by Joe Flower
International Copyright 1995 Joe Flower All Rights Reserved
Rick Scott is tall, gangly, thin, engaging, boyish, with a receding hairline, and a quick smile. His manner is painstaking, ernest, and puzzled by the remarkable things people say about him.
He sees himself as a leader of the nation's true health reform movement. His critics see him and his company as an icon of greed and heartlessness, of all that's wrong with American health care.
Seven years ago Rick Scott had never run a hospital. He had never even worked in health care. He had never run anything in any business except for a chain of three donut shops he owned in college. He was a corporate deal-maker, the kind of lawyer that a buy-out artist would lovingly call a "mechanic."
On the day the stock market crashed in October 1987, Rick Scott and Richard Rainwater each put up $125,000 to start a company called Columbia Hospital Corporation. In 1988, seven years ago, Columbia bought two hospitals in El Paso. By the end of 1989, Scott was running four hospitals. Eighteen months ago, Rick Scott ran a chain of 24 hospitals across the Southeastern United States, mostly in Texas and Florida. Thirteen months ago, he ran 99 hospitals, and the original $125,000 investment had become worth an estimated $89 million. Twelve months ago he ran 196 hospitals linked in a $10 billion corporation, and the value of the investment had grown to an estimated $180 million.
When we interviewed him in late September, he ran, to be precise, 195 hospitals with 44,000 beds, plus 125 outpatient centers, in 34 states, England, and Switzerland, which together employed over 130,000 people - one out of every thousand American workers. In Florida, Columbia outranked Disney, Marriott, Martin Marietta, and everyone else as the state's largest private employer. In a just-published interview, Scott had stated that he hoped to double the firm's size by the end of the decade. Eight days later he announced another merger that took him halfway to that goal: by the time this article reaches print, he will be running over 300 hospitals in a $15 billion congeries that also includes home-health services, surgicenters, clinics, labs, and other health-related enterprises - with 172,000 workers, the nation's largest healthcare provider and twelfth-largest employer, indeed the largest private healthcare provider in the world.
His $125,000 investment has turned into 6.1 million shares of the company, worth more than $250 million. He is 42 years old.
Let's go over the details: how the building blocks of this massive structure came together.
In his Dallas law practice, Scott specialized in healthcare mergers and acquisitions. "I thought that this industry was going to change, and whoever did it, would do extremely well," he says. In early 1987, in his first attempt to become an owner in the business, he and a few partners made a $5 billion offer for Hospital Corporation of America (HCA) when it owned 200 hospitals and managed 300 more worldwide. Those who noticed the offer scratched their heads and joked, "What's he going to do, put it on his Visa card?"
Once he and Rainwater formed Columbia, they were off and running on a steady program of using leveraged cashflow and partnerships to buy hospitals one and two at a time and form networks, first in El Paso, then in Miami. In May 1990 the company went public and merged with Smith Labs, then bought interests in seven acute care and psychiatric hospitals. In 1992, it aquired the four-hospital Basic American Medical, at a cost of $150 million. By early 1993, Columbia was a 24-hospital, $1 billion chain.
In the meantime, Humana had been failing in its attempt to build an integrated HMO-hospital business. Humana's hospital business units were expected to maximize revenues, while the insurance units were expected to keep hospital costs down. When Humana had several hospitals in one area, they competed against one another, rather than cooperating. Doctors were antagonized by Humana's capitation strategy, and other HMOs steered patients away from Humana hospitals, since they saw Humana as a competitor. The Humana hospitals lost business, bed days fell, and the patient mix tilted increasingly toward Medicare and Medicaid work. Early in 1993, Humana threw in the towel and spun off its 75 hospitals as Galen Health Care. The new company faced a long uphill struggle winning back the doctors and wooing the HMOs, without a lot of cash for the fight. So when the young aggressive Scott approached them about a merger, Galen was ready. On September 1, after only six months in existence, the $4 billion Galen merged into the $1 billion Columbia.
