Tuesday, January 15, 2008

HCA INC/TN ; subpoenas requesting records

ITEM 3. LEGAL PROCEEDINGS.





FEDERAL AND STATE INVESTIGATIONS




In March 1997, various facilities of the Company's El Paso, Texas operations
were searched by federal authorities pursuant to search warrants, and the
government removed various records and documents. In February 1998, an
additional warrant was executed and a single computer was seized. The Company
believes it may be a target in this investigation.


In July 1997, various Company affiliated facilities and offices were
searched pursuant to search warrants issued by the United States District
Court in several states. During July, September and November 1997, the Company
was also served with subpoenas requesting records and documents related to laboratory billing, diagnosis related group ("DRG") coding and home health operations in various states. In January 1998, the Company received a subpoena which requested records and documents relating to physician relationships.


Also, in July 1997, the United States District Court for the Middle District
of Florida, in Fort Myers, issued an indictment against three employees of a
subsidiary of the Company. The indictment relates to the alleged false
characterization of interest payments on certain debt resulting in Medicare
and CHAMPUS overpayments since 1986 to Columbia Fawcett Memorial Hospital, a
Port Charlotte, Florida hospital that was acquired by the Company in 1992. The
Company has been served with subpoenas for various records and documents.


The Company is cooperating in these investigations and understands it is a
target in these investigations.


In addition, several hospital facilities affiliated with the Company have
received individual governmental inquiries, both informal and formal,
requesting information related to reimbursement from government programs.


While it is too early to predict the outcome of any of the ongoing
investigations or the initiation of any additional investigations, were the
Company to be found in violation of federal or state laws relating to
Medicare, Medicaid or similar programs, the Company could be subject to
substantial monetary fines, civil and criminal penalties and exclusion from
participation in the Medicare and Medicaid programs. Any such sanctions could
have a material adverse effect on the Company's financial position and results
of operations. See NOTE 15 of the notes to consolidated financial statements.


The Company is the subject of a formal order of investigation by the
Securities and Exchange Commission (the "Commission"). The Company understands
that the investigation includes the anti-fraud, periodic reporting and
internal accounting control provisions of the federal securities laws.




QUI TAM ACTIONS




Several qui tam actions have been brought by private parties ("relators") on
behalf of the United States of America. To the best of the Company's
knowledge, the actions allege, in general, that the Company and certain
subsidiaries and/or affiliated partnerships violated the False Claims Act for
improper claims submitted to the government for reimbursement. The government
has declined to intervene in any qui tam actions filed to date.



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The matter of United States of America, ex rel. Scott Pogue v. American
Healthcorp, Inc., et al. (Civil Action No. 3-94-0515) was filed under seal on
June 23, 1994, in the United States District Court for the Middle District of
Tennessee. On February 6, 1995, the United States filed its Notice of Non-
Intervention and on that same date, the District Court ordered the Complaint
unsealed. The relator contends that sums paid to Medical Directors by the
Diabetes Treatment Centers of America and those who served as Medical
Directors at a hospital or facility affiliated with the Company, were, in
fact, unlawful payments for the referrals of their patients.


A lawsuit captioned United States of America ex rel. James Thompson v.
Columbia/HCA Healthcare Corporation, et al, was filed on March 10, 1995 in the
United States District Court for the Southern District of Texas, Corpus
Christi Division (Civil Action No. C-95-110). The relator claims that the
defendants (the Company and certain subsidiaries and affiliated partnerships)
engaged in a widespread strategy to pay physicians money for referrals and
engaged in other conduct to induce referrals, such as: (i) offering physicians
equity interests in hospitals; (ii) offering loans to physicians; (iii) paying
money under the guise of "consultation fees" to physicians to guarantee their
capital investment; (iv) paying consultation fees, rent or other monies to
physicians; (v) providing free or reduced rate rents for office space; (vi)
providing free or reduced-rate vacations and trips; (viii) providing income
guarantees; and (ix) granting physicians exclusive rights to perform
procedures in particular fields of practice. The lawsuit is premised on
alleged violations of the False Claims Act, 31 U.S.C. (S)3729 et seq. The
complaint seeks damages of three times the amount of all Medicare or Medicaid
claims (involving false claims) presented by the defendants to the federal
government, a civil penalty of not less than $5,000 nor more than $10,000 for
each such Medicare or Medicaid claim, attorneys' fees and costs. Although
expressly permitted to do so, the United States has thus far declined to
intervene in the case and assume prosecution of the claims asserted by the
relator. The defendants filed a Motion to Dismiss the Second Amended Complaint
on November 29, 1995, which was granted by the Court on July 22, 1996. On
August 20, 1996, the relator appealed to the United States Court of Appeals
for the Fifth Circuit and, on October 23, 1997, the Fifth Circuit affirmed in
part and vacated and remanded in part the Trial Court's rulings.


