Originally created 04/27/97

Columbia HCA - Street bully or street wise?



NASHVILLE, Tenn. (AP) - Beth Marshall doesn't know much about Columbia/HCA Healthcare Corp. except that her 3-pound, premature son is being cared for by doctors and nurses at one of its 343 hospitals.

When choosing the birthing center here at Columbia Centennial Medical Center, she had no idea that Columbia is a for-profit company and the nation's largest health care provider, aggressively buying hospitals across the country and sparking a debate about whether the growing segment of for-profit hospitals is good for the country's health.

Nor did the 26-year-old mom and teacher know Columbia is under federal investigation for its operations in El Paso, Texas. The investigation has helped send the company's stock to its lowest point since July 1995 as investors worry that the probe will spread to other Columbia holdings.

"All I care about is getting the best care for Zachary so that he can come home," said Marshall, who delivered 10 weeks early on March 27. "I don't really feel the bigness here. These people are angels."

From where Rep. Fortney "Pete" Stark, D-Calif., sits, Columbia/HCA is anything but angelic. He's called the hospital company, which treats 125,000 people a day, "a giant octopus that is gobbling up American health care."

As a commodity, hospitals are tugged at from both ends: by those who would make a profit from care, and those who recoil when economic decisions interfere with care.

"This is an economic tension that's square-pitted eye-to-eye with a philosophic, moral tension," said Rick Wade, spokesman for the American Hospital Association.

"Everyone's said health care should be more competitive, and Columbia/HCA has brought that to the forefront. But the American public doesn't perceive medical care as a commodity to be bought and sold."

Columbia was born in 1987 when CEO Richard Scott and Fort Worth billionaire Richard Rainwater bought a pair of struggling hospitals in El Paso, and then a neighboring hospital which they immediately closed. Within a year, the remaining two had higher returns.

Against the backdrop of managed care, Scott stuck with that strategy and Columbia grew hospital by hospital. Columbia was still a minor player in 1992, with a mere 24 hospitals and revenues of $819 million. But its 1993 mergers with much larger Galen Health Care Inc. and Hospital Corp. of America transformed Columbia into a $10 billion hospital powerhouse.

Today, the Nashville-based corporation owns 343 hospitals and 147 outpatient surgery centers in 37 states, England and Switzerland. An affiliate operates more than 550 home health businesses.

Ranked No. 47 on the Fortune 500 list, the company lists $20 billion in assets, takes in $18 billion a year and employs 285,000 people - more than either IBM or General Electric. It owns 44 percent of the nation's for-profit hospitals, dwarfing its closest competitor, Tenet Healthcare Corp. of Santa Barbara, Calif. For-profit hospitals make up 15 percent of all U.S. hospitals.

At 44, Scott is one of Time magazine's 25 most influential Americans. A native of Kansas City, Mo., he was an up-and-coming corporate merger and acquisition specialist in Dallas when he founded Columbia. The only businesses he owned previously were two doughnut shops.

But there's a big difference between selling pastries and providing heart bypasses, liver transplants and gallbladder removals. Critics charge that Scott and his entourage can't fathom the distinction.

Scott angered communities in 1993 when he said he would continue buying hospitals, some just to close them down. He particularly riled traditionalists when, after consuming much of the nation's for-profit operations, Columbia turned to nonprofits.

"Columbia has gone into communities, taken over their resources and literally strip-mined those hospitals," said Jamie Court, with Consumers for Quality Care, a Los Angeles-based group associated with Ralph Nader.

Court calls Columbia a "corporate Pac-Man" and "downsizing machine" that puts more faith in bean counters in the accounting office than its doctors and nurses. The patients suffer, he says, frequently losing access to services and receiving poorer quality care.

"Columbia thrives on reducing resources. But we know that's the recipe for medical malpractice," Court said.

First and foremost, Columbia operates like a business, calling patients consumers and health care services an industry. Its corporate mission statement mentions "quality health care" in the same breath with "cost-effective."

The hallmarks of its acquisition approach include a well-prepared and persistent takeover team, unusual speed and flexibility in making the deal, ready access to large sums of money and a reputation for not overvaluing its targets.

Its financial success has hinged on aggressive efforts to eliminate excess capacity and avoid duplicated services, along with volume purchasing discounts, exclusive supplier partnerships and refinancing long-term debt at lower rates.

Scott, labeled "Darth Vader" by some and a "visionary" by others, quietly declares himself a "change agent," doing the dirty work for hospital managers who haven't had the stomach to make the hard decisions.

"We have a system that's sort of messed up," Scott said. But "today there is more accountability in health care than ever before."

Scott appears unfazed by speed bumps recently thrown in Columbia's path.

Authorities aren't saying why FBI agents raided Columbia's El Paso offices March 19, carting off truckloads of patient records and other documents. The New York Times, after a yearlong investigation, reported possible targets are Medicare overbilling and improper investment deals for doctors.

And beginning in 1996, community groups and state attorneys general in Michigan, California, Ohio and other states began to stand up to the expanding Columbia.

Michigan became the first state to use the courts to stop an acquisition. A circuit judge ruled last September that assets of a non-profit hospital, legally formed for charitable purposes, cannot be transferred to a for-profit joint venture.

Attorney General Frank Kelley said Columbia offered to buy two Lansing hospitals for 50 percent of their appraised value and assume their $8 million debt. Proceeds from the sale would go into a charitable fund to be managed by the hospital trustees.

"In my book, it was still buying something for 50 cents on the dollar," Kelley said. "If I offered that to General Motors, they'd throw me out."

Columbia has appealed the decision, but has retreated for now from acquisition activity in Michigan, he said.

In Washington's state legislature, lawmakers have introduced a bill to ensure that public hearings precede sales of nonprofit hospitals to for-profit firms. It also would require the state attorney general to determine if a sale is in the public interest.

"We know that Columbia/HCA is sniffing around several hospitals," said Rep. Eileen Cody, who sponsored the proposal.

But in West Virginia, Columbia has its fans.

St. Francis Hospital was two weeks from bankruptcy in 1993 when Columbia bought the Charleston facility for $56 million, saving 600 jobs in the community, said Sister Joan Kreyenbuhl, vice president of mission and ethics for St. Joseph's Hospital, another Catholic facility in nearby Parkersburg that later joined Columbia.

"If you don't have a margin, you don't have a mission," Kreyenbuhl said.

Still, health care purists struggle to accept comingling between nonprofits and for-profits. They argue that communities, churches and universities, and not the free market system, created these hospitals.

"Community hospitals are public resources; Columbia shareholders are private investors," said Court, of the California consumers group. "Private investors shouldn't be able to dictate to whole communities what their standard of care is."

Columbia counters that for-profits give back to the community by paying taxes, while nonprofits are tax-exempt.

At the same time, critics say for-profits don't embrace the costs of medical care for the poor and the teaching and research missions of university hospitals.

For consumers, the debate is part of the health care revolution. And confusion and anxiety reign.

"People understand that in mergers and consolidations, someone wins and someone loses. They just want to make sure that they are the winners," said Wade of the American Hospital Association.