How HCA cooked the booksHow HCA cooked the books, just long enough for management—and Senator Frist—to unload their shares! Barron’s exposé spells it all out in detail!
We have all been following the story of how Senate majority leader Bill Frist conveniently sold all his shares in the family company HCA (the biggest hospital chain in the country) just before HCA shares fell 10% in one day after management released disappointing results. The timing of Frist’s stock sales (along with the other HCA insiders) was always a bit fishy, and his bumbling efforts to describe the HCA holdings as part of a “blind trust” were quickly revealed as phony when documents emerged indicating the senator got frequent updates on the assets in the trusts in question (one commentator quipped that the senator’s assets appeared to be held in a “seeing eye trust”). But, until recently, I hadn’t seen any reporting that convincingly connected the dots between the fortuitous timing of Frist’s stock sales and the underlying fraud that caused the company’s stock to rise in January and then fall so dramatically in July of this year.
Well, now that puzzle has been solved. The highly respected financial publication Barron’s recently published the definitive roadmap to HCA’s accounting shenanigans, and let’s just say it might even make Enron’s auditors blush. In a nutshell, the company changed the way it accounted for bills from uninsured patients—bills which HCA will never collect. As a result the company was able to reduce the so-called “bad debt” expense it reported on its quarterly income statements for the first six months of this year. By reducing this expense, HCA was able to significantly increase it’s reported earnings per share, which caused the stock to balloon from about $40 a share in January to close to $60 by late June. The only problem was that those uncollected bills from the uninsured were rapidly accumulating. Sure enough, in July the company was forced to admit the disappointing news that “bad debt” was still a problem after all. For those keeping score, Frist sold at close to $60!
That’s the basic story, but folks should check out the Barron’s article itself, which includes lots of great details-- including the gem that the insider selling frenzy was joined by the company’s vice president of corporate ethics!
https://online.barrons.com/article_search/SB112995573681776600.html?mod=search&KEYWORDS=hca&COLLECTION=barrons/archive