Dick Scruggs, the Bell Tolls for Thee

Philip Betbeze, for HealthLeaders Media, August 15, 2008

How things have changed in less than four years.

Especially for celebrated plaintiff's attorney Richard "Dickie" Scruggs. You hospital CFOs remember him, don't you?

He came after you aggressively just four short years ago for your charity care policies, your chargemaster prices, and your own aggressive collection practices. He suggested you didn't deserve your multiple tax exemptions because you didn't offer enough charity care—by a long shot—in return for not having to pay taxes. He filed lawsuits against many of you that, while they ultimately went nowhere, were quite scary back in the fall of 2004, when I last spoke with him for a cover story in HealthLeaders magazine entitled "Do Nonprofit Hospitals Deserve Their Tax-Exempt Status?"

Many lawsuits were filed against nonprofit hospitals across the country. If you had a discrepancy between your hospital's chargemaster and what you charged insurance companies—as almost every hospital did at the time—you were a fat, juicy lawsuit target. He even convinced one major hospital in his own backyard, North Mississippi Medical Center, to settle his lawsuit in return for multiple changes in its charity care practices. Things were looking up for Scruggs. After all, fresh on the heels of his tobacco litigation success, he and his firm were on a hot streak.

Now he's in jail. In a Kentucky federal prison, to be exact. Serving a five-year sentence. Disgraced and disbarred.

That's right, Scruggs and his son both received jail sentences early this summer for attempting to bribe a Mississippi judge in return for turning over Hurricane Katrina settlement money that was held up in court. Instead, the judge turned FBI informant and got the goods on the Scruggses. The elder Scruggs will serve five years. His son will serve a little more than one.

I'll forgive you if you want to take a few seconds to snicker up your sleeve.

Many hospital leaders saw Scruggs' actions as simply the latest money grab for a smooth-talking Mississippi attorney who got filthy rich off of tobacco litigation in the 1990s and became something of a minor celebrity as a character played by actor Colm Feore in the 1999 film "The Insider," which also starred Al Pacino and Russell Crowe.

The truth is somewhat more complicated, but it's hard to argue that greed didn't have a lot to do with Scruggs' actions toward hospitals when the man who owns his own Gulfstream jet tried to buy a judge over an insurance settlement.

Bill Cox, then president and CEO of the Sacramento-based Alliance for Catholic Healthcare, saw former Sen. Trent Lott's brother-in-law as an opportunist who was simply seeking another easy class action target-a "vulnerability they could exploit." Seems more true than it ever did.

Scruggs apparently quickly lost interest in the hospital lawsuits after a few legal setbacks, and, more importantly, after Hurricane Katrina hit New Orleans and the Mississippi Gulf Coast. Without a doubt, given what's happened in the intervening years, he saw the deep pockets of insurance companies just itching to be picked.

Now his alma mater, the University of Mississippi, is frantically scrubbing off the Scruggs name from a building or two, as two large universities in Alabama recently did with buildings named after Richard Scrushy of HealthSouth infamy. As a graduate of bitter rival Mississippi State University, I can't help but snicker a little bit myself. But strange as it sounds, I also feel some sympathy for the guy, although it's hard to feel sympathy for someone who will go back to his multimillionaire lifestyle once his debt to society is paid.

As in many cases where the mighty have fallen, the bad guys don't wear all black hats and the good guys don't wear all white. After all, some hospitals were abusing their nonprofit status, and some probably continue to do so. And money is a powerful motivator. Without people like Scruggs, many hospitals might still be suing poor people based on inflated list charges. The regulations that are coming down from Congress and the IRS in the form of charity care regulations and tax filing requirements have added some bureaucracy to the tax exemption game, but they've added a bit of much-needed transparency, too. It'll be harder to get away with violating the spirit of tax exemptions simply because unlike four years ago, some regulations are nearly complete that will force hospitals to justify their benefit to the community they serve.

In fact, hospital leaders can take a big lesson from the fall of Richard Scruggs.

It's the greed that gets you in the end.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.

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