Charlie McCall, former chairman of McKesson, was found guilty last Thursday in a retrial 10 years after HBOC cooked its books to get a huge price for its stock in its merger with McKesson. The saga was an even sadder one for employees and stockholders, who saw their shares plummet 50% when the scandal was first announced in 1999. HBOC inflated its revenue by hiding side letters it signed with clients that gave them the right to opt out of contracts, and other schemes to artificially inflate revenue to satisfy the greedy gods of Wall Street. McKesson paid out $900M to settle resulting stockholder suits a few years back, probably hoping the story would go away. Now, it's back with a vengeance, as Charlie joins Jay Gilbertson, CFO, and Al Bergonzi, COO, in being convicted. There is a sliver lining in this cloud, however. How many times have you heard the old saw that health care is so far behind other industries in commercial advances? If only we had automated records like the airline industry, we'd have far better customer service, etc. Sound familiar?
Well, in the HBOC scandal, health care beat other industries by two full years: remember Enron? In 2001, Skilling and company went down, and brought lots of employees in a book-cooking scheme that made HBOC's paltry few hundred million dollars look puny. Even took down Arthur Andersen, the ne plus ultra of auditing/consulting firms. So, in cooking the books, health care beat out all other industries by 2 full years!
What's really sad is how so many vendors have taken advantage of the resulting Srabanes-Oxley legislation (SOX). Originally intended to put CEO's necks on the line for booking revenue too aggressively, many vendors use SOX as an excuse to refuse to grant any warranties, remedies or financial penalties in their contracts today. Seems they want the right to book every nickel of an agreement the day it is signed, with no risk of the revenues not being earned. But what if the system isn't delivered, or has serious bugs, or is poorly implemented by recent college graduates the vendor hired to keep salary costs down? TOUGH! That's the hospital's problem...
It's as if a hospital booked the entire $10K revenue for an appendectomy the day a patient showed up in the ER with abdominal pains. And then made the patient sign a consent form that they agreed to pay for the full appendectomy even if it was just indigestion... Vendors should learn form poor Charlie and start booking their revenue the old-fashioned way: when they earn it! And CIOs need to stand up to corporate mega-lawyers who fast-talk the SOX shtick. If they really are your "partner," they should share in the risk of an implementation and book revenue when they accomplish something besides getting a contract signed.
As Santayana said: "He who forgets the past is condemned to repeat it."