Who is Rick Scott trying to heal?
The fallen hospital king is taking on Obama over health care and launching a bold new venture.
NEW YORK (Fortune) -- I'm inside a van barreling down a North Florida highway, just shy of the Georgia border, sitting next to (1) the Gordon Gekko of the hospital business; (2) the Leona Helmsley of medicine; or (3) Public Enemy No. 1 of health-care reform.
Take your pick, because Rick Scott, the taut and sinewy presence to my right, has been called all three of those and worse - dating back to his abrupt 1997 ouster as CEO of Columbia/HCA, then the largest hospital company in the U.S., and today as he stars in a self-produced, $5 million ad campaign to defeat government-driven health-care reform.
Had central casting set out to find the Big Bad Conservative with a controversial past to be the face of the opposition to Obama-style health care, Scott would top the list. "Having Scott lead the charge against health-care reform is like tapping Bernie Madoff to campaign against tighter securities regulation," railed the liberal Nation magazine.
Scott's not Bernie Madoff - or Leona Helmsley. He has never been charged with wrongdoing. He was never even personally contacted by investigators. But a $1.7 billion settlement by his company years after his ouster left his name and reputation tied to two damaging words: "Medicare fraud."
In 1996, Rick Scott "was the most famous hospital person in the U.S., and there was no one in second, third, or fourth place," recalls Joshua Nemzoff, a veteran of hospital mergers and acquisitions. A year later Scott was an industry pariah, toppled from the company that he had founded at age 34 with $125,000 in personal savings and Texas tycoon Richard Rainwater as his partner.
That steep fall from grace makes Scott an easy target - too easy - and he seems to know it. Strangely, none of the name calling seems to bother the 56-year-old lawyer-entrepreneur - nor did it dissuade him from making his public debut after 12 years out of the public eye by leaping into one of the hottest political debates in Washington. On the contrary, he seems to revel in the negative attention, smiling like a man who knows something the rest of us don't.
"Sometimes I say, 'Why am I doing this?' because you know you're going to get beat up," he says. "But somebody who has industry experience has to be out front." Scott, a man of logic, not intuition, who had a reputation at Columbia/HCA for sometimes displaying a tin ear in the human-relations department, has a habit of referring to himself in the second person.
Scott's PR judgment is what rattles even some of his supporters, who view him as a brilliant businessman who unnecessarily made powerful enemies while at Columbia/HCA in the 1990s and is about to do so again. That's a risky move when you're building a business in a heavily regulated industry; Scott has launched a chain of urgent-care clinics called Solantic that he believes could transform the emergency-room business. In the 1990s, Scott became a target after ridiculing nonprofit hospitals as staid and inefficient, fighting with a politically connected union, and later defending his company's reputation with in-your-face media appearances. Twelve years later Scott is the self-appointed go-to man for free-market conservatives determined to block Obama-style health-care reform, but at what cost to his reputation - and his business?
To make matters worse, Scott's health-care campaign, called Conservatives for Patients' Rights, is a long-shot throw. Commentators have compared his national advertising buy, in which he exhorts his audience to protect "choice" in health-care plans, to the famed Harry-and-Louise ads that helped turn public sentiment against Hillary Clinton's health-reform efforts in 1994. But those ads were funded by the health-insurance lobby, which, like nearly all American businesses, virulently opposed and defeated Hillary-care.
Today the dynamic is far different. Lobbyists for the insurance industry, the pharmaceutical industry, big business, small business, you name it, are trooping up to Capitol Hill weekly to meet with Senate staffers crafting health-care-reform legislation. "Corporate and industry players are inside the tent this time," says David Merritt, project director at Newt Gingrich's Center for Health Transformation, "so there is a vacuum on the outside." Democrats, meanwhile, have had 14 years to debate detailed plans for how to revive health-care reform and are prepared to move fast, hoping to produce a bill by the summer.
That leaves Scott as a lonely crusader, like a kayaker paddling up the rapids of the Potomac River - but one with a stubborn personality and an expensive boat. He hired former CNN anchor Gene Randall, who now offers his voice for corporate causes, to travel with him to London and Canada and collect horror stories about patients who died waiting for care inside government-run health-care systems. The video they produced will provide the material for a new round of national ads, but it remains to be seen how much those heart-wrenching stories will resonate among Americans, more than 70% of whom tell pollsters they favor expanding the federal government's role in health care.
This is the continuation of a political mission Scott started in 1993 when he met with Hillary Clinton to offer his opinions on the job her husband had just given her: health-care reform. But at that time the 41-year-old CEO was too busy to get deeply involved in Washington politics. That was a different era in the life of Richard Lynn Scott - before the federal raids on his hospitals, before the fraud charges against his company, before his board turned on him.
