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JUST
WHAT CRIME DID COLUMBIA/HCA COMMIT? Forget the big-screen movies. The boffo entertainment of the summer is the Columbia/HCA Health-care scandal. Hundreds of investigators have been deployed to ferret out supposed Medicare fraud horrors, three Columbia employees are under indictment, and dark hints float that the company itself may end up in the criminal dock. The show has legs, too. States and insurance carriers are opening their own investigations and the vultures of the plaintiffs' bar are drooling. Digging beneath the headlines, the facts look thin. The key evidence that Columbia employees intended to defraud Medicare is that they kept books noting that some of their claims for reimbursement were questionable. These were counted as revenue only after the time for audit expired. The government view that this shows evil intent has alarmed the entire health-care industry, since the reimbursement rules are complex and quixotic and every sensible company sets up reserves against disallowance. The indictment also cites Columbia's claims for government repayment of interest charges. Columbia says the debt was incurred for capital expenses. The government says no, the borrowings went for administrative costs, and interest on these is not reimbursable. Gotcha! It is like a case last year in which a health-care administrator went to jail because he classified as "outreach," and thus reimbursable, expenses that the government called "advertising." Columbia/HCA isn't the first in the health-care industry to be accused of criminal fraud. Last spring, several big teaching hospitals paid hefty penalties because they made the mistake of billing as "patient care" the time of doctors who supervised the residents who provided the actual hands-on care. This should have been called "training time" and billed at a different rate. And then there were hospices, zinged for charging the government for care of patients kept alive longer than the six months allowed for a "terminal illness," even though 90% percent of the patients did indeed expire on schedule. Maybe the Medicare scandal is actually a remake. Remember the Savings & Loan crisis, in which 6400 bank owners and executives were charged with crimes and 3700 of them went to jail, notwithstanding expert estimates that only 3% of the S&L losses were due to criminal activity? Most of the damage came from the government's policy of encouraging S&Ls to speculate in risky investments so as to lift themselves out of the financial crisis caused by the rise in interest rates in the late 1970's. When this policy went sour, all branches of government united to scapegoat those who carried it out. The Columbia/HCA show may also borrow from environmental law. Michael Weitzenhoff, manager of a sewage plant in Hawaii, went to jail because he misinterpreted the terms of a discharge permit and released 6% too much sewage. Joseph Wilson, a Maryland real estate developer, faces a jail sentence based on his disagreement with the government's mind-numbing definition of what is a sacrosanct "wetland." The pattern is getting steadily clearer. The past 25 years have seen spectacular growth in the use of punitive measures against executives, managers, entrepreneurs, professionals, and landowners. These include not just criminal jail terms and fines but civil penalties, asset forfeitures, punitive damages, and other forms of punishment -- Not at all coincidentally, this growth parallels the rise of the regulatory state. Command-and-control must be backed up, and Congress has, without much thought, adopted the criminal code and other harsh punishments as its chosen instruments. But applying this system in a regulatory context causes major problems--the first of which is figuring out precisely what the law is. Statutes can run on for hundreds of pages of detail and are enforced by volumes of convoluted administrative regulations and even greater piles of interpretations, guidelines and exceptions. It is often impossible for anyone to fully know the law, even with the best of intentions. This complexity affects hundreds of billions of dollars in subsidies, payments, and added business costs, which in turn creates incentives for private actors to interpret ambiguity in their own favor. The system is also captured by special interests, which harness government power to their own ends. All this results in commands that lack moral legitimacy, and this naturally breeds resistance and efforts at avoidance and even outright evasion. The government is reacting to these tensions in simplistic fashion. Instead of moving away from command-and-control and toward reliance on markets and incentives, it is hardening its legal positions. Mistakes and disagreements are assumed to be malicious, not a result of human error or legitimate difference of opinion. Prosecutors work to eliminate intent and knowledge as elements of regulatory offenses. Everyone is presumed to know the law, even if a requirement is unsettled or buried in obscure guidance letters. The Columbia/HCA situation, in which awareness of uncertainty is taken as proof of guilt, is becoming common. Mistakes of fact, honest efforts to comply, and even misleading government interpretations are not defenses. Matters that should be hashed out as contract disputes are turned into criminal cases. The medical system is hit particularly hard when disputes over the allocation of indirect overhead under arcane principles of cost accounting get escalated into criminal fraud. This problem will surely worsen as arbitrary price controls are implemented and care providers try to shift costs into reimbursable categories.. Punishment of trivia is increasing. Violations of nit-picking paperwork requirements are treated harshly since these are easy to prove. The world is full of paperwork errors and anyone can be indicted if an agency has a mind. This saves investigative time when the government thinks a company might have done something serious but cannot prove it. In the end, everyone is at the mercy of agency and prosecutorial discretion, and everyone had better learn to say "Mother, may I?" before taking a step in any direction. This is an odd condition for a nation that prides itself on both its rule of law and its entrepreneurial verve. JAMES V. DeLONG Washington
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