For most of this century, Wall Street stood on the sidelines as local communities and sometimes physicians financed the construction of hospitals. But shifts in federal policy and a population boom in the Sunbelt helped spawn a new force in healthcare: the investor-owned hospital chain.
The sunset of the Hill-Burton Act in the mid-1970s, a law that provided federal funding for local hospitals after World War II, caused growing communities to look to the public markets for financing. Meanwhile, the start of Medicare provided hospitals a reliable funding stream that attracted investors. The investor-owned industry started in growing areas in states such as California, Florida and Texas, which remain their strongholds.
First was American Medical International, which bought its initial hospitals in 1960 and later was the first to hold a public offering. More companies followed and grew rapidly in the 1970s and 1980s, including National Medical Enterprises, Humana and Hospital Corporation of America. HCA eventually grew into the largest system. Investor-owned chains continued to grow and consolidate during the past 25 years, and stabilized at about 20% of the nation's hospitals.
While investor-owned hospitals were constantly criticized for cherry-picking profitable business lines and inflating the cost of care by creating arms races for the latest technology, they also spurred the dominant not-for-profit sector to improve efficiency and quality.
Meanwhile, niche markets such as women's hospitals, cardiac care and rehab also have proved lucrative for investor-owned chains.