Columbia building hospital empire

The health-care industry, especially hospital acquisitions and mergers, is perhaps the only industry where supply causes demand, rather than the reverse.Hospital acquisitions, mergers and joint ventures have come on the scene with hurricane force in the 1990s, and the leader of the pack is Columbia Healthcare Corp., formerly Columbia/HCA Healthcare Corp., headquartered in Nashville, Tenn.
Richard Scott, president and CEO of Columbia, has been dubbed the hospital czar by Time magazine and listed as one the 25 most influential people in America.
Today, at age 43, Scott has put together the largest hospital network in the United States, with more than 350 hospitals and more than 120 outpatient surgery centers. It is located in 38 states and has revenues approaching $20 billion. Columbia is ranked No. 14 in Fortune’s ranking of the nation’s fastest-growing companies.
Scott began building his empire in 1987 when he and his partner purchased three hospitals in the El Paso, Texas, area. They shut one down, making the other two more profitable.
Columbia entered the Colorado market in 1994 when Columbia merged with Galen, making them owners of Humana Hospital Aurora and Humana Hospital Mountain View, which had just changed their names to reflect the transfer of ownership from Humana to Galen.
In just two years, Columbia has established itself in Colorado with 10 hospitals, four home health-care agencies, eight ambulatory surgery centers and a large number of clinics and primary-care centers.
In 1995, Columbia purchased Rose Health Care System, including Rose Medical Center, and they completed a joint venture with HealthONE and Presbyterian St. Lukes, Aurora Presbyterian, Swedish Medical Center, Spalding Rehabilitation facility and Bethesda Hospital.
Surveying its domain, Columbia has been able to take a national approach to health care.
“We have over 350 hospitals nationwide, and we are able to take a best demonstrated approach,´ said Jeff Dorsey, president and CEO of Columbia HealthONE and president of Columbia Health Care Colorado Division. “We can look across the country and learn how others are doing things.”
Although Columbia appears to be growing in all directions – this well-oiled machine is not without a game plan.
“We are focusing our activity in Colorado Springs and in the south and southwest area,” Dorsey said. “We are looking at some expansion in Vale and Breckenridge, and we would love to expand to Aspen and to Steamboat Springs.
“We don’t have any immediate plans to expand to Fort Collins,” Dorsey added. “We have had conversations with representatives of Poudre Valley Hospital in Fort Collins just to let them know who we are, but this is just getting acquainted. Nothing is under way beyond introductions. We hold introductory meetings with hospitals, state our mission, goals and values, and we try to stop rumors, whenever possible.”
The reason for the aggressive growth, Dorsey said, is to cut the cost of health care for managed-care providers.
“Eventually, we know that we need to have a statewide network so we can provide a statewide network for payers of managed health-care contracts,” he said. “That is our impetus, our motivation. Health-care financing has dramatically changed the health-care industry. It is important to understand that there are not unlimited resources and managed care has put pressure on health care to bring costs down.”
It is much more cost-effective for companies such as Columbia if they have a huge network of health-care facilities and the trend is to stop duplication of services and to restructure facilities to offer specialized services.
“I do not think that the public wants one hospital that specializes in just one or two things, but we are consolidating our most expensive care,” Dorsey said. “It is cost-effective to take the very expensive services and consolidate those in a single facility such as cardiology and perinatology (high-risk maternity).”
Columbia has gained a reputation for streamlining operations, sharing high-technology equipment and personnel and using economies of scale when contracting for medical supplies, and has implemented other cost-cutting measures.
The strategy has succeeded for Columbia. With the merger of HealthTrust Inc., Columbia expects to achieve an estimated annual savings of $125 million from national purchasing contracts and the reduction of duplicate administrative costs and services within its networks. Columbia provided a total of $1.2 billion in uncompensated care and paid more than $1.6 billion in federal, local and state taxes in 1995.
Columbia’s acquisitions or joint ventures with tax-exempt hospitals have resulted in the creation of community foundations valued at more that $1.6 billion.
However, it is precisely Columbia’s focus on tax-exempt, not-for-profit hospitals that caused some to see this as a potential problem. Nonprofits are the target of acquisition by all the large health-care corporations because they are perceived as a weak link in the hospital chain. Scott was quoted in the Coastal Bend Medicine newsletter last year as saying that the demise of the large, tax-exempt hospitals is no mystery.
“It is intuitively obvious,” he said. They do not have to make a profit and therefore they do not have to concern themselves about cost and that is obviously at the root of their failure. Non-profit hospitals are dying from their own inertia, he said.
An article in the Wall Street Journal in October stated that representatives from 30 states had gathered in Boston this past summer to express concerns about investor-owned hospital chains gobbling up nonprofit hospitals without public scrutiny.
The article stated that California enacted a law to require public hearings when for-profits purchase any part of a nonprofit hospital, and both Nebraska and Michigan are enacting laws requiring financial disclosure on proposed nonprofit takeovers.
The Internal Revenue Service is also looking closely at the divestiture of nonprofit assets. Although the large health-care corporations offer cost-cutting measures, efficiency and appeal to bottom-line economics that insurance companies are demanding – opponents fear that the cost-cutting measures will cut into charity care and preventive medicine.
Charges have been made that instead of reinvesting profits back into patient care, for-profits generate dividends for investors, new acquisitions and executive dividends, and have cut jobs and closed hospitals, the Journal article stated.
Columbia executives have countered by saying that Columbia redirects jobs from hospitals to more home health care.
The debate is likely to continue, and so are acquisitions by Columbia and other large health-care corporations. There are some cases where non-profit hospitals are forming their own groups to cut costs. Whatever the outcome, cutting expenses in health care is the driving force.
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