CHICAGO Investors in U.S. hospital companies can expect more scrutiny of billing practices and the medical need for expensive treatments as the federal government faces greater pressure to recoup billions in fraudulent claims, analysts said.
HCA Holdings Inc, the largest for-profit hospital operator in the United States, said earlier this week that federal authorities were investigating whether heart procedures performed at some of its facilities were medically necessary.
This isn't the first time that HCA has been in the government's crosshairs.
Between 2000 and 2003, HCA paid a total of $1.7 billion in civil penalties and criminal fines to settle a massive federal investigation into fraudulent billing practices.
Since then, the U.S. Justice Department has made identifying fraudulent medical claims and unnecessary treatment a higher priority as the nation's $2.6 trillion healthcare system contributes to a skyrocketing national deficit. False claims to the government's Medicare plan for the elderly are estimated to cost $60 billion a year.
Arrests of people accused of bilking Medicare and other programs have centered on individual doctors, nurses and administrators in recent months. But Wall Street analysts expect that pursuit will put more public companies under the microscope.
"That's the environment we're in. It's just simply going to intensify. Fighting Medicare fraud is the only true bipartisan issue," CRT Capital Group analyst Sheryl Skolnick said. "We're going to have to get used to the fact that more people are going to be subpoenaed, but not everyone is a crook."
GOING ALL OUT TO FIGHT FRAUD
President Barack Obama's healthcare law provides an extra $300 million to crack down on Medicare waste and abuse over the next 10 years. The law gives the government more authority to oversee companies participating in federal health insurance programs.
The government has put extra fraud-fighting resources into several regions of the country, including south Florida, Los Angeles, Houston, Detroit and New York City's Brooklyn borough. Last month, it launched a partnership with private insurance companies, including Humana Inc and UnitedHealth Group, to share data on medical claims.
"The government is obviously showing that they're going to be as aggressive as legally possible to combat fraud," said Michael Williams, spokesman for the National Health Care Anti-Fraud Association, a coalition of health insurers and law enforcement.
Tenet Healthcare Corp, the No. 3 U.S. hospital operator, said this week it has introduced systems to prevent unnecessary medical procedures.
In 2003, Tenet agreed to pay a $54 million fine to settle allegations that two doctors at one of its California hospitals performed unneeded cardiac procedures.
Cardiology practices are ripe for scrutiny as treatments like implantable defibrillators and stents are costly, while new research shows that procedures involving medical devices may not be better than cheaper pills in many cases.
"The ongoing scrutiny of those procedures is just part of doing business in the cardiovascular area today," UBS analyst A.J. Rice said. "I do see more companies disclosing they've gotten inquiries from the government and more media attention."
(Additional reporting by Anna Yukhananov in Washington; Editing by Jan Paschal)