury Secretary Robert Rubin that the Medicare program will go broke by 2001 with the way funds are being spent. Expenditures were increasing exponentially with $160 billion for the 1994 fiscal year. That’s about $440 million per day. By year 2003, it is projected that it will mushroom to $380 billion or $1 billion per day according to the Congressional Budget Office. As a general observation, any activity that increases or decreases suddenly is subject to the curiosity of other people especially when it involves large amounts of money. This being the case, it only took a matter of time before it caught the attention of government authorities who have become very keen in finding ways to eliminate unnecessary expenditures and catching fraudulent transactions. The arguments used by the managers to justify the large increase in Medicare costs was the increase in efficiency, more expensive equipment and better accounting practices. These arguments alone are enough to stir speculations because Medicare expenditures should rise due to the rise in harder-to-treat diseases requiring more expensive medication. Does it make sense then that there was an increase in acute and chronic disease when the health care service became more efficient? Does it mean those doctors in the past misdiagnosed patients and when Columbia/HCA came into the picture, they suddenly became experts in diagnosis? (Remember that most of the doctors were still those under the past management) New Legislation Protecting Whistleblowers Whistleblowers are those that expose the anomalies of their employees, partners and co-employees. Anomalous activities, in this case, refers to fraudulent acts that cheats the government (and consequently the taxpayers) of their money. It may include tax evasion and false claims. In the past, whistleblowers were exposed to retribution by the entities who they claim is engaged in anomalous activities. They could only expect minimal attention from the authorities and if ever they were given such attention, they could only expect minimal legal assistance so why bother being one? Unless you have very deep grievances against the person, being a whistleblower was a risky venture. With the new legislation, more legal protection for the whistleblower was provided. Incentives were also offered such as the 30% of recovered money going to the whistleblower which was mentioned in the reading. With the combination of these two important measures, whistle-blowing became a less risky venture. Focus of Government Authorities in Stemming Corruption The first two factors are actually outgrowths of the focus of authorities in catching fraudulent claims. Governments generally have two alternatives in ensuring that the budget is enough and no fiscal deficits occur. The first one is raising taxes which are very unpopular to the general public. The second one is to ensure that the item where money is being spent is real, not overpriced and necessary. This is the more acceptable path for a government avoiding negative public perception. The government authorities focused their lenses in fraudulent claims due to the Government Management Reform Act, which demands a rigorous review of federal agency bookkeeping using generally accepted accounting principles. Because of this, more stringent regulations came into force and millions of dollars became available to investigators to finance their operations. With the large budget consumed, the high profile of the company and the mounting number of whistleblowers, it was expected that Columbia/HCA could become the next target. Independent Investigation by New York Times Further compounding the vigor of government authorities were the revelations of America’s most reputable and most widely read newspaper. With the independent investigation of the newspaper headed by one of the country’s leading health care journalist, one can only expect much fanfare generated on the issue. As everybody knows, mass media can place an extra hype on the issue by making it known to the public and adding spicy comments and statistics. Internal Demanding Financial Objectives The managers of the hospital were expected to achieve high financial gains. If they excel, they receive a very substantial bonus. If they don’t, they get scolded or worst, they get fired. Due to the desire to gain as much profits as they can and escape unemployment, the managers could have been forced or even inspired to resort to the fraudulent claims to achieve the financial goals expected of them. To enlarge the profits, there must either be more patients opting for the services of the company or there should be more acute and chronic diseases so that they could claim more from Medicare. However, for this to happen there should be a severe outbreak or a plague. Since this has little chances of occurring in our advanced society, the managers can only resort to cheating and forwarding false claims to Medicare so they can acquire more money. Severe Treatment resulted to Whistleblowing We mentioned that whistle blowing became a less risky venture due to protection and incentives. However, what causes whistle blowing? In the ideal case, it occurs because the individual feels that he has a moral obligation to do so. In the real case, such events occur because a person has grudges against his employers or partners. The treatment of underperforming managers was described as debasing and very undesirable. Compounding the treatment was being erased from the list of the employees of the company. These people had