On or around December 21, 1995, a matter entitled United States of America,
ex rel. Roy Meidinger v. Lee Memorial Health Systems, Case No. 95-423-FTM-99D,
was filed in the United States District Court for the Middle District Court of
Florida, Fort Myers Division. In this matter, the plaintiff filed under seal,
a False Claims Act case against approximately 2,500 health care providers and
insurance companies, including Columbia Southwest Regional Medical Center. On
December 16, 1996, the United States declined to intervene. In June 1997, the
District Court entered an order directing plaintiff to serve the defendants.
In late November and early December 1997, each of the six defendants moved to
dismiss the Complaint. On January 20, 1998, plaintiff filed his opposition to
the defendant's motion to dismiss. The Court has not yet ruled on the
defendant's motions.


The matter of United States of American, ex rel. Sandra Russell; and Sandra
Russell in her own right v. EPIC Healthcare Management Group, and Hearthstone
Home Health, Inc. d/b/a Continue Care Health Services, No. H-95-00151, was
filed in the United States District Court for the Southern District of Texas,
Houston Division, in January, 1995. This matter was filed under seal. The
Complaint alleges that the relator was required to submit claims, records
and/or statements for Medicare reimbursement which were false. The government
declined to intervene in May 1996, and the defendant moved to dismiss in May
1997. No ruling has been made on the motion to dismiss.


The Company intends to pursue the defense of the Qui Tam actions vigorously.



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SHAREHOLDER DERIVATIVE AND CLASS ACTION COMPLAINTS FILED IN THE U.S.




DISTRICT COURTS




Since April 8, 1997, numerous securities class action and derivative
lawsuits have been filed in the United States District Court for the Middle
District of Tennessee against the Company and a number of its current and
former directors, officers and employees.


On August 26, 1997, the Court entered an order consolidating all of the
securities class action claims into a single-captioned case, Morse v.
McWhorter, Case No. 3-97-0370. All of the other individual securities class
action lawsuits were administratively closed by the Court. The consolidated
Morse lawsuit is a purported class action seeking the certification of a class
of persons or entities who acquired the Company's common stock from April 9,
1994 to September 9, 1997. The consolidated lawsuit is brought against the
Company, Richard Scott, David Vandewater, Thomas Frist, Jr., R. Clayton
McWhorter, Carl E. Reichardt, Magdalena Averhoff, M.D., T. Michael Long, and
Donald S. MacNaughton. The lawsuit alleges, among other things, that the
defendants committed violations of the federal securities laws by materially
inflating the Company's revenues and earnings through a number of practices,
including upcoding, maintaining reserve cost reports, disseminating false and
misleading statements, cost shifting, illegal reimbursements, improper
billing, unbundling, and violating various Medicare laws. The lawsuit seeks
compensatory damages, costs, and expenses. Plaintiffs filed their Motion for
Class Certification on February 11, 1998. The defendants' motions to dismiss
and motion for oral argument have been referred to the Magistrate Judge for
consideration.


On August 26, 1997, the Court entered an order consolidating all of the
derivative law claims into a single-captioned case, McCall v. Scott, No. 3-97-
0838. All of the other derivative lawsuits were administratively closed by the
Court. The consolidated McCall lawsuit is brought against the Company, Thomas
Frist, Jr., Richard L. Scott, David T. Vandewater, R. Clayton McWhorter,
Magdalena Averhoff, M.D., Frank S. Royal, M.D., T. Michael Long, William T.
Young and Donald S. MacNaughton. The lawsuit alleges, among other things,
derivative claims against the individual defendants that they intentionally or
negligently breached their fiduciary duties to the Company by authorizing,
permitting, or failing to prevent the Company from engaging in various schemes
to improperly increase revenue, upcoding, improper cost reporting, improper
referrals, improper acquisition practices, and overbilling. In addition, the
lawsuit asserts a derivative claim against some of the individual defendants
for breaching their fiduciary duties by engaging in insider trading. The
lawsuit seeks restitution, damages, recoupment of fines or penalties paid by
the Company, restitution and pre-judgment interest against the alleged insider
trading defendants, and costs and disbursements. In addition, the lawsuit
seeks orders: (i) prohibiting the Company from paying individual defendants
employment benefits, (ii) terminating all improper business relationships with
individual defendants, and (iii) requiring the Company to implement effective
corporate governance and internal control mechanisms designed to monitor
compliance with federal and state laws and ensure reports to the Board of
Material Violations.


