Ten years ago, healthcare giant HCA joined an elite group of companies issuing corporate bonds with a 100-year maturity date.
Then known as Columbia/HCA Healthcare Corp., HCA's $200 million issue put the for-profit provider in the ranks of blue chip companies such as Walt Disney Co. and the Coca-Cola Co., which also are among the few to ever sell 100-year bonds.
From a financier's perspective, pursuing the issuance of a century bond made perfect sense, said David Anderson, who 10 years ago was vice president of finance for Columbia/HCA and today is HCA's senior vice president and treasurer (See sidebar, p. 7 and click here for a 10-year HCA timeline).
But since that landmark borrowing, a lot has changed for HCA. The Nashville-based company has weathered a five-year government investigation and record fraud settlement, two name changes, two major spinoffs and a complete overhaul of the company's strategy.
And amid the company's struggles, the 100-year bond issue helped jump-start a $14 billion onslaught of capital spending during the decade that followed. The company has poured billions into building facilities that expand its presence in a market, such as new hospitals in the Denver, Las Vegas and Nashville areas.
In Atlanta and Kansas City, Mo., HCA is deploying its capital to build a new facility that replaces two older hospitals.
Throwing a monkey wrench into HCA's expansion effort was the loss earlier this month of one of its senior construction executives. Tom Gormley was vice president of construction and design and a 10-year veteran at HCA, and he took three other members of his department with him in joining Fluor Corp., an engineering and construction services firm. Gormley and his team will open a Nashville office aimed at winning healthcare construction business for Fluor, the company said.
The construction and design department that Gormley headed at HCA oversees construction projects for HCA around the country, HCA spokesman Jeff Prescott said.
The department hires general contractors and architecture and design firms and then oversees their work. The department is large enough that projects won't be delayed while HCA looks to replace the four executives, Prescott said.
Gormley worked with the company throughout its construction boom and strategic transformation. The company has gone from trying to be a fast-growing, ubiquitous buyer of hospitals to focusing more on organic growth. And even as the company scaled back its ambitions, its business plan and outlook as a smaller company appears to be stronger than it was 10 years ago, analysts said.
When Columbia/HCA issued its century bonds, the company operated 319 hospitals and 118 ambulatory surgery centers and was looking to grow ever larger. Now, the company has slimmed to 182 hospitals (including joint ventures) and 94 ambulatory surgery centers. Earlier this year, HCA announced two deals to sell a total of 10 hospitals; one deal has been completed and the other is still pending.
"In 1995, they were aggressively seeking market dominance in all phases" of healthcare services, said Joseph Chiarelli, an analyst who has covered healthcare companies for 15 years.
"Today, they demonstrate market dominance via their delivery system. That may sound like a subtle play on words, but it's really a very different focus and attitude," he said.
"Back in 1995, there was a strategy to roll up (consolidate) the industry, to do it quickly and to be the Wal-Mart, almost, of healthcare services. Today, it's more of a strategy that their efficiency, the size of the organization, their capabilities--both on a hospital basis and as a hospital company--give them the ability as a company to have a dominant presence in a market," he said.
This capital-intensive strategy works for HCA, and it can work for any hospital provider, Chiarelli said. "The key here is to have sufficient capital to be able to execute (the strategy) and by properly investing," he said. "You can't be investing in every perceived demand of every physician and every surgeon. You have to be focused. (That) is essential to delivering not only quality care, but quality care efficiently."
"They have spent at least $10 to $12 billion in capital on renovating, replacing, rebuilding and refurbishing their inpatient facilities and emergency rooms. That is an enormous change to what they did previously," Chiarelli said.
And spend HCA did (See chart). In Texas, the company slated $180 million for an expansion of 553-bed Medical City Dallas Hospital. The area around the hospital is expected to have annual population growth rates of about 8% through 2010, according to John Hill, the hospital's chief operating officer.
The hospital is landlocked, so the only way to expand was up, including an eight-story critical-care tower, a four-story children's hospital and two new parking garages. The expansion also includes 100,000 square feet of office space for physicians.
"There is a huge demand from physicians in the market, but we simply didn't have the availability," Hill said in an interview with Texas Construction magazine. "Office space is the key for our growth. When we put new patient beds online, we need physicians nearby who can take care of them as well."
