Columbia/HCA Healthcare Corp.'s long-awaited restructuring plan is leaving Wall Street unsatisfied and raising questions about what will happen to a third of the nation's largest for-profit hospital chain.
The plan, unveiled last week, calls for Columbia to split into five groups, three of which will be spun off into newly formed companies with a total of 108 hospitals. The three new companies will be publicly traded under their own names and will have separate boards.
The plans call for Columbia to keep 232 hospitals and 115 of its 148 outpatient surgery centers.
The restructuring may take as long as 18 months to complete. Over that period, the Nashville-based company will consider purchase offers for the hospitals in their lots or individually, although tax considerations will probably make a spinoff more attractive, said Thomas Frist Jr., M.D., Columbia's chairman and chief executive officer.
For the most part, Wall Street analysts reacted coolly to the proposal, saying it leaves too many questions unanswered. Most sought a more thorough analysis of cost savings, which the company said it was unable to provide. And there was no immediate indication of buyers ready to snap up those groups as marketed.
Meanwhile, Frist said the company plans to discuss with federal officials this spring the results of an internal investigation into the company's billing practices.
Frist estimated Columbia's internal probe of its billing practices would be completed by year-end.
As for the federal fraud probe, he said, "We will be prepared in early spring to begin discussions with the government subject to their willingness." He added that the timetable for the probe "is totally under their control."
He said Columbia went to federal officials and discussed its restructuring intentions before the public announcement Nov. 17. He did not disclose their reactions.
Despite its plans, Columbia will remain the nation's largest healthcare company. No. 2, Santa Barbara, Calif.-based Tenet Healthcare Corp., has 131 hospitals.
Columbia will keep its East and West groups, which had combined 1996 revenues of $14.2 billion. It will spin off its America, Atlantic and Pacific groups, which had $4 billion in 1996 revenues.
Frist said current Columbia shareholders will have stock in the new companies. For every Columbia share they hold today, they will get a proportionate amount for each of the three companies, he said.
"We don't have to own every asset in the market," said Jack Bovender Jr., Columbia's chief operating officer. He said it makes more sense for the company at this point to focus on networks of hospitals in certain markets.
Frist said Columbia will remain in markets where hospital networks are mature and fully integrated. He said it plans to invest resulting capital savings in existing facilities rather than making acquisitions.
Columbia executives didn't explain why the hospitals to be sold were lumped together, although a financial analysis revealed they generally aren't big moneymakers (See story, p. 2).
Among the hospitals to be spun off are six that have been on the HCIA/William M. Mercer 100 Top Hospitals in the past two years. Four of the six -- Columbia Metro-West Medical Center, Framingham, Mass.; Columbia Heritage Hospital, Tarboro, N.C.; Columbia Michael Reese Hospital and Medical Center, Chicago; and Columbia Riverton (Wyo.) Memorial Hospital -- are in states Columbia seems to be exiting. The other two are Columbia River Park Hospital, McMinnville, Tenn., and Columbia Brigham City (Utah) Community Hospital.
Meanwhile, analysts are not ruling out the possibility of Columbia selling the three units to outside buyers before the spinoffs. They say potential buyers include Tenet, Quorum Health Group, Health Management Associates, Community Health Systems, Universal Health Services, Principal Hospital Co. and Vanguard Health Corp.
Neither HMA nor Tenet would comment. A Quorum spokeswoman said the company would be interested in talking to Columbia if individual facilities were in its target markets.
Also, competing not-for-profit hospitals in certain markets as well as medical staff physicians at some Columbia hospitals reportedly are interested in buying individual Columbia hospitals.
Frist insisted Columbia did not discuss the reorganization strategy with any potential buyers.
All three major credit-rating agencies reacted to Columbia's plans.
Standard & Poor's lowered Columbia's debt ratings while maintaining a "developing" outlook on the credit. It said the ratings could be raised or lowered again. Fitch Investors Service, which recently lowered Columbia's senior debt and commercial paper ratings, placed its debt on FitchAlert for review. Moody's Investors Service continues its ongoing review of the company's debt ratings for possible downgrade.
With John Morrissey