Back then, in the 18 months that the First Lady was suffering her own rise and fall in health care, Scott was furiously building his startup, Columbia Hospital Corp., into a giant - and imposing an alien culture of profit making on an industry dominated by nonprofits. During Clinton's first year in office he bought Galen Healthcare, a 90-hospital chain. During the second year of the administration, Columbia bought HCA, with 100 hospitals. The next year it was Healthtrust, with 80 rural hospitals.
In the blink of three years, Scott was suddenly the kingpin of more than 340 hospitals, 130 surgery centers, and 285,000 employees (of whom Scott estimates he shook the hands of 200,000). In 1996 Time listed him as one of the 25 most influential Americans. "He articulated a health-care system that was more rational, more integrated," says Charles Evans, former president of HCA's Eastern Group. "At the time it was still like a cottage industry."
The cost-cutting, profit-incentive culture he brought to the business earned him a reputation as the Sam Walton of health care - with all the acclaim and derision that label suggests. Wall Street adored him: From 1990 to 1997 the company's stock rose 380%. But local communities, rallied by nonprofit hospitals that feared Scott's competition, objected to the arrival of for-profit hospitals. Scott began to earn bad press-and the attention of regulators.
The board decision that ousted him that July 1997 day was a mere formality. By then Scott knew he had lost. "A bad day," Scott avers, in a quantum understatement as our van conversation picks up. A few miles down the highway he opens up a crack more. "It was devastating," he says. A few more miles and he adds, "It was embarrassing, because you felt like you let people down. I had people work their tail off. When you have a CEO working 80 hours a week, the people around him are too. And then suddenly you're not in a position to help them."
The deposed CEO took his wife and two daughters, then ages 11 and 14, on a three-week trip to the Colorado Rockies, hoping to comfort himself with the idea that at least now he'd have more time to spend with his children and the woman he'd been married to since he was 19.
That was followed by the zigs and zags of other business ventures. (Scott left Columbia with a $10 million "platinum parachute" that ensured another round of ugly headlines about him.) He bought the cable channel America's Health Network, which eventually merged into a subsidiary of Fox Networks. He launched a health-care industry website, ventured into the plastics business, and ran an investment firm. He remained conspicuously absent from the public eye.
Then the local press in Florida started taking note of a new venture - one that, like the health-care policy debate, represents a piece of unfinished business in Rick Scott's life. It was Solantic, an incipient Starbucks of emergency rooms, a string of 23 urgent-care facilities that proudly posts its prices, boasts of chirpy service, and is popular with insurance companies because visits are cheaper than the ER. Customers are offered a menu that includes an $89 visit, a $50 basic checkup, and a $30 flu shot. Scott always wanted to bring a friendly, open, retail style to his hospital emergency rooms. Now he's doing it on his own.
And that is why we are on this northern Florida highway. We are touring Solantic clinics, and Rick Scott is ready to talk-about his political campaign against Obama-care, about his latest attempt to radically change the way health care is delivered, and about his fall from the top and his decade-long climb back.
We are standing in the produce section of a Wal-Mart because Rick Scott can't help himself - he's drawn to the retail beauty of the place. "It's such an attractive presentation," Scott says in awe of the colorful tumble of grapefruit and apples and celery. The first thing to understand about Scott is that he's a retail nut - not a health-care wonk - which is what led to his success, and in turn drew a barrage of attacks, at Columbia/HCA.
Critics shuddered when his hospital referred to patients as "consumers" and diseases as "product lines." One of his favorite books is Behind the Golden Arches, the history of McDonald's. Scott's first business venture, right out of high school, was buying two doughnut shop franchises in Kansas City, Mo., which also ensured a job for his mom. His Solantic clinics, including the one inside this Wal-Mart (WMT, Fortune 500), are staffed with doctors and designed to do most of what ERs do on a daily basis - treating non-life-threatening injuries and sickness. Scott says that all his managers have retail backgrounds - "and the best ones come from Enterprise Rent-a-Car." You can practically hear the industry guffaws over that one.
Scott doesn't talk medicine. He talks location, presentation, and branding. He launches his facilities in strip shopping malls and frets when one isn't situated close enough to the main drag ("just 20 feet closer would have made a big difference in our revenues," he says). The clinics are outfitted with bright blues and yellows, Herman Miller chairs, kids' playrooms, and flat-screen TVs.
Chief medical officer Nathan Newman estimates that 60% to 70% of ER visits can be handled in a Solantic clinic. About 100 doctors work for the company, typically making about $165,000 (about the same as the local rate for primary-care physicians) and a potential 15% bonus based on customer-satisfaction ratings. These are doctors who don't mind doing episodic- vs. continuous-care of patients and don't want to deal with after-hours calls, malpractice insurance, and hiring and firing staff.