an axe to grind against the company and when the conditions became favorable, they all went out of hiding. Very Aggressive and Profit- Oriented Executives Richard Scott is described as a very profit driven man who was very keen in seeing the hospital company achieve historical profits. Due to this drive, he set financial gains that were very demanding. For sure, he is not the only one to blame because all the directors certainly had a say on the workings of the company. Their policies and the system they have constructed called for high profits pressuring those below to resort to fraudulent activities (though this is yet to be proven). Actions that the Directors should take Denial and cover-up are options not available to the directors because the files have already been placed in the custody of government authorities. The issue has also acquired wide publicity with numerous testimonies claiming that the allegations are true. Although the corporation had its share of issues, the problem facing them is of a different magnitude and severity. What the directors can do is to issue a public statement regarding the event. This statement must include the company’s desire to participate fully with the investigation of the government authorities. They must also state that the company had no idea of the fraud if ever there was one. This should calm down the situation and provide an opportunity for the directors to think of their next action. It can also ease the tensions of the company’s stakeholders because they know that the board of directors is doing something to address the issue. The company may also declare to the public that the company will conduct its own investigation. Such a statement signifies the sincerity of the company in proving their innocence. If they are indeed guilty, the private investigation could clean the company of the responsibility by pointing out that it was the individual who committed the crime without the knowledge of the company. I researched about what happened to the case and the company. Under a civil settlement, the company agreed to pay $745 million, plus interest, for its alleged false billing practices. And, it will pay $95 million in criminal fines. Instead of letting the case drag, the board decided it can be better off with the settlement. (Ethics Newsline, 2000) Future Regulations The Medicare fraud is not the first of corporate fraud. There’s the infamous Enron scandal and the Savings & Loan crisis, in which 6400 bank owners and executives were charged with crimes and 3700 of them went to jail. (De Long, 1997). Roman (1995) of the Washington Times estimates that fraud and abuse cost Medicare and Medicaid about $33 billion each year. This estimate was computed from the case of three convicted felons. There are many more cases being revealed on how Medicare is being cheated. (Eisler, 1996; Anders and McGinley, 1997; Alper, 1995) For sure, there should be something that could be done. In line with the recommendations forwarded by Citizens Against Government Waste (CAGW), the best way that could deter fraud in Medicare is to expose it to the discipline of the market. This involves replacing the current system with a program to allow beneficiaries to choose from private health insurance plans and having the government subsidize insurance purchases through individual premium allowances at an amount set by the average price of competing plans and keyed to a benchmark benefits package. (Perspective, 1997) The principle behind this is that competition would tend to drive up the quality of medical care while keeping a lid on costs. This is because being responsible for their own care, beneficiaries would require more detailed information on the type and quality of care they receive from providers and private insurers would be more attentive than the federal government to possible instances of fraud and abuse. Relation to Ethics and Law: Business and Society The case for Medicare is actually one good example of how ethics is applied to business. There are actually many theories about what is considered ethical for a business. For example, there exists this notion that the purpose of a business firm is to maximize profits and return to its owners. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged. This is actually more of a utilitarian view. However, some pint out that a semblance of morality should be incorporated besides from self interest. If a firm does not do so, then it is likely to suffer from fines loss of licensure or reputation. Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would even suggest that this even includes rights of governance. (Behrman, 1998; Hartman, 2004) Under the profit maximization, Columbia/ HCA wanted to satisfy the expectations of its shareholders which are high profits for the company. Can we therefore blame them for doing so? The problem with the company is that they resorted to (if it proves to be true) cheating the taxpayers of their money and this involved large sums of money amounting to billions of dollars. They took advantage of a service designed to help the general public. What do they then differ from thieves? Social Responsibility and Proactive Management Gone are the days of trading where the sole interest is to benefit the trader to the detriment of other people. This is because as every individual has a social contract to others so does a businessman has a social responsibility to the public especially in health care provision where people’s lives are at stake. For sure, Columbia/HCA