Federal Probe Shakes Hospital Giant

NASHVILLE, Tennessee: The largest commercial hospital chain dumped its top management amid a federal Medicare fraud investigation that has seen FBI agents raiding its hospitals for financial records. Federal investigators told TIME that the resignations of founder and chairman Richard Scott and president David Vandewater will in no way reduce their interest in probing the company's practices regarding Medicare billing and its home-care operations. Dr. Thomas Frist Jr., Columbia's vice chairman, announced he would be taking over the posts of chairman and chief executive officer. The resignations came as the company was considering being acquired by its next-largest hospital competitor, Tenet Healthcare, to form a $30 billion, 500-hospital chain. Both Scott and Vandewater denied any wrongdoing in the continuing federal investigation, a multi-agency effort which seeks among other things to determine if the company overbilled federal healthcare programs by millions of dollars. Frist, who founded Hospital Corporation of America with his father more than 30 years ago and became one of Columbia's principal stock holders when Scott acquired his firm, said the company will cooperate fully with the government's probe. Frist confirmed that Columbia's board forced the change, angered by the surprise federal searches and concerned that its business and reputation were being damaged by the probes as it mulled a major merger. "Rick Scott and David Vandewater have done a fabulous job in putting this group of assets together," said Frist. "They were the right people. But in any institution there is a time for a different style . . . It might have been an impediment if they had stayed." Wall Street responded favorably to today's departures, sending Columbia's stock up 18.8 cents per share at $36.44.