Scott launched the first 13 Solantic clinics in Florida with $28 million in seed money. (The private equity firm Welsh Carson Anderson & Stowe has made a $100 million commitment.) Scott plans to grow Solantic to about 35 outlets this year, with roughly $34 million in revenues, and 55 in 2010. "There's clearly an opportunity to have 1,000 of these across the country," he says.
It looks like a slog, building this company strip mall by strip mall, after a privileged life as one of the highest-profile CEOs in the country. But Scott recalls long, hard years of building Columbia, starting when he strung together down-in-the-mouth hospitals, beginning with two in El Paso. "Everything I did at the beginning was a turnaround," he says. "I didn't have any investors. No one wanted to touch the hospital industry."
Scott is 20 years older now, but just as intense. He's lean as a knife, up at 5 a.m. every morning to work out; three times a week a trainer comes to his Naples, Fla., home. He convenes a 7 a.m. conference call with managers every morning. At Columbia he was famous for measuring everything - from profits to morbidity rates - and he still is. Says Solantic CEO Karen Bowling: "Rick is the most process-oriented person you've ever met."
So why does Rick Scott, who's worth tens of millions (he won't disclose how much) and happily pursuing a busy Florida life, want to inject himself into the forefront of a heated political debate, knowing he's a lightning rod? Ask Scott, and he answers with a dissertation on his passion for free-market medicine. First he acknowledges some agreement with the consensus view. Yes, he supports a government safety net for the chronically uninsured. And, yes, he thinks the government can be useful by standardizing insurance claim forms. But Scott plans to fight any congressional moves to implement government-run insurance plans or exchanges, arguing that they will drive out private competition, eliminate personal choice, and lead to higher prices.
I also sense a need, beneath these political convictions, for a redemption of his reputation. This is a chance to counter all those media accounts that still portray him as a kind of unconvicted criminal who defrauded the government. There is a breathlessness to the accounts of the events that led to Scott's ouster - driven by the dramatic raids by federal agents of Columbia hospitals in El Paso in March 1997 and followed by document seizures at 31 locations four months later. The board vote came days later.
"Rick didn't do anything wrong," says Nemzoff, the M&A consultant. Nemzoff works with the nonprofits that reviled Scott, and often sat across the negotiating table from him, yet praises Scott. "Hospitals were being fined all the time. HCA was the most visible," he continues. "Rick was the head of a company that the government wanted to make an example of, and his board threw him under the bus."
But even some Scott supporters say his bottom-line culture produced destructive pressures. Says Tucker Taylor, who directed the best-practices initiative at Columbia/HCA, "Rick probably made a mistake in going to executives at more than 300 hospitals and saying, 'I want you to improve your bottom line' but didn't tell them how. So some are going to cheat. Rick's failure as a manager was not showing them exactly how to get there."
In the 1990s the government conducted many investigations of Medicare billing practices, particularly since hospitals and others often were accused of engaging in the process of "upcoding," putting patients in higher-cost categories. "You had trusted names, elite nonprofits targeted, allegations that were never proven," says George Pillari, then chief executive of the hospital data firm HCIA. "The reaction [by hospitals] was 'How do we settle and get out of the headlines?'"
Scott's personal style didn't help him. The son of a truck driver who had to work his way through college and law school, Scott was intense and brash. According to press reports at the time, HCA founder Tommy Frist worried about taint on HCA and his family from the investigations and was more inclined than Scott to settle. "Great executives make mistakes," investor Rainwater told Fortune at the time. "My hope was that Rick would alter his stance of righteous indignation." (Rainwater was unavailable to comment for this story.)
The other accusation against Scott, played out mainly in the media, is that he sacrificed care for profits. While there were anecdotes reported in the press of corners needlessly cut, Columbia hospitals were regularly cited in industry ratings for quality. Taylor recalls studies under Scott examining why some hospitals had lower mortality rates in their coronary bypass procedures and why wait times at ERs were better at some hospitals than others. Those practices would then be applied to poorer-performing facilities. "He brought a patient focus," says Taylor. "He was the first one to latch on to the idea of transparency."
Scott insists he doesn't blame anyone for his sudden fall. "I don't hold any grudges. I've had a great life," he says. Still, there's a hint of bitterness. "I've always been a Christian. So I told my minister, 'I don't get this concept where people do the wrong thing and do well, and people do the right thing and get hurt.' I don't get that."
In his campaign to fight government-run health care, Scott is convinced he's doing the right thing, even if that's not how his political opponents see it. He has begun meeting with staffers on Capitol Hill and is likely to be a Republican choice to testify against whatever health-care plan the Democrats produce. Conservative activists - with their own access to money and grass-roots volunteers - are offering him their support. And, most important, he is churning out those TV commercials, hoping to turn public opinion. Before he jumped into this political fray, Rick Scott was unknown to most Americans. Now anyone paying attention to the health-care debate will know his name - whether they agree with him or not. But after 12 years in the wilderness, Scott seems ready for a new fight.