Image source: HCA TodayBlog

HCA Healthcare: The Rising Story of One of the Wealthiest Nashville-Based Behemoths

HCA Healthcare, an American for-profit operator of health care, was founded in 1968. Over the years, the company experienced continuous profit growth. Let’s discover the origin as well as the successful keys of this company.
By Iris Cao | 9 min read
on October 4, 2020
Image source: HCA TodayBlog

The story began with Frist, a 29-year-old respected doctor in Nashville. This man was working in sickbay at Robins Air Force in Georgia and at the same time, a war raged in Vietnam. Frist planned to return home to Nashville and keep on with his father’s footsteps. Yet the time in the military gave him a chance to think and two different futures were waiting for his decisions. 

He believed his destiny had been medicine since he was young. But simultaneously, he was also attracted by the world of business. Sometimes he got some dreams of building a company all from the start, yet those dreams had not gone unnoticed.

Frist's desire to open a business had been more encouraged by a close friend of his father, Jack Massey. In fact, Jack was a legendary businessman who had purchased Kentucky Fried Chicken in the mid-’60s, then turned the restaurant into a massive chain. And Jack indeed wanted Frist to embrace his ambition for business and lead the new venture. 

To urge the young doctor to choose, Jack sent a letter to the airbase in the summer of 1967, asking “Chicken, beef or medicine”, the message said. “Make your decision soon.”

Frist eventually came up with a better idea. 

HCA Healthcare’s Humble Beginning 

HCA founders
Image source: HCA

One year later, an ambitious company in Nashville called Hospital Corporation of America was launched by Massey, Frist, and his father, Dr. Thomas Frist Sr. And this company was built under the new idea. With his interests in business and medicine, Frist Jr. was also motivated by the strategies of KFC and Holiday Inn. He tried to build HCA under the same model which was to consolidate the administration of multiple hospitals under one corporate umbrella. 

Frist Jr., now 80, the only alive HCA founder, shared that: “HCA was my idea, combining with Massey’s expertise, Wall Street’s credibility, and my Dad’s vision and reputation. We joined together at the right time, right place, which was Nashville, Tennessee.”

He added: “It was chemistry, and it is where the history began.”

HCA Healthcare’s Operation after 50 Years

50 years later, Frist’s idea has grown up and been so successful than he could have ever imagined. HCA Healthcare is considered as one of the largest hospital chains in the U.S. It has also become a Fortune 500 company and the initiative in medical innovation. The corporation owns more than 180 hospitals with 38,000 doctors, 87,000 nurses, and about 250,000 overall employees, according to the company. Officials are proud of themselves in a statement that HCA hospital oversees one in every 20 babies born in the U.S.

Over these five decades of development, HCA has planted the roots in Nashville that have sunk deep. Experts described HCA as the very core of Nashville’s health care industry. While most people might know the city for its country music, the entertainment industry is indeed dwarfed by the health care business. Nashville Health Care Council announced that nearly 800 health care companies span over the city and they make annually the revenue of approximately $40 billion. 

Several of those companies are HCA’s children or grandchildren. And some are its competitors or partners. But in either way, almost all of them are in Nashville because of HCA. 

Milton Johnson, CEO of HCA for 36 years, assumed that: “Nashville would have been a much different city nowadays if HCA weren’t here. The ecosystem of health care created by HCA is unique, over the past 50 years, the growth of that ecosystem and Nashville have gone hand in hand.”

Hayley Hovious, the president of Nashville Health Care Council, believed that city’s health care industry had the founding starting from HCA. Over the years, the development of the company has powered the city to follow. When HCA went bigger with activities like buying and building hospitals throughout the nation, the natural gravity of the company certainly attracted other businesses to the city. 

Thus, it can be said that Nashville was home for not only the hospital companies but also hundreds of indirectly related businesses. Those could be law firms, accountants, public relations firms that operate almost exclusively in the health care industry. 

HCA’s ambition of leading the medicine industry

A kid patient in HCA hospital
Image credit: HCAtodayblog

In a series of interviews with The Tennessean, HCA executives emphasized that with the phenomenal growth, the company could utilize its expansive network of hospitals to improve the quality of medicine in ways that are quite impossible for smaller companies. 

HCA’s chief medical officer, Dr. Jonathan Perlin, pointed out two examples of HCA’s dedication to the medicine industry. One was a pregnancy study in 2007 and the other one was a hospital-acquired infections study in 2010. In both cases, HCA took the data from its millions of patients, conducted several types of research, and came up with the findings that changed the medicine throughout the country.

In the pregnancy study, HCA studied close to 18,000 births at 27 hospitals which took them nearly three months. The study aimed to assess the risks of inducing labor for non-medical reasons in the final weeks of pregnancy. The study findings upended the common belief that inducing labor after 37 weeks would cause no risk, yet indeed these babies were four times as likely to receive intensive care than the babies born two weeks later. 

A few years later, HCA continued with their research. But this time they tried to invent new strategies for preventing MRSA, a hard-to-treat infection that is known for commonly spreading among hospital patients. The company used dozens of hospitals’ different strategies and compared them. The result was astonishing when they could combine antibiotics and anti-septic sponge baths, which has cut infections by about 40 percent. 

HCA policy later involved the findings of both studies. They are even accepted as an industrywide standard. Perlin stated that a single hospital could have developed either of these innovations, yet to study so many patients as HCA did, it would have taken them ages. 

“It was not a single hospital that took 64 years to get the data. It was 43 of our hospitals and we did it in 18 months,” Perlin shared about the MRSA study. “We had a unique ability which is to use the scale to learn and improve more quickly and this has contributed not only to the patients of HCA but to the understanding of medicine overall.”

