It may not seem like it now, but the dealings of HCA Healthcare, the largest U.S. hospital operator, could be one of the biggest political stories of August. In an unusual happenstance, the company's shares plummeted today after it made two surprising disclosures: First, the cardiology practices at its hospitals were under investigation by the Justice Department; and second, The New York Times was about to publish an investigative piece on the firm's treatment of uninsured patients (or so it assumes). Why should anyone care about the rumored misdeeds of a Tennessee-based health care company? Here are three big reasons.
HCA's connections Turns out, HCA's biggest shareholder is Bain Capital LLC, the company once led and co-founded by Mitt Romney. And this isn't some tiny asset: HCA own 160 hospitals and 110 surgery centers. As of April, Bain held 20 percent of HCA's outstanding shares, an amount Bloomberg's Alex Nussbaum says is worth $2.2 billion, and just last year, Bain and KKR & Co. took the company public in an IPO that raised $3.79 billion.
OK, so there's something of a connection to Mitt Romney—so what? What's the risk of HCA being dragged into the headlines in a supposedly forthcoming Times story? For that answer, you'd have to look at HCA's history.
HCA's history For years, HCA has attracted government scrutiny of its business practices. After a stellar growth period in the 1970s and 1980s, the firm ran into trouble in the late 1990s for stretching the legal limits of pursuing profits. In 1997, Rick Scott resigned as chairman and CEO and so did his top lieutenant David Vandewater under pressure from the Feds who were investigating into whether HCA "engaged in practices such as fraudulently overstating their expenses to increase their compensation from Medicare, and regularly conducting unnecessary blood tests,"as The New York Times' Kurt Eichenwald reported in 1997. But that was just the beginning. In 2003, the Justice Department announced a settlement with HCA in what was the largest health care fraud case in U.S. history: The company coughed up $631 million in civil penalties and damages related to government allegations of Medicare fraud. At the time, the DOJ issued a litany of offenses dating back to the late 1980s, all of which amounted to the recovery of $1.7 billion from HCA. Per a DOJ release from 2003:
"Let this case be a continuing reminder to all that in the fight against health care fraud this office will not be deterred," said Acting Principal Deputy Inspector General Dara Corrigan. “Medicare dollars paid to provide ever more expensive health care services to the country's taxpayers should never be fraudulently diverted. This is our job and our trust and we take these duties very seriously," Corrigan concluded.
Now that brings us to today. In a statement released on its website, HCA said The Times story probably related to the number of cardiac procedures its hospitals do and how it determines when the procedures are necessary. It also said the newspaper provided it with examples of cases where “individual patients may have had adverse outcomes from the care they received at HCA-affiliated facilities” to which the company noted that its conducted 20 million total visits last year and "we deeply regret any adverse occurrences to even one of our patients."
The timing Now it's not clear how damning The Times story will be but the fact that a company is under scrutiny from the newspaper and the DOJ, suggests it's in for a major PR hassle. Making matters worse, it's happening near the tail end of a presidential campaign in which one of the candidates has a connection, however tangential, to the company. It should be said that Romney says he gave up management control of the company in February 1999. Bain didn't undertake its $33 billion leveraged buyout of the company until 2006. But that won't likely stop the Obama campaign or its surrogates from using the story. For one thing, it diverts the discussion away from the economy, and for another, it gets into the sticky issue of when Romney actually left Bain (Though he says he left in 1999, SEC documents listed him as CEO and chairman up until 2002.) Regardless of the merits of a potential attack, its the type of thing that's low hanging fruit during the campaign season. But you don't have to take our word for it: Just look at how market analysts are anticipating the story. "My concern is that it gets political legs," Sheryl Skolnick, a CRT Capital Group LLC told Bloomberg. "I think we have to look at it seriously."