SEC inquiry sparks concern about HCA IPO

The investigation stems from allegations of fraud by a former employee at one of HCA's London hospitals.

By Emily Berry — Posted Oct. 28, 2009

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For-profit hospital chain HCA is under investigation into alleged payroll fraud at one of its hospitals in England. Analysts are wondering whether that will affect any plans to take the privately held company back to the stock market.

HCA, based in Nashville, Tenn., operates 163 hospitals and 112 outpatient centers in 20 states and in England. It has been privately held since a 2006 buyout.

Private investment firm Kohlberg Kravis Roberts owns the majority stake in HCA. The New York-based firm has announced its intention to take other holdings public, fueling speculation about HCA.

A statement from HCA about the investigation said a former employee who worked in the payroll department in London has sued the hospital chain and "has made assertions about the accuracy of our nurse scheduling systems and the related compensation paid in our six U.K. hospitals."

London authorities declined to investigate, the HCA statement said.

The statement continued, "her allegations have no merit, and we are vigorously defending the employment litigation. We also have received a voluntary request for related information from the United States Securities and Exchange Commission. We have provided requested information and look forward to working with them to conclude this inquiry."

Several analysts are discussing how the investigation would affect an HCA IPO. Following an Oct. 7 Washington Post story about the investigation, investment analyst Sheryl Skolnick, PhD, who works for brokerage firm Pali Capital, addressed the business implications of the inquiry in a note to investors:

"If one reads to the end of the article, past the recitation of HCA's unfortunate and expensive past brushes with allegations of Medicare fraud, one finds that the local authorities in London have apparently declined to investigate, and other British agencies, including the National Health Service 'examined the matter and declined to pursue it.' ... We still think the biggest issue here is whether the SEC investigation will have an effect on the timing of any potential HCA IPO."

The current SEC investigation follows at least two other inquiries into the company and its previous incarnations over the past decade. In 2001, HCA predecessor Columbia/HCA pleaded guilty to criminal conduct and paid $840 million civil and criminal fines for Medicare and Medicaid fraud.

A later investigation into whether then-U.S. Sen. Bill Frist, MD (R, Tenn.), whose family founded HCA, engaged in insider trading, was dropped and no charges were filed.

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