was able to improve health care provision and was able to turn medical courses a very profitable career. However, they only benefited a few compared to all the taxpaying citizens who were cheated out of their money. The extra claim could have saved another life or it could have been allocated to other social services such as provision for education and shelter. Every business firm is accountable to the public. Proactive management is the mark of most successful companies. This is shown by the success that Columbia was able to achieve. A company that has a visionary and hardworking leader is on its way to success. Nonetheless, the manager should also be realistic and place reasonable pressure to his subordinates regarding the goals of the company. Columbia HCA has shown that managers that do not heed to this idea will find themselves in a very precarious situation. Managing the Firm Effectively This subject has actually been a topic of numerous studies and has given rise to many professions such as Business Management and even Industrial Engineering. It would be impossible to capture it fully in such a limited space but I present some of the principles that should see the company to its success. Essentially, an excellent and hardworking management team is crucial to the success of the company. The executives are the ones who make discuss the best possible way to approach the business and they are the one who decide. It is crucial therefore that they are very capable and very eager to serve the company. However, they are not the only people in the company. You also have the employees. A well motivated workforce could make or break the company. That is why to inspire them, many incentives are offered especially for a job well done. How should they be treated if their performance is undesirable? Many people argue to give them a chance because they may be experiencing personal difficulties but then again, as employees they are supposed to be professionals and should not let their personal life affect their work. However, do not go on lambasting the person and then firing him anyway. Such an act makes enemies and they may be the cause of the downfall of the company in the future as what whistle blowers were to the company. Besides from the personnel, there are also other factors such as an efficient logistics system, accounting system, research and development systems, promotion and incentives mechanisms, flexible coping mechanisms and a knack for the trends of the business. Lastly, never resort to fraudulent activity because one way or the other they will surface. Making the Stakeholders Feel Good about the Company Stakeholders have invested in the company in the belief that their investment will benefit them financially. Therefore, the best way to make them feel good about the company is to ensure that they do benefit. This can be done by achieving remarkable financial achievements such as what Columbia was able to do. This being the case, is it right then to resort to fraudulent activities just to make them feel good? The fact is, stakeholders want security for their investment but they also want that it should not involve criminal prosecution because they do not want to undergo the rigors and stress of litigation and they certainly do not want to go to jail. Thus, it is essential that the company has an efficient management and a remarkable performance but the company should be blemish free of unscrupulous activities. Moral Lesson The case of Columbia HCA provides a good example of how to run the company to make it very successful and what should not be done to avoid failure. Running a company requires not only capital but also dedication, hard work and vision. It does not require debasing treatment of employees and very unrealistic goals that could pressure the employees to commit crimes. What is also important is the question of what is an ethical conduct for business firms. Should they just aim for remarkable profits to satisfy shareholders or should their actions be governed by moral and social obligations that could be friendly to the company? The case study shows that if business firms neglect their duties to society, they are on their way to criminal prosecution. I believe that a compromise between profits and moral duty can be thought of. Business is not always about the money. It is an activity that should benefit the society as a whole and not cheat it. References: Roman, Nancy (1995). "Medicare Scam Veterans Tell Panel How Easy It Was to Cheat," Washington Times, November 3, 1995. Eisler, Peter (1996)."Fraud on the Rise: Those Who Get Caught Say Its Just Too Easy," USA Today, November 12, 1996. Anders, George and Laurie McGinley. (1997). "A New Brand of Crime Now Stirs the Feds: Health-Care Fraud," Wall Street Journal, May 6, 1997. DeLong, James (1997). Just What Crime did Columbia/HCA Commit? Wall Street Journal, August 20, 1997, p. A15. Behrman, Jack (1988) Essays on Ethics in Business and the Professions. NJ: Prentice Hall, 1988 Hartman, Laura (2004)..Perspectives in Business Ethics .IL: McGraw-Hill, 2004 Perspective (1997). “Waste, Fraud, Abuse". Investors Business Daily, October 17, 1997. Alper, Philip (1997). "Free Doctors From Medicares Shackles," Wall Street Journal, November 5, 1997. Ethics Newsline (2000). Columbia/HCA Reaches Tentative Settlement in Fraud Case. Justice Department says hospital chain defrauded Medicare for 15 years. Accessed May 2, 2007 from www.globalethics.org/newsline/members/issue.tmpl?articleid=05220001100353 ` Read More