What Are HCA’s Keys to Succeed over Half a Century?

As the largest health system with several hospitals and thousands of other facilities, HCA corporation has a greater advantage than others by being able to spread the expense of back-office functions. 

The big size and dominant market share have also enabled the company to negotiate higher prices from health insurers. Moreover, as it has been developing, the company could generate more cash which allows it to invest in buildings, equipment, and clinical research while other smaller health systems or stand-alone hospitals do not have enough capital to do so. 

The experts in the industry believed that over HCA’s 50 years of growth, the company’s executives have played a very important role. They are not only good at the day-to-day running of hospitals but also understand changes in the broader healthcare landscapes. The founder, Dr. Thomas Frist Jr. said, “It is about execution, and getting the right people to execute that well-thought-out business plan, plus the world changes, so being entrepreneurial and flexible should be prioritized.”

#1: Focus on growth

overall building of an HCA hospital
Image source: HCA

Undeniably, being big was always HCA’s goal. As mentioned, in 1968, their start was humble. Yet with the collaboration of Frist, his father, and Jack Massey, they managed to turn the company from a 200-bed hospital in Nashville to the behemoth it is today, which, according to the company, represents 5%-6% of all U.S. healthcare spending. 

From the beginning, HCA already knew how to grow their business faster by buying up hospitals and building new ones since the demand got higher after the creation of Medicare and Medicaid. It has had periods known for organic growth or fast-paced mergers and acquisitions. The company has gone private and yet turned back to the public at times when valuations were most attractive. In the end, it could survive one of the industry’s largest fraud investigations which have even strengthened its reputation as a well-oiled, well-managed corporate machine. 

#2: Blocking and tackling

HCA focuses on blooming markets, in which there is population growth, and the unemployment rate is low, importantly, the demand for healthcare is rising. When expanding into new territories, HCA often keeps its eyes on these areas where it will dominate in terms of the market share. As a result, it could leverage into negotiating power to receive better rates from the insurers. 

Brian Tanquilut, an equity analyst in Nashville, said, “HCA wants to see itself in the position of number 1 or 2 player every market they go into. In other words, they are very methodical, and they stick to a strategic playbook.”

overall building of an HCA hospital
Image source: HCA

In addition, HCA also makes sure that its hospital leaders are equipped with the necessary tools to drive change in the market, for example, the technologies to help understand what necessary staffing levels are and what patient volumes will look like. 

These investments are possible to HCA since it generates a lot of cash. Through its internal revenue-cycle management business, HCA is proficient at collecting payment from patients for services and making sure that health plans should pay up. In 2018, while other hospitals are pulling back on investments with the hope of paying off the debt, oppositely, HCA could have generated $2.5 billion in free cash flows after investments. 

What is more? The analytics also point out HCA’s ability in setting prices. 

“They are absolutely the leaders in maintaining discipline with their cost structure. To get there, they are backed up with the world-class analytics helping them to know where and when they can successfully raise prices, down to the smallest unit,” according to Paul Huges, co-director of sustainable health spending strategies for consultancy Altarum. 

With the aggressive pricing enabled by its market share and patient volume, HCA gains a competitive advantage over others. In detail, researchers have found that the company’s ability to negotiate with insurers allows it to set high prices for its healthcare services. Experts say the high cost of healthcare in the U.S is partly due to the high prices, not the actual costs of the services. 

#3: A learning system

In HCA, people could see a learning system running through the organization. They always try to leverage their scale and solve big problems to produce better outcomes for patients. Annually, the health system receives information from its 32 million patient visits. Under the cooperation of 300 professionals, they put effort into finding the best ways to use that data to improve the best practices. Some of HCA’s research has resulted in the changes in clinical processes across the nation, according to Perlin. 

The examples could be retrieved from the previous cases when HCA discovered that babies born after 37 weeks face more risks than those after 39 weeks or they could figure out how to reduce MRSA rates by 40% by their new strategy.  

On the other hand, HCA’s track record is not always flawless. Its merger in 1994 with Columbia Hospital Corp. ended up being one of the largest Medicare fraud settlements. In 1997, agents from FBI and other federal agencies raided Columbia/HCA offices, and eventually, the company was founded guilty to 14 felony charges related to defrauding the federal government. 

The investigation and roughly $2 billion settlement were the stain to HCA’s culture and reduced its reputation at the time. However, it is now just a distant memory in the health care industry. 

Apart from this, the hospital system was also criticized before for not treating patients who came to the emergency department with nonurgent conditions if they did not pay upfront. Though the company said this strategy aimed to help reduce ED costs and overcrowding. Besides, the company was also accused by the New York times of performing unnecessary cardiac procedures to grow profits. 

Critics might disagree with HCA’s for-profit model. But the company indeed does not take several risks and it does not follow the trends. Their decisions about the clinical programs depend on the potential payoff and this means they will leave a market if it is not profitable enough. 

HCA medical staff received award
Image credit: HCAtodayblog

Paul Keckley, an industry analyst in Nashville, said, “HCA just doesn’t want itself to be on the bleeding edge of anything and they have achieved certain success with that interesting model which should be respected instead of being criticized.”

The future is considered bright for this corporation when it has a long history of profit growth. The company also invests its capital in improving the medicine quality, which makes the service more trustworthy for the customers. With the ability to change and adapt to the new changes, it is hard to imagine the time when HCA could fall behind. 

“There is almost nothing that can slow it down,” said Johnson, the CEO, when asked about the future of HCA. “I suppose the future is going to be as bright as ever considering the constant growth of health care as well as Nashville’s outlook.”

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