HOSPITAL CORPORATION OF AMERICA

Hospital Corporation of America

Hospital Corporation of America

Introduction

Hospital Corporation of America (HCA) is propriety, hospital management company founded in Nashville, Tennessee in 1968 with only one, 150-bed hospital and then grew to become the nation's largest hospital management company. As of 1981, HCA owned or managed 349 hospitals in the United States and overseas.

During the 1970s, HCA achieved its growth by acquisition of existing hospitals and construction of new ones. During the period of 1968-1981, it constructed 70 new and replacement facilities and acquired or leased the remaining 279 of its hospital. Each year HCA evaluated many potential acquisitions and areas for construction, with the criteria for selection including the target community's need for health care services, the quality of the target hospital's medical staff and personnel, the population growth pattern in the area served, the facilities' suitability for future expansion, and the hospital's overall financial position.

Although HCA's operation generated substantial cash for reinvestment, still it needed external financing for its ambitious construction and acquisition program. In early stage of development, external financing were mainly from revolving credits to finance hospitals under construction, industrial revenue bonds and privately placed, long-term mortgage loans fro insurance companies funded completed hospitals and acquisitions. Other sources were difficult to tap at first, due to the newness of propriety hospital industry and the small size and short track record of HCA, and the poor image of hospital management companies at that time. However, HCA could finally manage it as the industry matured, and HCA's strong performance became recognized.

Strategy analysis

Since its establishment, HCA's growth has been contributed by acquiring hospitals, constructing new ones, expansion of services, and the signing of new management contracts. Similarly to any other businesses that new markets are to be developed by developing a supply chain to service that area and building a customer base, but in this sector HCA had to send more substantially comparing with other industries. It meant a more substantial investment in capital to purchase equipment, acquire other hospital management corporations or to build new hospitals.

New construction and acquisition activities of HCA have been quite aggressive and they had to work it out carefully for such new facilities to generate a required return and most profitable. Roughly 40% of HCA's U.S. facilities were only the hospitals in their areas. Such strategy helped HCA to gain impressive revenues year after year in steadily manner, started at $172,650 in 1972, $506,484 in 1976 to $2,406,472 in 1981. Net profits also grew steadily in the same fashion proving that HCA has been doing very well as a business and their performance shows the effectiveness of their business strategy.

However, beginning the business like a real-asset company for sometime with substantial investment in hospital construction, HCA's strategy has been proved to be effective, but in the long run a change in this strategy is foreseen. As the whole scene was stated by Bill McInnes - Vice President of Finance "There is a feeling here that we must be prepared to ...