Two days after that, Richard Rainwater got a call from Dr. Tommy Frist, Jr., chairman of the onetime giant HCA, now down to 100 major urban hospitals. Rainwater had resigned from the HCA board while the Galen deal was pending, since the new company would be the so large that it would be a conflict of interest to serve on both boards. Now Frist was interested in doing what Scott's credit card couldn't support six years earlier. He had been watching Scott. He had turned down earlier chances to buy Galen himself, preferring to use his cash to pay down the debt HCA had accumulated in the private leveraged buyout he had engineered in 1989. But by the summer of 1993, HCA was public again, Clinton was in office, serious healthcare reform was apparently careening toward passage, and the industry was responding with a sudden burst of consolidations. Frist felt it was time for a more aggressive strategy. "Coming out of my strategic planning process," he says, "I felt that there would be a window of 36 to 48 months in which the large, well-financed, agressive organization that had access to equity (in other words the taxable, publicly-held corporation), would be the most significant player in the reform process. That's when I picked up the phone and called Rick Scott. He was out there putting together exactly the kind of local networks that I envisioned. He was doing it. He had the vision. He had the commitment. And now he had a good group of assets. He was a very attractive partner."
Within one month, HCA had agreed to the same kind of deal as Galen had: a "pooling of interests" merger. Finalized February 10, 1994, the deal produced a $10 billion giant. It was Scott's dream: "I had picked the name Columbia because it sounded good in front of HCA."
Three months later, Scott announced another billion-dollar merger, this one with Medical Care America (MCA), the country's largest chain of outpatient surgicenters, with 96 sites.
That merger was completed on September 16, 1994. Three weeks later Scott announced the most recent merger. HealthTrust Inc. - The Hospital Company, with its 116 hospitals and $5 billion price tag, would join Columbia/HCA, in a deal that both sides expect to complete in the first quarter of 1995. This brought the other big chunk of what had been HCA - the smaller, more rural hospitals - into the Columbia fold.
What's next? A year ago, when Columbia/HCA had 200 hospitals, Scott told Time that "we could have 1000" hospitals within 10 years. His COO David Vandewater predicts 450 within five years. Scott has been known to phone CEOs out of the blue with offers to buy their facility. He often wonders into other people's hospitals unannounced, just to check them out. But the company is running out of big frogs to swallow. It owns five percent of the hospital industry, 45 percent of the for-profit sector. It is three times the size of next-biggest for-profit chain, the merging National Medical Enterprises and American Medical, and some 25 times the size of the third-biggest, Health Management Associates. "My goal," says Scott, "has always been to be opportunistic." But if Columbia/HCA wishes to keep growing, it must increasingly turn its hungry eyes on individual hospitals and small systems - nearly every day a fax comes through telling of a new acquisition, joint venture or management contract - and on the not-for-profit world, what Scott scornfully refers to as "tax-exempts."
Not everyone rolls over and plays dead for him. A. David Jimenez, CEO of Huguley Memorial of Fort Worth, an Adventist institution, says, "They came here a while back. They wanted 50 percent and control, they said, so that they could present a united front to the insurance companies and large employers. I told them first that it's a church institution and not for sale, and second that I would be happy to take any contract they would take, because I'm confident my costs are lower." VHA spokesman Mack Haning says, "For every hospital that says yes to them, 10 to 15 say no."
Scott and his team make no secret of the fact that they expect eventually to become "a major factor in every healthcare market in America." He told a Dallas Morning News reporter: "I want to put [Columbia/HCA] in the position that, whoever the buyer of healthcare is, they only have to talk to us." If he cannot buy his way into a market, he is willing to build, even in areas that already have excess capacity.
People within the company are given the stated task of "stealing share from targeted local competitors." Though he denied it to this writer, in other interviews Scott has stated the company's objective more baldly as "putting the competition out of business."
Every founder of a great corporation has a personal mythology, sayings and incidents picked out of his early life and the founding days of the empire and presented to the press. The icons chosen for this duty tell us a great deal about the corporation's culture, and have astonishing predictive power if we use them as a reference point for thinking about its future.
Rick Scott is just a hard-working kid from Kansas City. According to his mother, if you went to Boy Scout camp with him, he was the boy who would do your chores for a fee. If you were in the Navy with him, he was the young married guy who took correspondence courses and brought cases of soda on board ship to sell by the can for a profit. If you knew him at the University of Missouri, he was the guy in college on scholarships and the G.I. Bill who managed to buy a donut shop with a friend, and put his mother in charge. He and his partner made enough money to buy and sell two more, tripling their investments. After getting his law degree at Southern Methodist University, he was the guy at the law firm who parked his ancient green Monte Carlo among all his colleagues' Jaguars and BMWs. He's just a saving kind of guy - and that's where he got the $125,000 that put him in business with Richard Rainwater.
