During the Great Recession, when many hospitals across the country were nearly brought to their knees by growing numbers of uninsured patients, one hospital system not only survived — it thrived.
In fact, profits at the health care industry giant HCA
, which controls 163 hospitals from New Hampshire to California, have soared
, far outpacing those of most of its competitors.
The big winners have been three private equity
firms — including Bain Capital, co-founded by Mitt Romney, the Republican presidential candidate — that bought HCA in late 2006.
HCA’s robust profit growth has raised the value of the firms’ holdings to nearly three and a half times their initial investment in the $33 billion deal. The financial performance has been so impressive that HCA has become a model for the industry. Its success inspired 35 buyouts of hospitals or chains of facilities in the last two and a half years by private equity firms eager to repeat that windfall.
HCA’s emergence as a powerful leader in the hospital industry is all the more remarkable because only a decade ago the company was badly shaken by a wide-ranging Medicare
fraud investigation that it eventually settled for more than $1.7 billion.
Among the secrets to HCA’s success: It figured out how to get more revenue from private insurance companies, patients and Medicare by billing much more aggressively for its services than ever before; it found ways to reduce emergency room overcrowding and expenses; and it experimented with ways to reduce the cost of medical staff, a move that sometimes led to conflicts with doctors and nurses over concerns about patient care.
In late 2008, for instance, HCA changed the billing codes it assigned to sick and injured patients who came into the emergency rooms. Almost overnight, the numbers of patients who HCA said needed more care, which would be paid for at significantly higher levels by Medicare, surged.
HCA, which had lagged the industry for those high-paying categories, jumped ahead of its competitors and was reimbursed accordingly. The change, which HCA’s executives said better reflected the service being provided, increased operating earnings
by nearly $100 million in the first quarter of 2009.
To some, HCA successfully pushed the envelope in its interpretation of existing Medicare rules. “If HCA can do it, why can’t we?” asked a hospital consulting firm, the Advisory Board Company, in a presentation to its clients.
In one instance, HCA executives said a private insurer, which it declined to name, questioned the new billing system, forcing it to return some of the money it had collected.
Let me speculate here: Might Romney’s tax returns for the few years preceding 2010 show an interest in the Bain fund that continues to own a large share in HCA even though HCA went public last year?*
*The New York Times article explains:
In the spring of 2011, in one of the most closely watched public offerings since the financial crisis, HCA became a public company once again. Its three buyout owners each sold another $500 million worth of stock, allowing them to recoup all their initial investment.
Last fall, HCA agreed to buy back the stake held by Bank of America, which had purchased Merrill Lynch in 2009, for $1.5 billion, giving the bank a return of two and a half times its initial investment. And earlier this year, HCA paid out $900 million in dividends, of which $360 million went to K.K.R. and Bain.
The 40 percent stake in HCA still held by K.K.R. and Bain is worth about $4.8 billion at current levels, giving them a potential profit, with the dividends they have received, of three and a half times their initial investment of $1.2 billion each.