With precision and speed, Rick Scott has assembled a company that everyone's watching.
A paperweight on Rick Scott's desk reminds him: "If you are not the lead dog, the view never changes."
As president and chief executive officer of the nation's largest hospital system, Columbia/HCA Healthcare Corp., Mr. Scott certainly is the lead dog. In just seven years, he's assembled a $10 billion company backed by a remarkable reservoir of financing and management talent.
"Competitors everywhere are trying to keep me out," Mr. Scott acknowledged in an exclusive interview with MODERN HEALTHCARE earlier this month.
Columbia/HCA faces tough challenges in creating the networks it wants in markets where resistance may rise against a formidable investor-owned competitor. For example, North Kansas City (Mo.) Hospital earlier this month signed an affiliation agreement with Health Midwest, a growing not-for-profit chain, in spite of overtures from Columbia (see story, p. 28).
Before merging with Hospital Corporation of America last week, Columbia had built strong networks in El Paso and Miami. However, it will take some muscle to produce similar systems in such diverse markets as Atlanta, Kansas City and Chicago, where Columbia is in a distinct minority among a sea of not-for-profit providers.
Columbia/HCA may or may not succeed in trying to buy hospitals or lure away physicians. Regardless, "we're going to liven things up 100% of the time when we're in the marketplace," said David Vandewater, chief operating officer and Mr. Scott's right-hand man at Columbia since 1990.
Minding all of the different markets while keeping up with the impact of healthcare reform proposals on Capitol Hill won't be an easy feat. The fear that some type of price controls or provider tax may be instituted has mobilized Mr. Scott to get more involved in political matters (see box) even as details on the mega-merger were being completed.
Last week, the merger of Columbia Healthcare Corp. and Hospital Corporation of America was approved at separate shareholder meetings in Louisville, Ky., and Nashville, Tenn. The $5.7 billion stock swap creates the nation's largest hospital system with 192 hospitals in 26 states generating more than $10 billion in annual revenues.
A headquarters city for the combined companies' 1,600 corporate employees still is undetermined. A decision hinges on negotiations with the state of Kentucky and the University of Louisville over Columbia's lease of 404-bed University Hospital.
Triggered by a change-of-control provision, the lease came open for renegotiation when Columbia merged with Louisville-based Galen Health Care last September. In the nine months ended May 31, l993, the hospital lost $1 million, according to the Columbia/Galen prospectus, although Galen received its management fee of $10 million during the period.
The ease with which Columbia has absorbed the Galen merger may not be evident until the company releases its fourth-quarter figures at the end of this month. However, at least one former Galen hospital is turning around.
In the past four months, admissions are up 9% and patient days are up 5%, compared with the previous year at Audubon Regional Medical Center, Louisville.
"Now that we're not an insurance company, I've been able to refocus on our original mission of being a hospital," said William A. Brown, Audubon's president and chief executive officer. When the 480-bed hospital was operated by Humana, which also operated a managed-care plan, physicians were discouraged from admitting patients, so they took their patients to other hospitals.
Now, the physicians have come back, and Audubon is growing again. Under construction is an $8.5 million day surgery center. Surgeons at the hospital's heart center are being trained on a new $350,000 laser.
Mr. Brown echoes another Columbia theme. While the former Galen hospitals sometimes competed in Louisville, now they work together.
Allyn Harris, president and CEO of HCA Medical Center of Plano, Texas, looks forward to that type of networking in the Dallas/Fort Worth market, where Columbia/HCA has eight of the 60 area hospitals. He expects the hospitals to "go together and bid for business."
That's a market where Columbia wants to expand. For example, during the last two months, trustees of not-for-profit Irving (Texas) Healthcare System, a geographically desirable hospital between Dallas and Fort Worth, visited Columbia hospitals in El Paso, Texas, and Miami. Both are markets where Columbia has built strong hospital-based networks.
Irving's board is talking to other suitors and may not necessarily sell to Columbia. However, "we need to be in a network of hospitals," said Michael O'Keefe, Irving's president.
Although Columbia/HCA may do some collaborative deals in certain markets, it's much more interested in mergers and acquisitions. "Common ownership is the glue necessary to ensure that our people do work together," Mr. Vandewater said.
Mr. Vandewater noted that Columbia has a way of getting what it wants. In southern Florida, he and Mr. Scott assembled a list of hospitals they wanted. Now, "we've got them," he noted. Columbia/HCA operates 20% of Florida's 225 hospitals.
Most recently, Mr. Scott had his eye on one particular group of tax-exempt hospitals. "The Catholic systems are going to reduce the number of hospitals they have," Mr. Scott said.
The trend already is under way. In 1993, there were 581 Catholic hospitals, down 3% from 1993 and 7% from 1988, according to the Catholic Health Association, St. Louis.
"Their mission was to take care of charity patients. That mission is past," Mr. Scott said, noting that universal access will provide the indigent with care. He acknowledged that future deals could include single hospitals or entire Catholic chains.
"All I'm doing is putting myself in a position where I'm the logical person to do business with," he said, adding, "I have no problem with their (Catholic) canon of ethics."
