Frist followed wave of insiders in selling hospital stock

WASHINGTON -- When Senate Majority Leader Bill Frist ordered a trustee to sell all his stock in his family's hospital corporation, he was joining a massive sell-off by HCA Inc. insiders.

Shares of the Nashville-based hospital company were near a 52-week peak in June when Frist and HCA insiders were selling off their shares - just about a month before the price dropped.

Information about the insiders' moves was publicly available through disclosures required by the Securities and Exchange Commission.

About 2.3 million shares, worth about $112 million, were sold by HCA insiders from January through June with sales getting larger as the spring wore on, said Mark LoPresti of Thomson Financial. In May and June, 770,629 shares were sold for total gains of $42 million, he said.

The sales, which included moves by Hospital Corporation of America's chief executive, treasurer, senior vice president of government programs and several directors, were among the largest insider selloffs analysts had seen, LoPresti said. Many officers made their largest trades ever in April, only to top them again in May and June, LoPresti said.

Meanwhile, HCA shares continued a steep climb that would ultimately take the price up 56 percent from October 2004 to July 2005, peaking in late June, LoPresti said.

But the insider selling was a sign of looming trouble, LoPresti said. Uninsured patient admissions were rising faster than those of insured patients, federal reimbursements were declining in real terms and payments did not keep up with cost increases. LoPresti himself discussed the insiders' moves as a warning to sell on an April 11 broadcast on the cable channel CNBC.

Shares of HCA peaked June 22 and then began a slide that would drop the stock almost 16 percent by mid-July.

Frist, widely considered a candidate for president in 2008, ordered his HCA holdings sold, as well as those of his wife and children, on June 13. Letters from his trustees on July 1 and July 8 confirmed the sales, said Frist spokeswoman Amy Call.

The value of his stock at the time of the sale was not disclosed. Earlier this year, he reported holding blind trusts valued at $7 million to $35 million.

Frist ordered the stock sold to avoid the appearance of a conflict of interest, Call said. The senator declined to comment Thursday.

For years, Frist was criticized for holding stock in the nation's largest for-profit hospital chain while directing legislation on Medicare reform and patient issues. HCA was founded by his father; Frist's brother, Thomas Frist Jr., is a director and leading stockholder.

His office has consistently deflected criticism by noting that his assets were in a blind trust and not under his active control.

The Senate Ethics Committee has cleared Frist several times to work on health care related legislation, saying as recently as April 2004 that because neither he nor his family had a controlling interest in HCA he could participate at his own discretion.

But blind trusts in the Senate are not the hidden piggy banks that observers expect them to be.

Under the Senate Ethics Manual, senators can directly order the sale of any asset known to have been in the trust before the metaphorical curtain was drawn. The senator also can communicate in writing matters that relate, "to the general financial interest and needs of the interested party," including "an interest in maximizing income or long-term capital gain."

That is not how blind trusts normally work, said David Becker, a securities attorney now in private practice who was general counsel at the Securities and Exchange Commission from 2000 to 2002. Typically, the beneficiary of such a trust doesn't know what's in it or what's done with its contents, he said.

To avoid potential insider-trading conflicts, the beneficiary usually has no knowledge or participation in investment decisions.

If Frist was allowed to ask for stock to be sold, "the question here is, how blind is blind?" Becker said.

"It's not a blind trust. I think that's a complete misnomer, an inaccurate or at least a misleading term," said Kathleen Clark, a law professor at Washington University in St. Louis who specializes in government ethics. Clark said the guidelines seemed to only use the trust as a way to get around having to publically report the holdings.

•	Frist followed wave of insiders in selling hospital stock Associated Press, Thursday, Sept. 22, 2005 Byline: Jonathan M. Katz, Associated Press Writer

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