As Columbia/HCA Healthcare Corp. prepared to swallow another large investor-owned chain last week, its executives expanded their strategy of building urban networks to one that involved entire states.
The new strategy initially will focus on seven key states-Texas, Florida, Louisiana, Tennessee, Kentucky, Virginia and Georgia-where 213 of Columbia/HCA's 311 hospitals will be located. "All of a sudden our strategy goes from Richmond, Va., to the state of Virginia," Columbia/HCA Chief Operating Officer David Vandewater told industry analysts last week.
Columbia/HCA agreed to buy Healthtrust last week in a $5.6 billion deal that snatched the Nashville, Tenn.-based company from the apparent acquisition grasp of National Medical Enterprises.
Through Healthtrust, Louisville, Ky.-based Columbia/HCA will fill in its urban hospital networks with the mostly rural facilities of Healthtrust.
Richard Scott, president and chief executive officer at Columbia/HCA, insisted that the deal would present antitrust problems only in Utah, where Healthtrust recently completed the purchase of three hospitals and 10 clinics from Holy Cross Health System Corp. The deal had incurred antitrust challenges from the Federal Trade Commission.
Antitrust lawyers said the Columbia/HCA-Healthtrust deal is likely to draw scrutiny in Florida, Texas and Louisiana as well as Utah, and possibly result in some divestitures in return for approval of the merger (See related story, p. 10).
Texas will have the heaviest concentration of Columbia/HCA hospitals after the merger, with 67 facilities. Currently, each market there-Dallas/Fort Worth, San Antonio, Houston and Corpus Christi-has its own manager, who oversees the hospital CEOs, works with managed-care payers and pursues acquisitions.
When Columbia/HCA moves to statewide networks, that infrastructure won't change, Mr. Vandewater told MODERN HEALTHCARE last week. The market managers "are the fundamental reason we're better," he said. However, there may be regional executives over some states, he said.
In Florida, Columbia/HCA would stand to control 26% of the state's 217 hospitals and 60% of the five hospitals in Lee County. The merger would increase Columbia/HCA's hospitals in Florida to 56 from 46. The company also would control 61% of the state's 92 investor-owned hospitals.
"This will help us expand geographic coverage in the state," said Daniel Moen, president of Columbia/HCA's Florida division. "It complements our delivery networks and enables us to eliminate duplicative services."
A Columbia/HCA-Healthtrust merger is a good fit in Florida, said Charles Pierce, president of the Florida Hospital Association. Healthtrust's hospitals don't substantially overlap markets with those of Columbia/HCA, he said.
Nevertheless, Columbia/HCA's quest for statewide dominance alarms some not-for-profits that compete with the well-financed, swelling corporation.
"I don't know if I'd characterize it as a line in the sand, but that's probably the best analogy I've heard," said John Bozard, vice president for strategic development at Orlando (Fla.) Regional Healthcare System. The proposed merger of Columbia/HCA and Healthtrust will prompt a "stronger division between for-profits and not-for-profits," he said.
Mr. Bozard also is incoming chairman of the Association of Voluntary Hospitals of Florida, a group of about 90 not-for-profit hospitals.
Although the deal is just another chapter in the story of hospital consolidation, it could result in unhappy endings as well. Take, for example, some of the carefully crafted deals that Healthtrust has with not-for-profits. Because Healthtrust hospitals were primarily rural-60% of its 116 hospitals are sole community providers-many had affiliations, or joint ventures, with urban tertiary-care facilities.
For instance, in Nashville, St. Thomas Hospital was a hub for Healthtrust's eight middle-Tennessee rural facilities. Last week, Healthtrust's chairman, R. Clayton McWhorter, said, "We're hopeful that relationship can continue."
However, in Dallas, where Presbyterian Hospital of Dallas was discussing an affiliation agreement with Healthtrust, executives are rethinking the situation. Presbyterian previously had an affiliation agreement with Epic Healthcare Group, a Dallas-based chain purchased by Healthtrust earlier this year. The Columbia/HCA-Healthtrust merger will have a "substantial impact on our thinking about that relationship," said David Ashworth, the hospital's executive vice president for strategic services and managed care.
That sentiment was echoed in Florida, where Orlando Regional is a 50-50 joint venture partner with Healthtrust in 126-bed South Seminole Community Hospital, Longwood, Fla. Orlando Regional's Mr. Bozard now says it will probably buy out Healthtrust's half of that deal because Columbia/HCA is a major competitor with four Orlando-area hospitals.
Columbia/HCA's Mr. Vandewater said the company is realistic about such relationships with not-for-profit hospitals and realizes that some agreements may be severed. "When you go into relationships, you think they're going to last forever, but the industry is changing," he said.
When told that some not-for-profit executives are starting to chafe at Columbia/HCA's size, he said, "I think they're looking at the glass (as) half empty rather than half full." Many not-for-profits, such as Tulane University Hospital in New Orleans, are entering joint ventures with Columbia/HCA because they see a good opportunity there, Mr. Vandewater said. Tulane announced a deal to sell 80% of its hospital to Columbia/HCA late last month (Oct. 3, p. 10).
"We're trying to do more things with more people," Mr. Vandewater said.
Trying to do more and more seems to be the mantra of Columbia/HCA executives, who before last week's announcement had already signed deals this year to buy 14 hospitals and 96 surgery centers generating $1.4 billion in revenues. Just last month, Columbia/HCA completed the $858 million acquisition of Medical Care America, the nation's largest surgery center chain.
The new merger will make Columbia/HCA-which will not change its name to include Healthtrust-the nation's 12th-largest employer (172,000 workers), the 45th-largest company in annual revenues ($15 billion) and the 35th-largest in market capitalization ($19 billion).
It also will unite two longtime Hospital Corporation of America leaders-Tommy Frist Jr., M.D., and Mr. McWhorter. Mr. McWhorter will become chairman of Columbia/HCA, and Dr. Frist, the current chairman, will move to vice chairman. Healthtrust, at the time a 104-hospital chain, was spun out of HCA in 1987.
Largely unsaid was how NME was left standing at the altar.
Just a few weeks ago, The Wall Street Journal obtained a leaked draft of NME Chairman Jeffrey Barbakow's proposed announcement that NME would buy Healthtrust and American Medical International.
When asked whether the Healthtrust board considered an offer from NME at the same time it was considering the Columbia/HCA offer, Mr. McWhorter would only say, "There were a number of options the board had." He later added, "We have had discussions with everyone in our industry in the last 15 months."
NME Associate General Counsel Christy Sulzbach wouldn't comment on whether the Santa Monica, Calif.-based chain had an outstanding offer to Healthtrust.
AMI executives also declined to discuss the much-rumored merger talks with NME. Last week, the board of Dallas-based AMI met, but the AMI agenda contained nothing about a union with NME, sources said.
The deal also reopens the question of where Columbia/HCA will be headquartered. There appeared to be no firm commitment to stay in Louisville despite the company's recent deal with the state of Kentucky. Under that contract, Columbia/HCA could lose the right to operate University of Louisville Hospital if it moves out of Kentucky.
On Oct. 5-the first day of trading after the announcement-Healthtrust shares soared $2 to $34, while Columbia/HCA shares dipped $2.13 to $40.63. Both were among the 10 most actively traded issues on the New York Stock Exchange. The next day, Columbia/HCA stock closed down another 25 cents, and Healthtrust fell 75 cents.