At least one Catholic system executive disagrees with Mr. Scott's analysis.
Stanley T. Urban, president and CEO of the Sisters of Charity of the Incarnate World Health Care System, said he has no intention of divesting any of his 11 hospitals.
The need for Catholic hospitals is stronger than ever, he believes, because more hospitals are seeking partners that are looking for ways to serve community needs. "We have had that focus from the very beginning," he said.
However, he has met with Rick Scott and the two executives responsible for Columbia's Texas facilities to "keep the lines of communication open" in markets where they both have hospitals.
"Where some people may say `I will never talk to those proprietaries,' we feel totally the opposite," Mr. Urban said.
Can Columbia afford to keep growing at its current pace? From a financial standpoint, the answer is probably yes.
When Columbia and HCA went to the banking community in recent weeks to fund a $3 billion credit facility, banks were eager to take part. The $3 billion serves as a type of collateral for Columbia's commercial paper program, which will grow from $900 million to about $1.528 billion in the coming days.
Because Columbia will use commercial paper to fund its needs, it probably won't draw on the credit facility. Even so, individual banks have parked tens of millions of dollars-just in case Columbia/HCA needs it.
What's more, the credit facility is an unsecured credit line, meaning that Columbia doesn't have to check with its banks when it wants to buy a hospital system or beef up capital expenditures in a particular market.
For more on the Columbia bank financing and other pending bank deals, see p. 86.
"They deserved and they got a very flexible structure," said Carolyn Camp, vice president of First Union National Bank of Tennessee, Nashville. She describes Columbia's reputation as "awesome."
Columbia is the only hospital chain that issues its own commercial paper, a type of note offered only by large, financially healthy corporations.
Columbia/HCA pays a mere 3.3% interest on its commercial paper. "That gives us a significant competitive advantage," noted David Colby, Columbia's chief financial officer.
In terms of management, Columbia/HCA has a young, aggressive team with a reputation for putting in long days and asking subordinates to do the same. The top three individuals running the company are the 41-year-old Mr. Scott, president and CEO; 43-year-old Mr. Vandewater, COO; and 40-year-old Mr. Colby, CFO.
In addition, Mr. Scott will draw on the expertise of one of the nation's most successful hospital chain executives, Thomas F. Frist Jr., M.D., who founded HCA in 1968 and is chairman of Columbia/HCA. Dr. Frist has 26 years of hospital chain experience.
Clearly, Dr. Frist doesn't have to work-the Frist family is worth $435 million, according to last year's Forbes ranking of richest Americans. However, Dr. Frist said: "This is not a selling-out situation." During an interview this month with Mr. Scott, Dr. Frist joked that he's willing to pitch in wherever Mr. Scott wants him, even if it means "carrying his briefcase" or "moving to Alaska."
On a more serious note, Mr. Scott said that Dr. Frist's advice will be invaluable as Columbia/HCA moves ahead with its acquisition strategy. "Tommy probably has bought more tax-exempt hospitals than anybody in the country," Mr. Scott said. His notable acquisitions include Presbyterian Hospital, Oklahoma City, and Wesley Medical Center, Wichita, Kan., both HCA hospitals that are now in the Columbia/HCA fold.
More not-for-profit hospital executives also are coming over to Columbia's team. A recent example is James Pickle, recently named president of the company's Kentucky division of seven hospitals.
Mr. Pickle is CEO of Erlanger Medical Center, Chattanooga, Tenn., and previously was chief operating officer of Methodist Hospital, Memphis, Tenn.
Despite his tax-exempt roots, Mr. Pickle is now singing the Columbia anthem, saying that he believes the tax status of not-for-profit hospitals is "questionable." Their "ability to maintain that advantage is going away," he said.
Taking the helm of 744-bed Erlanger six years ago opened his eyes, he said. In Chattanooga, Erlanger provided more than 90% of the charity care in the city. The other not-for-profits in town provided "virtually no charity care," he said.
That made him question whether a tax-exempt status is valid in certain cases-an attitude that sharpened when Columbia came calling. Executives of Columbia/HCA, which Mr. Scott points out will pay $800 million in taxes, feel strongly about this issue. When anyone mentions the word "not-for-profit," they correct them by saying, "tax-exempt."
Hospital executives who formerly managed tax-exempt hospitals may find other things they like about Columbia. Although Mr. Pickle declined to say what his compensation package will be, most observers agree that it's likely to be more generous than the $200,000 provided by Erlanger. Columbia/HCA also can offer executives stock options and profit sharing.
Early on, Columbia became prominent for including its physicians as equity partners in its hospitals. Recently that strategy was extended to the top four executives at Columbia's hospitals.
"I want them to have the pain I do in terms of having a true investment," said COO Mr. Vandewater.
Executives like Mr. Pickle will receive Columbia's usual brand of autonomy in making decisions in their market. In exchange, Mr. Scott said he demands "absolute accountability."
That doesn't seem to dissuade prospective managers. Mr. Scott said he receives about 50 resumes a week from hospital executives wanting to join his team.