Today Columbia/HCA's headquarters reflects this. For such a major corporation, it is laughably modest, its '70s-modern eight stories dwarfed by Humana's postmodern monument by Michael Graves two blocks away, or the cigarette giant Brown and Williamson's skyscraper three blocks the other way. Inside, the teleconferencing facilities are state-of-the-art, but the decor looks ordered from an office-supplies catalog, the boardroom conference table is actually three plastic laminate tables shoved together, and the CEO's L-shaped office measures no more 15 feet on the long sides.
Rainwater, Scott's silent partner, is not really part of the corporate mythology, except for the occasional pithy comment. Like Scott, he did not come from a healthcare background. His expertise, and it was deep, was in real estate and in corporate takeovers. Rainwater had made much of his money helping re-shape an American icon - Disney. As chief strategist for Sid and Bob Bass, he had helped guide them through the chaotic 1984 bidding war that ended up as an inside takeover of Disney by Roy Disney, Jr., Walt's nephew. It was Roy Disney, backed by the Bass Brothers, who put Michael Eisner in charge of Disney. Rainwater and Al Checchi, the Bass Brothers' chief financial officer, ended up between them owning 1.5 percent of Disney, worth over $17 million. By the end of the decade that share would come to be worth over $50 million. By 1994, his investments had grown to more than $600 million - more than 40 percent of it in Columbia/HCA stock.
Rainwater has referred to Columbia/HCA as "the Wal-Mart of healthcare," a chain that uses volume buying, strict cost controls, full integration and size to bring the public a full range of services at a decent quality. (Dr. Frist says, "Hey, my family uses WalMart." His family is has a net worth approaching one half billion dollars. "They have very competitive prices and a very consistent level of quality.")
Columbia/HCA's basic strategy is simple to describe, complex to execute: buy up hospitals, surgicenters, and other providers within a given area to put together a seamless, integrated system. Add other providers through joint ventures or management contracts with this goal: No doctor or patient should have to go to the competition because the Columbia/HCA facility is too far away, doesn't have the skills or equipment, is too low quality, or is too high-priced. Centralize the administration of all these providers, so that they cooperate, rather than compete with each other. Compete on price, as an integrated system within each market places, for contracts with all buyers of healthcare. Woo doctors by offering them the chance to become equity partners in the company's operations in their local markets. Give a similar incentive to local management by giving equity opportunities to the CEO, COO, CFO and director of nursing. Where there is too much capacity, buy up competitors and simply shut them down.
According to COO David Vandewater, historical federal subsidies (such as Hill-Burton and cost-plus Medicare) made healthcare "a very lazy industry."
"This is an industry that's capital-intensive, but a lot of that capital is wasted," says Scott. "Patients should go to a facility that can generate enough volume to to reduce the cost of providing that care. There's no communal spirit except through co-ownership. We can work together to direct the volume."
As an example of volume buying, Scott mentions hip implants, which cost from $1200 to $6000. He intends to use the company's leverage to cut the price in half: "No one has ever bought the amount of supplies that we buy. No one has ever committed to volume the way we are willing to commit."
The company's cost-cutting strategy has a number of parts. They include:
Some not-for-profit executives vigorously dispute Scott's touting of the efficiencies of the for-profit model. Pat Poston, a senior vice president at Sun Health, says, "Right now we are seeing a lot of hyperbole about proprietary involvement in healthcare. We have yet to see real data. We all like to see leaders who say what they are going to do and do it. I'm not sure we've seen the second part of that. One of the myths in healthcare is that proprietaries are greedy. Another myth is that not-for-profit executives can't manage their way out of a paper bag. We are way beyond simply trading volume for price. That's Group Purchasing 101 around here. We're into the second and third generation of this, getting into supply chain management, standardizing our supplies across the entire group, and finally re-designing every process in the path of care so that we use fewer supplies and pharmaceuticals. That's a lot harder than negotiating contract. Price cuts from volume buying will not represent a sustainable competitive advantage for Columbia/HCA. Sun Health and other not-for-profit groups will not allow it to be."
Poston points out that healthcare managers are getting smarter, that those on the for-profit and not-for-profit sides went to the same schools, and in fact often trade back and forth between sectors. Scott's main guide in hiring is what he calls the "no jerks" rule: "If someone comes to work - whether they're the smartest individual in the world or not - they need to treat everybody around them professionally or they can't be successful." He tells the Columbia/HCA troops to ask questions: "You ought to be the squeaky wheel. If we're not doing something right, complain. It could effect your life."
