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ColumbiaHCA

ColumbiaHCA Columbia/HCA is one of the largest healthcare services companies in the United States. Founded in 1987, the company sought to provide one-stop shopping for managed care providers. In 1996, Columbia/HCA managed 314 hospitals, approximately 7 percent of hospitals in the United States. The company also conducts operations in the United Kingdom, Spain, and Switzerland, and recorded more than 40 million patient visits in 1996. Environmental factors affecting the healthcare industry Access to healthcare is not a legal right in the United States as it is in Europe, Canada and most other industrialized nations. In the rest of the world, access to healthcare is a right for all citizens paid for either by social insurance funds with member and employer contributions or from tax funding. The cost of health insurance and medical care has ballooned; therefore, increasing numbers of individuals have been forced to forego medical care because they could not afford health insurance, or the expense of uninsured medical care. In 1992, there was an estimated 36 million U.S. residents without health care insurance. The predominant demographic issue affecting the healthcare industry in 1997 was the aging of the population. However, culturally, increased emphasis is being placed on healthy lifestyle choices, including both healthy eating and exercising. Politically, President Clinton’s health care reform proposal is an issue of growing concern. The proposal was criticized as being too sweeping and complex in nature, resulting in its failure. The health sector’s share of the U.S. economy has reached approximately 14 percent of the gross domestic product in 1992, and it is predicted to reach 19 percent by the year 2000. The healthcare industry is regulated heavily by the states, the federal government, and municipalities. There are fragmented groups within the health care industry, each of which serve a different need concerning health care. The various groups are most commonly referred to as hospitals, outpatient services, home health care services, nursing homes, and assisted living facilities. Eighty-five percent of the hospitals in the United States are nonprofit entities; the remaining 15 percent are for-profit. Nonprofit hospitals are generally community owned, whereas investors own for-profit hospitals. When patients receive home health care, special services are provided, such as respiratory therapy and the delivery of drugs to the patient’s home. The number of home care agencies increased from 13,296 to 15,037 during the period 1994 to 1995. The primary customer base of home health services is individuals aged 65 and older. Services such as 24-hour assistance, food preparation, and transportation, are provided through assisted living. Assisted living facilities are among the most rapidly growing segments of the health care industry, and consumer expenditures are forecasted to reach $18 to $20 billion by the year 2000. When residents require more care than what is provided through assisted living, they are usually moved to nursing homes. These homes provide resident patients with long-term specialized care. The annual cost per patient for those living in assisted living facilities was $20,000 compared to $32,000 for those in nursing homes. Hospitals’ revenues depend on inpatient occupancy levels, the extent to which ancillary services and therapy programs are provided to patients, the volume of outpatient procedures, and the charges or negotiated payment rates for such services. The healthcare industry experienced an increase in the percentage of patient revenues attributed to outpatient services. These services most commonly included rehabilitation, ambulatory surgery centers, physical therapy, and sports medicine, amongst others. Increased pressures from Medicare, Medicaid, health maintenance organizations, preferred provider organizations, and insurers to reduce hospital stays and to provide services on a less expensive outpatient basis also contributed to the increase in outpatient services. The pressure from government and private programs to reduce costs in the health care industry was intense. Increased cost pressures from groups such as Medicare and Medicaid, lowered the prices that healthcare providers could generally charge, making it more difficult for healthcare providers to remain profitable. Columbia improves their buying power with suppliers by buying up the competition in the healthcare industry. Medical suppliers operate in an industry characterized by fierce competition and substantial governmental regulation. There are two main suppliers in the healthcare industry; Abbot Laboratories, and Baxter International, Inc. Abbot stands apart as the leading industry supplier, with Baxter as their chief competitor. Abbot is a diversified health care company operating in 130 countries, and has a standing reputation for their highly-centralized operating style and their stick-to-business strategy. Columbia also challenges the power of buyers, and is able to negotiate rates easier. The threat of new entrants is low, because there are a few main competitors that dominate the healthcare industry, including Colmbia, Tenet, and Humana. Availability of substitutes is very low, and poses a minimal threat. Substitutes include free clinics, government owned Universal Health Coverage, and Hospice Care. Columbia/HCA has expanded into variuos industry segments, including hospital management, home health care, outpatient surgery centers, and assisted living facilities. Since 1987, the company has established itself as a leader in the healthcare industry, due to mergers and acquisitions. Columbia heavily invested in information systems that would allow them to closely monitor the performance of each of the company’s hospitals and clinics. This technologically advanced development labeled Columbia as one of the three most effective users of information technology in the United States. The company implemented a $200 million information system in 1995. The development allows the company to manage all locations, which means that each location does not have to worry about managing a MIS system. The system offers support system to the entire operations of Columbia/HCA. Columbia established a good relationship with referral physicians, by creating sales for these physicians through outpatient services. The company referred patients directly to these physicians. This process allowed doctors to be part owners, so they have a say in company decisions. The company image of Columbia/HCA was in jeopardy, due to fraud investigations being conducted on the company, its board of directors, and key current and former executives. Federal authorities triggered a chain of reactions throughout Columbia/HCA, when they served search warrants on operations at Columbia’s El Paso, Texas facility on March 19, 1997. Further searches were conducted on various Columbia-affiliated operations on July 16, 1997. At the time, the investigation appeared to be focusing on laboratory billing and home health care operations. Columbia/HCA were later alleged with false