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Columbia set to pay $745-million

The hospital chain's deal with the Justice Department settles most complaints stemming from a three-year investigation.

Columbia/HCA Healthcare Corp. and the U.S. Department of Justice have finally agreed on a price tag to resolve most of the government's complaints against the giant hospital chain: a whopping $745-million.

Columbia, which has 10 hospitals in the Tampa Bay area and 195 nationwide, said Thursday that it would pay that amount to settle major portions of a government investigation that has stretched for more than three years.

Among the civil issues settled in the deal are claims that Columbia inflated its billings to Medicare and other government health insurance programs in three areas: by upcoding, or exaggerating the severity of patients' illnesses on claim forms; by performing unnecessary lab tests; and by overcharging for home health services.

The proposed settlement, which would be the largest paid by a corporation to settle a federal inquiry, also sets a deadline for resolving what remains of the criminal investigations against Columbia.

Federal prosecutors, in Tampa and in other cities, are still investigating claims that Columbia paid kickbacks to doctors and inflated hospitals' costs reports, both of which carry potential criminal liability. The agreement gives the government and Columbia until Dec. 31 to settle these criminal matters.

A settlement could take Columbia's ultimate payment above the $745-million mark. If there is no agreement on the remaining issues, the Nashville company has the option of backing out of the deal reached Thursday.

The Justice Department declined to comment on "ongoing discussions" with Columbia. The settlement is contingent upon approval by additional officials at the Justice Department and execution of a corporate integrity agreement, proving policies are in place to comply with Medicare regulations in the future.

If approved, the settlement will allow Columbia to continue billing under the Medicare program, which accounted for 29 percent of its $16.7-billion in 1999 revenues.

The company's chief executive, Dr. Thomas Frist Jr., said, "We are pleased to have reached an understanding on these issues, and today's announcement signals that a significant step in this process is complete."

The government's investigation of Columbia began in March 1997 with the FBI seizing documents from the company's hospitals and doctors' offices in El Paso, Texas. In July 1997, the government broadened its scope, executing search warrants at 35 Columbia locations, including 24 in Florida and several in the Tampa Bay area.

Four mid-level executives from Columbia's southwest Florida division were indicted on charges of Medicare fraud in July 1998. After a two-month trial last year in Tampa, two of the defendants were convicted. Jay Jarrell, sentenced to 33 months, and Robert White-side, who faces a two-year prison sentence, are free pending appeal of their cases.

As the government increased pressure on Columbia, the company responded by ousting top management, selling its lucrative home health operations and shedding about one-third of its hospitals. Frist initiated settlement talks with the government soon after taking office in August 1997. Despite Columbia's conciliatory tone, negotiations dragged on for nearly three years while the government threatened new criminal investigations.

As recently as late April, federal prosecutors in Tampa filed a motion saying the long-running criminal investigation against Columbia was very much alive. Assistant U.S. Attorney Kathleen A. Haley said an "interview blitz" was taking place in Central Florida and elsewhere, with four new areas of investigation.

With Thursday's proposed settlement, the Justice Department and Columbia seem to be giving Haley and the Tampa task force a deadline for resolving these issues or filing charges. That is unusual, said Stephen Meagher, a former federal prosecutor who now represents two of six whistleblowers who have brought civil lawsuits against Columbia.

"There's clear linkage in this agreement between the carrot of getting this money and the stick of resolving the outstanding criminal cases," said Meagher, now in private practice in San Francisco. "The government and Columbia have structured this as an incentive to get a resolution of all issues sooner rather than later."

Columbia had pledged a $1-billion letter of credit toward the settlement. In Thursday's announcement, made shortly before the close of the stock market, Columbia said its letter of credit would be reduced to $250-million upon payment of the $745-million settlement. If it makes any civil payments on the issues of cost reports and doctor kickbacks, those would be taken from the remaining amount in the letter of credit.

Columbia said it would take an after-tax charge of about $498-million for the settlement in the quarter ending June 30. Columbia's shares were at $30.50, up $2.25, before trading was halted Thursday afternoon.

The company's stock, which was trading at nearly $45 in February 1997, could rally if the settlement resolves most of Columbia's liability, analysts said.

"Probably 30 to 40 percent of the investment community has been waiting to settle before they take active look at company," said Merrill Lynch analyst Albert J. Rice, who rates the company a strong buy.

"If the terms of the settlement look like it puts the bulk of it behind them, it will broaden the audience for them substantially."

_ Information from Bloomberg News was used in this report.