With the cloud of federal investigations and the departure of key development executives, Columbia/HCA Healthcare Corp.'s ability to maintain its status as a Wall Street growth company could be in jeopardy.
Federal investigations into the company's business practices couldn't have come at a worse time for the Nashville-based healthcare chain, which is looking for a lead acquisitions executive and is facing increased scrutiny in communities where it wants to grow.
"We believe it may be difficult for the company to focus on its business plan and grow the company, not only as a result of the El Paso (Texas) investigation but also due to issues we have discussed about the increasingly challenging acquisition environment," said Sheryl Skolnick, a healthcare analyst with Robertson Stephens & Co. who was the first to lower ratings of Columbia's stock in recent weeks.
Columbia is searching for a lead acquisitions executive to replace Joseph Moore, 50, the company's senior vice president for development, who will leave the company April 15. He's leaving soon to pursue a career where he can become a partner or owner and assume more control over operations (Feb. 17, p. 34). A search is under way for his successor.
Some analysts are concerned Columbia's management may be spread too thin in the acquisitions department, especially since Senior Vice President and Treasurer David Colby left the company last year and wasn't replaced. Colby, who joined Columbia as its chief financial officer in 1988, accepted a position as executive vice president, CFO and treasurer of Aurora, Colo.-based American Medical Response, an investor-owned ambulance company. When Colby left, his duties were divided among other executives, the company said.
Analysts believe Columbia will be able to maintain at least 15% earnings growth through the end of the year, but some are becoming more concerned the federal investigation will threaten margins beyond 1997. Since the March 19 raid on the company's El Paso operations, several analysts reduced Columbia's stock rating from "buy" to "market performer."
Columbia still expects to close its $1.3 billion acquisition of Avon,
Conn.-based Value Health, a pharmacy benefits management
company. Value Health executives are watching the federal probe carefully but don't anticipate a delay in closing the deal, expected in the second quarter.
"We're not happy about it, but we're certainly not pushing any panic buttons," said Chris Byrd, director of investor relations at Value Health.
However, communities where Columbia hopes to expand are concerned about the investigation.
Last week, for example, the Bristol (Tenn.) Herald Courier urged community officials to proceed cautiously when viewing a Columbia proposal to build a new hospital in nearby Johnson City, Tenn.
"Given the current level of good service available here, there seems little reason to be rushed into something new," according to an editorial in the newspaper.
Columbia decided to build a hospital in Johnson City after a proposed joint venture with the city's largest hospital, 407-bed Johnson City Medical Center Hospital, fell through in January 1996 (Jan. 22, 1996, p. 6).
Columbia owns two smaller acute-care hospitals in Johnson City.