Scott expects "absolute accountability" from his local executives, but gives them considerable autonomy: "We don't dictate much of anything from the corporate office. You can't do that." Instead, each region or metropolitan area has a single management team to "act as a unit, spend capital logically and be one voice with managed care - no matter who the buyer is."
It is, of course, far too early to say how effective the strategy can be in running vast numbers of institutions across the nation. The rapid growth of the company means that very few of the aquired institutions have been part of it for more than two years, a very short time in the evolution of corporate cultures. And system strategies don't necessarily scale up in a linear fashion: "more" is not just more of the same, it is different.
Still, the strategy seems to be working so far, if the measure is the health of the corporation and the viability of individual institutions. While admissions to many hospitals - including many acquired by Columbia/HCA - are falling as much as five percent per year, "same-store" comparisons in the Columbia/HCA system show admissions actually rising steadily at about two percent per year. In fact, hospitals that were with Columbia before the Galen merger - those that have been longest under Scott and Vandewater's management - show year-to-year admission increases of six to nine percent. At the same time, "same-store" outpatient visits grew by 52 percent between 1993 and 1994. Operating margins run at a comfortable 20 percent per year, cash flow is strong, and long-term debt is 41 percent of capitalization. The company's Moody's ratings, which ran at the B- level before it bought Galen and HCA, now are at AAA. Wall Street analysts' reports on the company are uniformly positive. Columbia/HCA's story and prospects drive these normally cautious writers to the edge of poetry.
Nor, apparently, is cost-cutting Scott quite the Attila the Hun that his detractors seem to expect. In the tens of thousands of lines of trade and popular press scanned for this article, there are many complaints are about the company's penchant to close underused hospitals, but none about deep-cut layoffs, understaffing, or letting a facility run down. Medical Economics quotes a geriatrician, Charles Herrera (not a Columbia/HCA investor) as saying that since the company took over University Hospital near Fort Lauderdale, Florida, it has installed "a professional, first-class support system." Other physicians, investors and non-investors alike, credit the company with a turnaround in staff relations, with re-investing in the facility, improving its image in the community, and buying new equipment in a timely manner - "a tremendous change," in the words of one, from the previous management.
But if the company's financial performance and management focus are strong, its impact on its competitors and on the citizens of the markets it moves into can get rough. Scott's aggressiveness increases the speed of change in every market he enters. As Princeton health economist Uwe Reinhardt expressed it to the New York Times, "Whenever he is riding into town, the hospital people are soiling their diapers." In Dallas, to take one small example, everyone agrees that there is too much capacity, that the city has too many hospitals, that some will close within the next five years. Columbia/HCA already owns nine facilities in the North Texas market, but does not yet feel that it has a complete system in the area. When Methodist Hospitals and the Irving Healthcare System both rejected the company's overtures last fall, Scott let it be known that he intends to expand in the area anyway. The company already owns a surgicenter just down the street from Irving, and may use that as a base for building something bigger.
Yet Reinhardt's remark may not apply to everyone, even in the Dallas/Fort Worth "Metroplex" market. "They don't concern me, really," says Huguley's Jimenez. "As long as Huguley is careful about its costs, passionate about its quality, and interested in its customers, the threat of a serious impact on our market is just not there. They don't have any hope of controlling the Metroplex market, which is dominated by organizations like Baylor, Harris, and Presbyterian. Besides, when you're part of an organization like Adventist that has been doing healthcare for 100 years, the latest for-profit push doesn't tend to bother you as much. These things come and go."
But Columbia/HCA's speed and pragmatism do tend to stir up emotional storms in the communities in which they close facilities or consolidate operations. This was vividly illustrated by last year's "Destin incident." Destin, Florida, sits on a tiny white-sand barrier island connected to the Florida panhandle by two narrow bridges. It had one hospital, running at 30 percent capacity. There are two other hospitals, both owned by the company, within 20 minutes drive. On paper, the logical, efficient thing to do would be to buy the local hospital and shut it down, or turn it into a clinic, and beef up the volume of the other two hospitals. And that is what the company did, with David Vandewater commenting, "You can't have a hospital on every corner." The company held onto the state license and certificate of need, because it didn't want anyone else coming in and re-opening it. It wanted the hospital closed and capacity reduced. The local furor was enormous. Local merchants and real estate investors saw the closure as a big blow to their plans for growth. Vandewater dismissed the pressure as a squabble not over health care, but over property values. In practice, on the ground, the drive from Destin to the nearest hospital can stretch to 40 minutes or more on crowded weekends. During storms the access can be completely cut. For many of the retired people on the island, the comforting presence of a hospital definitely figured in their decision to settle on Destin. Protests, political pressure, and a suit eventually forced Columbia/HCA to put the building and its license on the market.
