Columbia/HCA Healthcare Corp. will begin seeking joint ventures with insurance companies as part of its strategy to develop provider-sponsored networks.
In a conference call with stock analysts to announce year-end earnings, Richard Scott, Columbia's president and chief executive officer, briefly explained the company's willingness to partner with insurance companies. His comments came in response to questions about Columbia's reported negotiations with Blue Cross of Ohio.
"We're open to being joint-venture partners with insurance companies market by market," Scott said, adding that the company already has in place physician management organizations with capitation contracts. In such cases, "you could argue we are the insurance company," Scott said.
To underline the company's efforts, Dan Moen, president of Columbia's Florida division, has been promoted to president of a newly created Columbia Sponsored Network Group, effective March 4. Moen has been president of Columbia's largest statewide network, consisting of 60 hospitals and $4 billion in annual revenues.
The effort led by Moen to form Columbia-sponsored networks likely will center around insurance companies that are partners with the Nashville, Tenn.-based hospital chain. If partnering with an insurer isn't possible in a certain market, "we will go it alone," Scott said.
The strategy has obvious pitfalls. "You do not want to alienate the folks that are sending you most of your business," said John Runningen, healthcare analyst for Robinson-Humphrey, an Atlanta-based investment banking firm. "It's Humana 101," he said referring to the Louisville, Ky.-based firm's ill-fated attempt to operate a hospital chain and launch HMOs simultaneously a decade ago.
"It's very delicate because if you do some joint ventures with one insurance company then you immediately find yourself competing with the others," noted Gareth Hudson, system vice president for Lee Memorial Hospital, Fort Myers, Fla.
Such a move could test Columbia's reach.
"Mighty as they are, I'm not sure Columbia has any skills in insurance," said Steve Volla, president and CEO of Primary Health Systems, a five-hospital system that competes with Columbia in Cleveland.
Columbia last week reported that net income rose 24% to $354 million, or 79 cents per share, for the fourth quarter ended Dec. 31, 1995, compared with $286 million, or 64 cents per share, in the year-ago quarter. Revenues were up 17% to $4.6 billion.
For the year, net income rose 18% to $961 million, or $2.14 per share, compared with $814 million, or $1.89 per share, in the previous year. Revenues were up 22% to $17.7 billion.
Officials touted the fact that Columbia's earnings were growing because its hospitals were adding market share, rather than just as a result of the company's furious expansion. In hospitals the chain had owned for a year or more-a calculation that analysts refer to as same-store sales-revenues were up 8.8% in the fourth quarter and 10% for the year. Adjusted admissions were up 8.5% for the quarter and 8.6% for the year.
Last year, Columbia derived 36% of its revenues from outpatient services, compared with 32% in 1994. The company now operates 343 hospitals, 137 surgery centers and 198 home healthcare agencies.
Five of the hospitals were added in January, and Scott told analysts that the company was in discussions with 150 tax-exempt hospitals.
In addition, Columbia officials said they settled part of its nearly $2 billion tax dispute with the Internal Revenue Service. They said that Columbia would pay $87 million to settle a $486 million claim in connection with its federal taxes for 1981 through 1988. A $1.2 billion claim by the IRS is still being contested.