The matter of Landgraff v. Columbia/HCA Healthcare Corporation was filed on
November 7, 1997, in the United States District Court for the Northern
District of Georgia, Atlanta Division, Civil Action No. 97-CV-3381. The suit
seeks certification of a class of all participants in the Columbia/HCA Stock
Bonus Plan, alleging violations of ERISA. The suit alleges the Company
breached its fiduciary duty to plan participants, fraudulently concealed
information from the public and fraudulently inflated the Company's stock
price through billing fraud and illegal kickbacks for physician referrals. On
January 9, 1998, the parties stipulated to transfer venue of the case to the
United States District Court for the Middle District of Tennessee. Defendants
filed a Motion to Dismiss on March 6, 1998.


The Company intends to pursue the defense of these Shareholder Derivative
and Class Action Complaints vigorously.



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SHAREHOLDER DERIVATIVE ACTIONS FILED IN STATE COURTS




Several derivative actions have been filed in State Court by certain
purported stockholders of the Company against certain of the Company's current
and former officers and directors alleging breach of fiduciary duty, and
failure to take reasonable steps to ensure that the Company did not engage in
illegal practices thereby exposing the Company to significant damages. The
Company intends to pursue the defense of these shareholder derivative actions
vigorously.


Two purported derivative actions entitled Evelyn Barron, et al. v. Magdalena
Averhoff, et al. (Civil Action No. 15822NC) and John Kovalchick v. Magdalena
Averhoff, et al. (Civil Action No. 15829NC) have been filed in the Court of
Chancery of the State of Delaware in and for New Castle County. The actions
were brought on behalf of the Company by certain purported shareholders of the
Company against certain of the Company's current and former officers and
directors. On approximately August 14, 1997, a similar purported derivative
action entitled State Board of Administration of Florida v. Magdalena
Averhoff, et al. (No. 97-2729) was filed in the Circuit Court in Davidson
County, Tennessee on behalf of the Company by certain purported shareholders
of the Company against certain of the Company's current and former directors
and officers.


The matter of Louisiana State Employees Retirement System v. Averhoff, et al
and Columbia/HCA Healthcare Corporation, another derivative action, was filed
on March 20, 1998, in the Circuit Court of the Eleventh Judicial Circuit, Dade
County, Florida, General Jurisdiction Division, Case No. 98-6050 CA04. The
Louisiana State Employees Retirement System is the public pension fund of the
State of Louisiana. The suit alleges breach of fiduciary duties resulting in
damage to the Company's good will, business reputation and the ability to
consummate future mergers and acquisitions.




PATIENT/PAYER ACTIONS




The Company has from time to time received several purported class action
lawsuits which have been filed by patients or payers against the Company
and/or certain of its current and former officers and directors alleging, in
general, improper and fraudulent billing, coding and physician referrals, as
well as other violations of law.


The matter of Boysen v. Columbia/HCA Healthcare Corporation was filed
September 8, 1997, in the United States District Court for the Middle District
of Tennessee, Nashville Division, (Civil Action No. 3-97-0936). The lawsuit,
which seeks certification of a national class comprised of all persons or
entities who have paid for medical services provided by the Company, alleges,
among other things, that the Company has engaged in a pattern and practice of

(i) inflating diagnosis and medical treatments of its patients to receive
larger payments from the purported class members; (ii) providing unnecessary
medical care; and (iii) billing for services never rendered. The lawsuit seeks
equitable relief in the form of an accounting, as well as damages, attorneys'
fees and costs of suit. The Company filed its Answer on November 17, 1997.
Plaintiff has filed a Motion for Class Certification, and the Company's
opposition to this motion was filed in March 1998.


The matter of Brown v. Columbia/HCA Healthcare Corporation was filed on
November 28, 1995, in the Circuit Court of Palm Beach County, Florida, Case
No. 95-9102 AD. This suit alleges that the hospital has charged excessive
amounts for pharmaceuticals, medical supplies, laboratory tests, medical
equipment and related medical services such as x-rays. The suit seeks
certification of a nationwide class, and damages for patients who have paid
bills containing allegedly excessive amounts for the allegedly unreasonable
portion of the charges and attorneys' fees. The Company filed a Motion to
Dismiss on December 18, 1995, and an Amended Motion to Dismiss on January 3,
1996. Plaintiff amended the Complaint and the Company filed an Answer and
defenses on June 19, 1996. On October 15, 1997, Harald Jackson moved to
intervene in the lawsuit. The Court denied Jackson's Motion on December 19,
1997. No class has been certified. Discovery is ongoing.