Local board members, physicians, and doctors often deeply distrust Columbia/HCA's promises. One local board member, who wished to remain anonymous, said of the future that Scott painted for them if he could buy their hospital: "Have you ever read Mein Kampf or The Communist Manifesto? Hitler and Marx can paint lovely futures. If you didn't know how it worked out over time, you could almost believe them."
Last fall, the elected board of Tampa General Hospital ousted the institution's CEO, David Bussone, when he seemed too eager to sell the asset. Tampa General is a major teaching institution with a Level One trauma center and a burn center, considered by many to be the only hospital of that level in the area. It is also two-thirds empty and in deep financial trouble. Board member Fred Kanter, a local businessman, describes Scott as "impressive" and "dangerous" because "he'll charm the pants off you." He says, "I have gone through these books line by line. If Scott were to take over this hospital and run it purely as a business proposition, the only way he could make it work would be to eliminate the community service mission. What if I had a heart attack, and the Level One trauma center is not available anywhere in the area because it wasn't profitable? I would just quietly die. That would be very economically efficient. Two thousand dollars in burial costs is a lot cheaper than $100,000 of surgery, or keeping a trauma center open. It would be very economical, and very inhumane."
This distrust, which appears in community after community, especially in institutions run by churches or by elected boards, is one of the greatest obstacles in Scott's way.
Rick Scott has a very clear philosophy about the business he is in, far clearer than many people in the industry - and far different from most. He sees it as a business, and he sees both social good and corporate profit in running that business efficiently. Running healthcare efficiently, he feels, would be more than enough social good for any one industry.
Scott sees managed care as a tool: "It can help us create efficiencies by driving more volume to our facilities." He is dismissive of capitation, indeed of any framework that would put Columbia/HCA at risk for the health of populations: "We just don't see it growing." Vandewater refers to capitation as a "California fad."
Scott is equally dismissive of federal legislation: "The changes that are going on in this industry generally are happening because employers are saying that their healthcare costs are too high. They are saying, 'How can we restructure the system to get our costs down?'"
He has vigorously opposed nearly all types of healthcare reform, except for insurance reform, tort reform, and small business purchasing coalitions.
When asked about universal coverage, Scott likes to relate a story from an unnamed European newspaper about a woman in crippling abdominal pain who was told she would have to wait 18 months for an appointment with a gastroenterologist. "That is the inevitable result of universal coverage and price controls," he says.
There is, of course, nothing inevitable about it - a year and a half for an appointment with a specialist is hardly the norm for countries with universal healthcare. Nor has any other country in the world engaged as deeply as American healthcare has with the kinds of process control, benchmarking, and quality management that has so dramatically slowed hospital inflation here in the past few years. In our present system in the United States, of course, such a tale could be matched with many tales of needed treatment denied by overzealous care managers. Here, the woman could have seen a specialist relatively quickly, if the care manager approved of the visit - and if she was not one of the one in six Americans who are uninsured. Then she would get no appointment at all.
At the core of the Columbia/HCA world view is an extremely narrow definition of the task they have taken on. As David Vandewater puts it, "We are not in the health care business. We are in the sick care business."
Scott, Vandewater and Colby uniformly bristle at any suggestion that they might take a broader social role in building a healthier society. They counter such suggestions by pointing out that, in 1993 (the last year available at this writing), out of revenues of approximately $10 billion, the parent companies that now make up Columbia/HCA paid $750 million in federal, state, and local taxes (unlike their not-for-profit competitors), and provided another $750 million in uncompensated care. ("Nobody can walk into any other business that might be perceived to be a necessity," says Scott "whether that's food, transportion, or housing, and say, 'by the way, because you are in business in this industry I want six percent for free.' But in this industry that goes on every day.")
