Columbia/HCA Healthcare Corp. has slowed its hospital acquisitions recently, but that doesn't mean the company isn't spending cash to forge ahead.
While Columbia has run into some roadblocks involving its dealmaking, the company has been reallocating money toward paying down debt. It also has initiated a two-year, $1.1 billion capital spending plan.
With increased scrutiny from attorneys general and more competition in some markets, Columbia is facing more hurdles to closing hospital transactions than in the past.
"The deals are taking longer," says Richard Scott, Columbia's chairman and chief executive officer. "Prices have gone up. There's more scrutiny."
In the first quarter of this year, the Nashville-based chain spent only $41 million on acquisitions, compared with $395 million in the year-ago period-a hefty drop for a publicly owned company known for its growth strategy. The company now operates nearly 350 hospitals across the country.
But executives say that decline shouldn't give observers the wrong impression.
"We can't predict what our acquisitions are, so remaining cash is used to repay debt," says Victor Campbell, Columbia's senior vice president in charge of investor relations. "We have about $400 million in cash per quarter available for acquisitions."
The company spent almost as much in the first quarter on debt retirement-$342 million-as on capital expenditures, $347 million. In the year-ago quarter, Columbia's capital spending totaled $385 million while debt actually increased in the quarter by $57 million.
During the first quarter, Columbia was able to reduce its debt/capital percentage to 40.1% from 47.5% in the year-ago period. As of March 31, Columbia's total debt was $6.64 billion vs. $7.44 billion a year earlier.
Columbia's two-year capital spending plan is part of the company's effort to fill holes in markets where it's creating integrated delivery systems, Scott says.
The company has approved capital investments of $1.1 billion in 1997 and 1998 for 60 major projects (See chart). This year's total budget for capital projects is $1.7 billion, which includes the new projects but also routine building expenditures not included in the company's major projects.
The two-year plan includes $444 million for 10 new hospital projects.
While Columbia's critics have said the company is simply building hospitals where it can't buy them (April 14, p. 50), the company doesn't plan on stopping at 10 new hospitals in the next two years, executives say. At least two additional hospital projects are in the works, and the company is lobbying heavily for the elimination of certificate-of-need laws in many states so it can build hospitals where it can't acquire them.
Scott says a large portion of the construction spending under the two-year plan is in outpatient settings.
"The new construction is in areas where there is demand," he says.
Faced with increased scrutiny from attorneys general and community groups across the country, Columbia cut its not-for-profit hospital acquisitions nearly in half during 1996 compared with the previous year. Columbia completed acquisitions or joint ventures with 17 not-for-profit hospitals in 1996, down from 33 in 1995.
In this year's first quarter, Columbia completed only two joint ventures: a 50-50 venture with 245-bed Saint Luke's Medical Center in Cleveland, and the purchase of a 54% stake in 110-bed Instituto Dexeus, a teaching hospital in Barcelona, Spain.
Scott says his company considers the scrutiny by attorneys general a positive. As the nation's largest for-profit operator of hospitals, he says Columbia can safely say it's been through more meetings and hearings on hospital conversions of not-for-profit facilities than any other company.
"With the increased scrutiny, that benefits us because of our history," Scott says.
Columbia executives say they expect acquisitions of not-for-profit hospitals to eventually get back on track. The company recently signed letters of intent to acquire eight hospitals, although it's uncertain when those deals will close.
Partially explaining the slowdown in dealmaking, Scott says he simply expects some transactions to take longer than others. One example of the company's patience is the recent state approval of its partnership with the University of Oklahoma.
Oklahoma Gov. Frank Keating earlier this month signed legislation that allows the Oklahoma University Hospitals Authority to enter a mergerlike partnership with Columbia. The authority operates two facilities in Oklahoma City (May 12, p. 4).
"I first met with the University of Oklahoma eight years ago," Scott says.