Move over, Columbia.
This year, the company that rocked the healthcare industry will be taking a back seat to a new cast of market leaders that may pick up the acquisition pace for 1998.
Acquisition volume ebbed for for-profits last summer, partly because of the scare from the federal investigation into Nashville-based Columbia/HCA Healthcare Corp.'s billing practices. But toward the end of 1997, the number of deals picked up and many for-profits were on the move again.
The market to watch will be rural. In the past few years, several new players have entered the market, which has been dominated for the most part by Naples, Fla.-based Health Management Associates. This year may get particularly competitive when some of the smaller, privately held systems, such as Brentwood, Tenn.-based Province Healthcare Co., go public.
Another reason rural markets will be active is most systems are deciding that as managed care penetrates their markets, they can't go it alone and they need greater access to the financial markets. Many of the for-profit companies can provide that kind of benefit to the rural facilities while at the same time increasing market share.
But some of the deals being done by for-profits may be a little different in 1998. Columbia picked up a not so new but clever way to get rid of misfit hospitals without really selling anything: leasing them. Near the end of 1997, the nation's largest healthcare company had letters of intent on four leases. Santa Barbara, Calif.-based Tenet Healthcare Corp. also has pursued several leases.
Observers say leases are a good way to stem future losses on a facility while locking in returns over a long time. In some cases, for-profits may get better value out of leases than they would have by selling the facilities.
Meanwhile, Columbia will be focusing inward rather than outward in 1998. It plans to spin off a third of its facilities into three new publicly traded companies, which may take some time, especially because the federal government has given no word on when it will complete its investigation into the company's billing practices. But 1998 is a campaign year, and many members of Congress running for re-election in districts with Columbia facilities would love to claim victory on a settlement. It's possible a settlement could be reached just as the summer campaign schedule heats up.
Columbia seems to be fully committed to spinning off the three companies, but that doesn't mean it won't consider opportunistic deals before the spinoffs are completed. Shortly after the spinoff announcement, it said it would sell two Chicago-based hospitals on the spinoff list and intended to complete four lease deals on hospitals-half of which were intended to be spun off.
Tenet, the nation's second-largest for-profit, has put itself in a prime position to continue its focus on building networks, while Columbia works on its restructuring plan over the next year. Tenet may look to purchase parts of Columbia's spinoff hospitals, but only if doing so fits into its strategy of building on existing networks. Tenet has proved to be patient, flexible and aggressive, three qualities that are essential to any for-profit system these days.
Another company to watch is HMA. It had a stellar year in 1997 and is in a cash-rich position to do quite a few deals. Some observers say HMA is the most likely candidate to acquire Columbia's America Group-21 mostly rural facilities. HMA hasn't said word one about this possibility, but it has hinted it will have a busy year in 1998.