They deny any corporate strategy of shifting the uncompensated burden to the competition. "In fact," says Scott, "when we buy a hospital we commit contractually that we will do the same amount of charity care that they were providing, on a continuing basis." Vandewater adds: "We can do that because, generally speaking, tax exempts don't do as much uncompensated care as we normally do. So it's no big deal. That's just a cost of doing business. That's the industry we're in today. Everyone has to come to grips with that."
Seen through the lens of Rick Scott and his close associates, not-for-profits are competitors who pay no taxes because of a promise of public service, a promise that often amounts to little or nothing in practice. They call for a level playing field on which not-for-profits would be forced to prove that they provide free services beyond what a for-profit would, equal to the amount of taxes that they would have to pay, or that would allow any institution that set aside a sufficient percentage of revenue for research and uncompensated care to be tax exempt.
A 1992 GAO report shows that such characterizations ring true for at least some not-for-profits. In New York, for instance, the study found that only 71 percent of not-for-profit institutions gave uncompensated care equal to the value of their tax exemptions, and in California only 43 percent.
Yet people in the not-for-profit sector balk at Scott's and Vandewater's characterizations. For instance, Daniel Bourque, former deputy administrator of HCFA, now senior vice president of information and research at VHA, says, "I guarantee you that a truly comparable uncompensated care figure would be higher for not-for-profits. Every study I have seen show that the for-profit sector simply does not match the not-for-profit sector in what it returns to society. In every state where not-for-profits have been made legally accountable for their charity care, the benefits they provide far exceed the value of their tax exemptions. The real question is: How many for-profits provide a set of services that are inherently unprofitable, such as trauma care, neo-natal intensive care, transplantation services, and high-risk OB?"
Columbia/HCA officials point to hospitals they run which provide exactly such services, often under contractual promise to continue them, such as the University of Louisville Medical Center. And it can be difficult to pin down the question of who provides the most free care. For a taxable organization, "charity care" is a deduction from gross revenues, and is not much different from "bad debt" - except that the organization may want to try to collect, which turns it into "bad debt," a deductible business expense. Not-for-profit organizations, on the other hand, especially those with a Hill-Burton obligation or some other legal requirement for charity care, have some incentive to treat financially questionable cases as charity care, rather than bad debt. These opposing incentives tend to skew the statistics. According to the AHA Annual Survey for 1992 (the last year available), the nation's 5292 community hospitals (for-profit or not) performed $14.7 billion worth of uncompensated care (bad debt and charity care) - 5.9 percent of total expenses. The combined annual report of Columbia and HCA for 1993 shows 5.4 percent of revenues ($542 million) set aside for "questionable accounts" - bad debt. According to CFO David Colby, the company took a $214 million charge against gross revenues in 1993 for straight charity care, which brings their overall uncompensated care to $756 million, or eight percent of total expenses.
Jimenez, of the Adventist Huguley Memorial, says, "The idea that not-for-profits don't deserve their status just isn't true. Their contribution greatly exceeds the value of their potential tax liability - and it goes way beyond uncompensated care. We have a 12,000-member fitness center, a tremendous outreach program, a mobile seniors clinic, a deep community health orientation that wouldn't be there is we based our decisions on business factors alone.. They have to be subsidized by the hospital. The for-profit side has a different motivation. I choose to be in a not-for-profit environment because I believe there is more to healthcare than profit. At Adventist, we look on it as a commitment in terms of decades and centuries."
One more major question remains unanswered - and unanswerable for the moment: whatever Columbia/HCA's current practice in taking its share of the uncompensated care, how might that practice change as the company continues to grow, as it comes to dominate particular markets, as it becomes increasingly difficult to squeeze steady revenue growth out of increasingly discounted markets, as the company faces stockholder pressure against any downturns? Only time will tell.
All Columbia/HCA officials interviewed pointed with pride to their pending affiliations with such major teaching institutions as Tulane University Medical Center in New Orleans. They portrayed these partnerships, and others involving major not-for-profits such as Rapides Medical Center in Alexandria, Louisiana, as acceptance by important parts of the not-for-profit establishment.
Negotiations with Emory eventually came to nothing, but Emory officials say that they had no problem with Columbia/HCA's for-profit status, its aggressive stance, or its corporate culture. Rather, the company was growing and changing so fast that they had no sense of security that the entity they signed with would be the same entity in a year or two.