characterization of interest payments on certain debt, resulting in overpayments to the hospitals by Medicare and CHAMPUS. The company was also charged with mismanagement that led to stock losses for the state’s public employees’ pension fund. It was claimed that Columbia defrauded the government for years by intentionally inflating the cost of treating Medicare patients by “up-coding” the severity of medical procedures billed to Medicare. Due to fraud allegations, Columbia's stock price sank to 25ľ in October 1997, from 44ľ just eight months previous that same year. During this time, patient admissions fell by an estimated two percent. Columbia encouraged physician ownership in the organization, which of course, raised some legal and ethical questions from consumers and advocates. Potential conflicts of interest created by physician-ownership of medical facilities such as testing labs, operating facilities, and home health care companies created widely divergent viewpoints regarding the medical field. Columbia argued that such ownership provided incentives for physicians to practice economical medicine. Following the resignation of Richard Scott, Thomas Frist became chairman and chief executive officer of Columbia/HCA Healthcare Corporation on July 25, 1997. At that time Frist was Columbia’s largest individual stockholder, with 14.6 million shares, or about 2.2 percent of Columbia stock. However, Frist faces a plethora of challenges that must be overcome if Columbia/HCA is to remain a viable concern within the health care industry. Internal management issues – are the new CEOs able to take advantage of further merger & acquisitions? Columbia/HCA should look more into the home health care industry. This is one of the fastest growing segments of the healthcare industry, because it provides services to patients and their families in their homes. The demand for home health care services is also increasing due to the rising health care costs, because home health care provides a less expensive alternative to hospital stays. Columbia/HCA should also consider expanding into assisted living health care, which is also amongst the fastest growing segments in healthcare. This arrangement is provided to residents of a facility, and it enables them to maintain independent while they carry out their daily activities. For example, some services provided may be light housekeeping, meal preparation and medication reminders. As of September 1997, it remained too early to tell what fines Columbia might face in resolving the federal investigation. It is estimated that fines may approach $1 billion. As discussed in the weaknesses of the company, share price is also going down due to fraud allegations and investigations. Government regulations are increasing, which prohibits Columbia from conducting certain practices. Increasing costs of medical care, and health insurance, means fewer people are being able to afford healthcare. This could not only affect Columbia/HCA, but the healthcare industry as a whole. Patients are being forced to either forego medical treatment, pay the high price of uninsured medical care, or use substitute facilities such as free clinics. The high threat of competition still exists within the healthcare industry, particualry hospital management. The size of the industry is large, and Columbia continues to conduct mergers and acquisitions, which create a decline in the competition. However, the major competitors mentioned in this analysis, still pose a competitive threat to Columbia/HCA. Attractiveness and driving forces in the healthcare industry The healthcare industry is very attractive, because medical attention and care is constantly required. This is a major driving force that keeps the industry going. Technology is another major driving force. New technological advances are being developed and introduced into the healthcare industry everyday. These technologies provide more efficient and effective ways to treat and cure illnesses. Another important driving force in the healthcare industry is expansion. In order to maintain competitive advatages in the industry, companies must expand. Columbia continues to hold the leadership position in the healthcare industry, as the company expands through mergers and acquisitions. Columbia kicked off their merger and acquisition streak on September 1st, 1993. Columbia initiated a series of major acquisitions with its purchase of Galen Health Care, Inc., from industry competitor Humana, Inc., at a cost of $3.2 billion. However, Columbia made a significant transaction on February 10, 1994, when it merged with HCA. At the time of the purchase, HCA owned 97 hospitals and generated approximately $5 billion in annual revenues. In September 1994, Columbia/HCA also acquired Medical Care America, Inc., for $858 million. The key goals of the Galen and HCA mergers were the realization of at least $160 million in annual synergies. Columbia renegotiated with supply contracts, and consolidated various functions. They also created synergy along the value chain, and expanded their regional base. With the purchase of Keystone Home Health, Inc., and hundreds of independently established home care agencies, Columbia continued to expand into all areas of health care. HealthTrust, Inc. was acquired on April 24, 1995 for $3.6 billion in stock. This new addition strengthened Columbia’s delivery network in several markets. With this stronger market position, Columbia was able to reduce operating costs by sharing additional services. The company also acquired Value Health in August 1997, in a stock deal worth $1.2 billion. As a result of regulations limiting the number of home care providers, acquisitions had become Columbia’s only means for expansion into new home care markets. New, substitute companies were posing threats, so Columbia decided to buy them up. Columbia/HCA managed to diversify business by integrating the Medical Care outpatient surgery centers into the company’s existing delivery network. This allowed Columbia to expand the scope of services available in these markets to include low-cost settings for outpatient surgical procedures. The HealthTrust facilities also contributed to Columbia, by adding geographic coverage to the company’s network. Financial Analysis with respect to competitors Columbia/HCA’s major competitors include Tenet Healthcare, Humana Healthcare, Apria Healthcare, and PacifiCare Haelthcare. Both Tenet and Humana operated in several states within each goegraphic region of the United States. Both companies also competed head to head with Columbia in the hospital management field. During the fourth quarter of 1999, sales at Columbia/HCA Healthcare totalled $3.94 billion. This is a decline of 10.8% from the $4.42 billion in sales Columbia had during the fourth quarter in 1998. During the year ended December of 1999, sales at Columbia/HCA were $16.66 billion. This is a decrease of 10.8% versus 1998, when the company’s sales were $18.68 billion. While Colmbia’s sales decreased in 1999, Columbia, Tenet, and Humana all experienced an increase in sales, between 5.4% and 12.7%. Bibliography:

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