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On October 27, 1997, Colville v. Columbia/Palm Drive Hospital was filed in
the Sonoma County Superior Court, California, Case No. 217646. The suit seeks
certification of a class comprised of uninsured patients treated at the
Company's hospitals and entities in California who have been treated and
charged different fees than any other patient. The suit alleges that the
Company fraudulently overcharged the plaintiffs and that it unlawfully charges
uninsured patients at a higher rate for the same services, compared to
patients with insurance or Medicare. On March 6, 1998, the Company filed a
Demurrer Motion and Motion to Quash. A hearing is set for May 13, 1998.


Doe v. HCA Health Services of Tennessee, Inc. dba Donelson Hospital fka
Summit Medical Center is a class action suit filed on August 17, 1992 in the
First Circuit Court for Davidson County, Tennessee. This suit claims the
Company's charges for hospital services and supplies for medical services (a
hysterectomy in the plaintiff's case) exceeded the reasonable costs of its
goods and services, that the overcharges constitute a breach of contract and
an unfair or deceptive trade practice within the meaning of the Tennessee
Consumer Protection Act, and a breach of the duty of good faith and fair
dealing under Tennessee statute and common law. In 1997, this case was
certified as a class action consisting of all past, present and future
patients at Summit Medical Center. Defendant filed a Motion for Summary
Judgment relying upon the favorable decision of another Nashville Circuit
Judge in a factually similar case. In March 1997, the Court denied the Motion
for Summary Judgment and has ordered the parties into mediation.


The matter of Douglas v. Columbia/HCA Healthcare Corporation is a class
action filed on March 5, 1998, in the Circuit Court of Cook County, Illinois,
County Department, Chancery Division, Case No. 98 02942. This suit alleges
that defendants were involved in fraudulent and deceptive acts including
wrongful billing, unnecessary treatment and wrongful diagnosis of patients
with illnesses that necessitate higher medical fees for financial gain. This
matter was served on March 18, 1998 and no answer has been filed at this time.


Ferguson v. Columbia/HCA Healthcare Corporation was filed on September 16,
1997, in the Circuit Court for Washington County, Tennessee, Civil Action No.
18679. This lawsuit seeks certification of a national class comprised of all
those who paid or were responsible for payment of any portion of a bill for
medical care or treatment provided by the Company and alleges, among other
things, that the Company engaged in billing fraud by excessively billing
patients for services rendered, billing patients for services not rendered or
not medically necessary, uniformly using improper codes to report patient
diagnosis, and improperly and illegally recruiting doctors to refer patients
to the Company's hospitals. Plaintiff filed a Motion for Class Certification
on September 16, 1997. On December 15, 1997, the Company filed a Motion for
Summary Judgment. On January 28, 1998, plaintiff filed a Motion for Leave to
File a Second Amended Class Action Complaint to Add an Additional Class
Representative.


The matter of Hoop v. Columbia/HCA Healthcare Corporation was filed on
August 18, 1997, in the District Court of Johnson County, Texas, Civil Action
No. 249-171-97. This suit seeks certification of a class in Texas comprised of
persons who paid for any portion of an improper or fraudulent bill for medical
services rendered by any Texas facility owned or operated by the Company. The
lawsuit alleges the Company perpetrated a fraudulent scheme that consisted of
systematic and routine overbilling through false and inaccurate bills,
including padding, billing for services never provided, and exaggerating the
seriousness of patients' illnesses. The lawsuit alleges the Company
systematically entered into illegal kickback schemes with doctors for patient
referrals. The Company filed its answer on November 7, 1997.


The matter of Jackson v. Columbia/HCA Healthcare Corporation was filed on
December 23, 1997, in the Circuit Court, Palm Beach County, Florida, Civil
Action No. 97-011419. The suit seeks certification of a national class of
persons or entities that have paid for medical services,



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alleging the Company systematically and unlawfully inflated prices, concealed
its practice of inflating prices and engaged in and concealed a uniform
practice of overbilling.


The matter of Johnson v. Plantation General Hospital was filed on August 5,
1991, in the Circuit Court for the Seventeenth Judicial Circuit, State of
Florida, Broward County, Case No. 92-06823 Div. 2. The suit alleges the
hospital charged excessive amounts for pharmaceuticals, medical supplies and
laboratory tests. The suit sought certification of a class, a price reduction
on all outstanding bills in the amount of the allegedly excessive portion of
the charges, damages for patients who have paid bills containing allegedly
excessive amounts for the alleged unreasonable portion of the charges and
attorneys' fees. On September 18, 1995, the trial court certified the class
and the Fourth District Court of Appeal affirmed. On October 22, 1996, the
hospital filed a Motion for Summary Judgment on Counts II and III on the basis
of the voluntary payment defense. The Court granted the motion on November 19,
1997. Count I is still pending. Trial has been set for June 29, 1998.