And naturally, HCA remains active in its home state of Tennessee. In Smyrna, about 25 miles southeast of Nashville, HCA spent $75 million to build 75-bed StoneCrest Medical Center, which opened in 2003 and replaced a hospital that HCA had shuttered in the mid-1980s and replaced with a stand-alone emergency department and diagnostic imaging center.
Before StoneCrest opened in November 2003, Rutherford County, at 200,000 residents, was the most-populous county in the state of Tennessee with only one hospital, said Cheryl Chubbs, vice president of marketing and public relations for HCA's Tri-Star Health System in middle Tennessee. The other hospital in Rutherford County is 199-bed Middle Tennessee Medical Center in Murfreesboro, operated by Tri-Star's biggest competitor, five-hospital St. Thomas Health Services, Nashville.
StoneCrest "completes our circle of the city" of Nashville, Chubbs said. "When we started looking at our numbers, about 60% of the northern part of Rutherford County was driving into Nashville. We looked at those numbers and saw that the population was ready to support a hospital."
Chubbs said that StoneCrest's volume grew by 50% from the first year to the second, exceeding expectations. Specifically, the hospital had about 40,000 emergency department visits, 18,000 outpatient visits and nearly 1,000 births in its second year of operation.
As HCA rolled out its construction projects, the company softened, but didn't abandon, its aggressive business strategies.
HCA has changed the way its handles conflicts with other players in healthcare services, Chiarelli said. "They don't shrink from it (conflict), but they don't handle it the same way. They protect their interests, but at the same time, make every effort to be more community-friendly. They have taken a leading-edge role in the new minimally invasive technology. They are taking a leading role in working with physicians to do those things."
Nonetheless, HCA and physicians don't always see eye-to-eye. Four physicians sued HCA's Eastern Idaho Regional Medical Center, Idaho Falls, last year, alleging that the hospital illegally revoked their admitting privileges to punish them for investing in a competing facility (March 4, 2004, p. 10).
The case was settled in June in a confidential settlement, said the physicians' attorney, David Marx Jr. The parties agreed that the physicians did not engage in any financial impropriety, and there was no financial consideration exchanged in the settlement, Marx said.
Earlier this year, the physician-owned Heartland Spine & Specialty Hospital, Overland Park, Kan., sued the company's HCA Midwest Division, alleging that the Kansas City, Mo.-based subsidiary led a conspiracy to pressure managed-care companies to boycott the specialty hospital (May 9, p. 6). Norman Siegel, Heartland's attorney, said that the case is just starting to move forward now that an amended complaint has been filed.
Willing to talk
HCA's dealings with the advocacy group Consejo de Latinos Unidos offers an example of how it is more willing than in the past to talk but not necessarily give in. HCA executives met with Consejo's executive director, K.B. Forbes, several times, but the company refused to go as far as Tenet Healthcare Corp. did in granting self-pay patients the same rates granted to managed-care organizations (Feb. 3, 2003, p. 8). HCA crafted a policy that reduced the rates it charges self-pay patients, using a sliding scale based on the patient's income, but faces a lawsuit brought in Nevada by lawyers allied with Forbes (June 28, 2004, p. 7). HCA dropped the sliding scale in January after the CMS said that discounts could be offered without regard to income.
Lawyer Bill Fraser, however, would vouch for HCA's efforts to be more community-friendly. Fraser is the director of litigation for the Legal Aid Society of Palm Beach County (Fla.) and also works on many healthcare advocacy cases for the society. Legal Aid is discussing a pilot program with HCA's JFK Medical Center in Atlantis that would open a not-for-profit medical benefits counseling center within the hospital, Fraser said. While many of the details on how it would work have yet to be completed, Fraser said the center could open as soon as the spring.
An outside, not-for-profit agency running the center would be able to spend more time with medically indigent patients to ensure that they have access to care in the most appropriate settings, Fraser said. "We found them to be very proactive and open to suggestion, particularly in respect to win-win strategies," he said.
"Obviously, they're a for-profit chain, and they need to show a profit, but they're very conscious of the opportunity to make a profit while doing good," Fraser said.
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