COLUMBIA/HCA: Downsizing Culminates in 61-Hosp. Spinoff
Columbia/HCA Healthcare Corp.'s two-year streamlining project will "reach its climax" today as the "industry giant spins off 61 hospitals into two new publicly traded companies." Triad Hospitals Inc., based in Dallas, will control 38 hospitals --14 in Texas -- while Nashville-based LifePoint Hospitals Inc. will gain control of 23, the Dallas Morning News reports. "There's going to be a lot of people watching how Triad and LifePoint do as newly public hospital companies," said Dallas consultant Sandy Lutz, who authored a book on the industry giant. "Wall Street is going to hold their feet to the fire. They're going to have to make estimates ... and they're going to have to make money." In the face of declining managed care and Medicare reimbursements, Triad CEO James Shelton predicts a "small net loss this year before turning a profit in 2000," and plans to sell five of the 38 ex-Columbia hospitals early on to reduce its $628 million debt. "The single biggest problem in our industry is the terrible relationships between hospitals and physicians," Shelton said. "One of the things we want to accomplish and differentiate ourselves is making a place at the table for doctors." The Morning News reports that Columbia will continue to focus on markets where its presence remains significant while withdrawing from smaller markets. Triad, by contrast, will target small cities, and LifePoint's focus will be on rural regions where it owns the only hospital. "Columbia shareholders will receive one share of both Triad and LifePoint for every 19 Columbia shares they hold" (Ornstein, 5/10).
Thinner, Humbler Columbia
Despite continued Medicare fraud investigations, Columbia/HCA seems headed toward smaller and better things, USA Today reports. Today's spin-off completes the company's prolonged downsizing from 340 hospitals to 221. The company has also spun off 36 ambulatory surgery centers, a home health care business and "pieces of" its health management company, Value Health -- all told, shedding $4.5 billion in assets. Share price has risen 60% since last October's low of $17. "We've proved that bigger is not always better," said Columbia Senior Vice President Victor Campbell. "We've worked real hard to change the culture. The focus is on local communities."
Although Columbia "remains the USA's largest for-profit hospital company," reductions in Medicare reimbursements could decrease its revenue by $115 million in 1999. The cost of settling federal fraud allegations also looms, with projections running as high as $1 billion. Operating profits remain in flux, having risen 12% to $271 million or 42 cents per share during Q1 1999, immediately following a terrible Q4 1998, with operating profits of just $27 million or 4 cents per share, far short of analysts' 23 cents-per-share prediction (Lowry, 5/11).