At this writing, the Tulane deal has not closed, but Tulane University Medical Center Chancellor John LaRosa says, "We have no problems with Columbia/HCA's reputation for quality, or with the fact that they are run for profit. You would have to show me the evidence that the behavior of for-profits and not-for-profits is significantly different. Recent studies show no difference in behavior. We did a study when I was with George Washington University Hospital. We looked for differences in behavior between the two groups, and we couldn't find any. It may be sad, it may take away some people's cherished belief, but the fact is that hospitals are in business. No hospital survives by losing money. I think the difference between the two groups is going to disappear." People are afraid of Columbia/HCA simply because "they're very big and acquisitive." As for the company's alleged instability, "That's true of any partner you might want to take on. That's the nature of the industry in the '90s.
The controversy over uncompensated care ties into another controversy over Columbia/HCA's practice of allowing doctors to become minority shareholders in their local marketplace. In Florida, the company had to fight an attempt to extend the law against self-referral to ban physicians from referring to hospitals in which they had invested. Some of the company's opponents argued that the physicians would only steer lucrative cases to the company, and send charity cases elsewhere. In response the company commissioned a study by Health Management Decisions, Inc., of St. Petersburg. The study showed that doctors who are equity partners in the company's hospitals tend to bring in more uncompensated business, simply because it is more convenient than trying to take it elsewhere. "This is logical," says Scott. "Our job is to work with whoever our customers are. . . . If it's a doctor, how can we help the doctor be more successful? For a physician to do well financially they have to get more efficient, and reduce their time commitments. One of the biggest time commitments is going to various hospitals. Because we have managed care contracts, the right equipment, and the right employees, we can get more of their patients in our facilities, and they have to go to fewer facilities. I can't say to a physician, 'I want to make you more efficient but, by the way, I don't want these type of patients.' I have to take all comers."
Scott and his colleagues dismiss all suggestions that creating a healthier population might in any way become good business for them. ("I don't believe," says Scott, "that our patients want us to go spend money that is going to increase their costs of healthcare to try to change how everybody lives." "I do believe," says Vandewater, "that is why we pay taxes.") They are in the business of filling beds, providing space for doctors, renting facilities and equipment, selling supplies. They make money from volume. They believe that they can do that task more efficiently and profitably than many of the people now doing it, and they have some track record to show that they may be right. They have no interest in - and apparently little understanding of - the deeper meaning of health, what a healthy society might look like, how they could make a good business out of helping to create that healthy society, and what it might mean for America if they did.
What's it mean for American healthcare?
"This is the most interesting industry in the country," says Scott. "It has more change, more chaos, more problems, and absolutely more opportunities. There is no better time to be in this industry. This is fun."
Let's suppose, for a moment, that Columbia/HCA's every future move is as successful as the ones they have made so far. Let's suppose that, say, within a decade, Scott has built or bought an integrated network of significant competitive size in every market in the country. What will that mean for healthcare in America?
It is, of course, impossible to tell. But we can take some good guesses: Scott's success will tend to exaggerate and accelerate the trends in healthcare that mirror his strategies. It will impede trends that do not. As Columbia/HCA pursues a strategy, competitors will feel compelled to follow the same strategy, to compete on the same ground. Any player the size of Columbia/HCA has a certain ability to define the rules of the game, and how you keep score. "When WalMart goes into a town," says CFO David Colby, "the whole retail business changes in that town. When we enter a health care market, that market seems to change a lot in terms of people lining up sides and networking." Vandewater adds: "When we go into a market, we are going to drive down the cost of providing service in that market."
Managed care as a tool to guarantee volume, consolidation into integrated networks with a single owner, closing low-volume facilities, cost-cutting, saving on labor costs by shifting tasks down-scale - all these are industry-wide trends that Columbia/HCA's aggressiveness will accelerate. Capitation (and other forms that put providers at risk for the health of populations), universal access to care, prevention as a business opportunity, creating a greater level of health and well-being as the mission of healthcare - all these are possibilities with which Scott and his colleagues have little empathy.
If Scott is successful, the influence of an aggressive, fast-moving, well-financed Columbia/HCA will increase the probability of a future scenario in which healthcare in America is more efficient, costs are brought under control, and all the big players (employers, governments, doctors) are happier because everything is less chaotic, more business-like and cost effective - but healthcare is still sick-care, still looks at the health-destroying waste and devastation in American communities and says, "That's not my job."