The matter of Operating Engineers Local No. 312 Health & Welfare Fund v.
Columbia/HCA Healthcare Corporation was filed on October 6, 1997 in the United
States District Court for the Eastern District of Texas, Civil Action No.
597CV203. The suit alleges four counts of violations of RICO. The alleged RICO
violations are based on allegations that the Company has employed one or more
schemes or artifices to defraud the plaintiff and purported class members
through fraudulent billing for services not performed, fraudulent overcharging
in excess of correct rates and fraudulent concealment and misrepresentation.
On October 22, 1997, the Company filed a Motion to Transfer Venue and to
Dismiss the Lawsuit on Jurisdiction and Venue Grounds because the RICO claims
are deficient. The motion to transfer was denied on January 23, 1998. The
motion to dismiss has not yet been ruled upon.


The Company denies the aforementioned allegations and intends to pursue the
defense of these actions vigorously.


While it is premature to predict the outcome of the qui tam, shareholder
derivative and class action lawsuits, the amounts claimed may be substantial.
It is possible that an adverse resolution, individually or in the aggregate,
could have a materially adverse impact on the Company's liquidity, financial
position and results of operations. See NOTE 15 of the notes to consolidated
financial statements.


The Company believes the ongoing investigations, qui tam, shareholder cases,
class action overcharging cases and related media coverage are having a
negative effect on the Company's financial position and results of operations.
However, the Company is unable to measure the effect or predict the magnitude
that these matters and the related media coverage could have on the Company's
future results of operations and financial position.




GENERAL LIABILITY CLAIMS




The Company is subject to claims and suits arising in the ordinary course of
business, including claims for personal injuries or for wrongful restriction
of, or interference with, physicians' staff privileges. In certain of these
actions the claimants have asked for punitive damages against the Company,
which are usually not covered by insurance. In the opinion of management, the
ultimate resolution of these pending claims and legal proceedings will not
have a material adverse effect on the Company's results of operations or
financial position.


A class action styled Mary Forsyth, et al v. Humana, Inc., et al, Case No.
CV-S-89-249-DWH, was filed on March 29, 1989, in the United States District
Court for the District of Nevada (the "Forsyth" case). Plaintiffs are two
classes of individuals who paid for, or received coverage under, group
insurance policies sold in the State of Nevada by Humana Insurance. They
allege violations



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of antitrust laws, ERISA and RICO which arise from the sale of the policies
and from incentives provided under the policies for insureds to use Humana
Sunrise Hospital in Las Vegas. In 1993, the United States District Court
granted summary judgment dismissing most of plaintiff's claims but granted
plaintiffs judgment on one claim that the client assesses as having a maximum
exposure of under $4 million, plus attorney's fees. Plaintiffs appealed to the
United States Court of Appeals for the Ninth Circuit which, on May 23, 1997,
affirmed the judgment on the ERISA claims; reversed as to the antitrust
claims; and reversed in part as to the RICO claims, but affirmed the District
Court's grant of summary judgment limiting RICO damages to three times the
ERISA damages, with exposure assessed at under $12 million. Plaintiffs claim
approximately $133 million in antitrust damages that is subject to statutory
trebling. Humana has petitioned the Supreme Court for a Writ of Certiorari on
the RICO claims, which is pending. The antitrust claims have been remanded to
the United States District Court in Nevada. Trial of these claims is stayed
pending a decision on the Petition for Writ of Certiorari. Humana has filed a
Motion for Summary Judgment on all remaining antitrust claims raising issues
that were not reached by the District Court. The court vacated the February
trial date and set oral argument for January 30, 1998. The Court has ordered
that a status report be filed on March 23, 1998.


On December 4, 1997, a lawsuit captioned Florida Software Systems, Inc., a
Florida corporation v. Columbia/HCA Healthcare Corporation, a Delaware
corporation, was filed in the United States District Court for the Middle
District of Florida (Civil Action No. 97-2866-C.V.-T-17b). The lawsuit alleges
that the Company breached an agreement under which Florida Software Systems,
Inc. was allegedly granted the exclusive right to provide medical claims
management for certain claims made by the Company for payment to any third
party payors in connection with the rendition of medical care or services. The
lawsuit alleges claims for fraud, breach of implied contract, and breach of
contract. The lawsuit seeks compensatory and punitive damages, attorney's fees
and costs of the suit. The Company believes that the allegations in the
Complaint are without merit and intends to pursue the defense of this action
vigorously.

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