Frist Family Matters

I just had to write a quick post here because as I was reading about the SAIC case, where they defrauded NYC out of more than half a billion dollars, and only had to pay back $500 million with no charges filed. For a quick summary from Democracy Now:

SAIC employees and other consultants used shell companies and overseas bank accounts to funnel kickbacks and inflated billings, defrauding taxpayers of hundreds of millions of dollars as the budget for the project ballooned from $73 million to $700 million. "For the company, it’s like in Monopoly," González notes. "You pay $50 to get out of jail; they paid $500 million to stay out of jail."

I happened to notice that a Thomas Frist of Frist Capital LLC sits on the board of directors, and happens to be the brother of a certain Bill Frist - former Senate Majority Leader (R-TN) who was accused of selling his stock in Hospital Corporation for America right before negative earnings reports dropped the stock. Of course Senator Frist was cleared of any ethics charges because he claimed that the stock was in a blind trust (where have we heard that before?) but letters turned up that questioned whether he was receiving information from his family at Frist Capital LLC.

Thomas Frist Jr. founded HCA with his father in 1968, so presumably was aware of the internal goings on of the company, and yet everyone seemed to blame all of HCA's problems on Florida's now-Governor Rick Scott. Scott was the CEO of HCA during its most problematic times and, while other employees described him as a hands-on CEO, he too claimed to not know about the deceptive billing practices being used by his company. Of course some easy research discredited that notion but the Florida GOP doesn't seem to mind. The Tampa Bay Times did the legwork:

Rick Scott has said he would have immediately stopped his former hospital company from committing Medicare fraud — if only "somebody told me something was wrong."

But he was cautioned year after year that the financial incentives Columbia/HCA offered doctors could run afoul of a federal antikickback law that seeks to limit conflicts of interest in Medicare and Medicaid.

They were contained in the company's annual public reports to stockholders that Scott, now the Republican candidate for Florida governor, signed as Columbia/HCA's president and chief executive officer.

We were supposed to believe that the Frists and Scott had NO knowledge of the massive fraud, even though their own company had acknowledged in a 1994 report that their billing practices "risked scrutiny." Even if this were true, it certainly wouldn't speak much to him being a responsible investor. Now Thomas Frist Jr. will likely once again claim that although he was on the board of directors, he had no knowledge of the goings on at SAIC. How is it that these people accidentally managed to be parties involved in such egregious abuse of government funding, and yet are the same people decrying anyone else spending ANY government money for ANYTHING. Scott recently signed a government law trying to prevent drug users from receiving welfare benefits by drug-testing applicants, on the pretense that it would save the state money. With a 2% failure rate, Florida's welfare recipients seem to be facing a greater degree of scrutiny than HCA or SAIC for a nearly imperceptible reduction of wasted funds.

Interesting note: The second time HCA went briefly went private, the Frist's sought three private equity firms to partner with - one of which was Bain Capital.

In the HCA deal, the three private-equity firms — Bain, Kohlberg Kravis and Merrill Lynch’s buyout unit — and the Frist family are investing only $5.5 billion in cash. The rest of the $31.6 billion price tag is being financed by debt, which the firms will hope to pay down, like a mortgage payment, using HCA’s income.

When the Affordable Care Act was signed, it was a good sign that the hospital business was about to boom - what with 30 million or so more Americans now covered for medical care - and they went public again, obviously an extremely profitable move for the Frists and their partners. According to one article in the NYtimes, the original stakeholders were poised to triple their investment. Obviously Romney was no longer at Bain at the time, but it does reveal a little about the scruples of the private equity team and the Frists themselves. And presumably Romney's stakes in any funds invested in HCA and other such investments are blind, just like Senator Frist's.

For a quick timeline of HCA structural changes, click here.