Columbia/HCA Paying $745 Million to Settle Some Fraud Charges

Columbia/HCA Healthcare (COL), the nation's largest private hospital operator, agreed Thursday to pay $745 million to settle some fraud charges with the government.

Under the tentative agreement with the Justice Department, Columbia would settle civil aspects of three of the five issues raised in a 3-year-old investigation. The government would agree to reduce to $250 million from $1 billion an existing letter of credit agreement. Analysts have used the credit agreement as a thumbnail of the company's possible total liability.

In court documents, federal investigators have said they believe Columbia sought to defraud the government by misrepresenting hospital expenses to gain reimbursement from Medicare and other programs. In July, a Tampa, Fla., jury convicted two executives of defrauding federal health care programs by submitting bogus expense claims to the government.

Columbia didn't immediately return a call seeking comment.

The preliminary settlement would cover civil claims relating to the company's Diagnosis Related Group coding, accused of a practice commonly known as up-coding, which involves changing bills submitted for medical services. It would also cover civil allegations involving unnecessary medical tests. Finally, it would cover civil issues involving improper acquisitions of home health care agencies and excessive billing for home health care services.

That would leave outstanding civil allegations relating to improper inclusion of items in Medicare cost reporting and to arrangements with physicians that allegedly violate laws governing fraud, abuse and kickbacks. The government alleged a kickback scheme involving patient referrals made by doctors with ownership stakes in Columbia hospitals.

The company's shares gained 2 1/4, or 8%, to 30 1/2 Thursday. The stock didn't trade after hours, according to Instinet.

"The government's agreement to the reduction of the letter of credit seems to imply that any remaining issues to be settled would be closer to the $250 million range," said Linda M. Greub, analyst for Banc of America Securities. (She rates the company's stock buy, and her firm hasn't done recent underwriting for Columbia.)

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