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Analysis of the For-Profit Hospital Industry

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  • 1. Analysis of the For-Profit Hospital Industry HCA and Tenet By: Zach Evans Todd Passmore Rachel Taylor Gina Throneberry
  • 2. Hospital Industry Overview Total Number of All U.S. Registered * Hospitals 5,801 Total Staffed Beds in All U.S. Registered * Hospitals 987,440 Total Admissions in All U.S. Registered * Hospitals 35,644,440 Total Expenses for All U.S. Registered * Hospitals $426,849,488,000 * Registered Hospitals are those that meet AHA’s criteria for registration as a hospital facility. Registered hospitals include AHA member hospitals as well as nonmember hospitals. Source: 2001 survey by the American Hospital Association – www.hospitalconnect.com
  • 3. HCA Healthcare Corporation www.hcahealthcare.com
  • 4. Overview of HCA Healthcare
    • Facilities
    • Mission Statement
    • History
    • Mergers and Acquisitions
  • 5. Facilities
    • HCA Inc. is one of the leading healthcare services companies in the United States. The company’s facilities are located in 23 states, England and Switzerland. HCA operates 184 hospitals, comprised of 172 acute care hospitals, six psychiatric hospitals, six hospitals included in joint ventures, and 79 freestanding surgery centers.
  • 6. Mission Statement
    • “ We are committed to the care and improvement of human life. In recognition of this commitment, we strive to deliver high quality, cost effective healthcare in the communities we serve.”
  • 7. History
    • In the 1960s, Dr. Thomas Frist, Sr. led an effort by a group of physicians to build Park View Hospital in Nashville
    • 1968- Dr. Thomas Frist, Sr, Dr. Thomas Frist, Jr, and Jack Massey create their own hospital management company, HCA, to purchase Park View Hospital
    • 1969- HCA, with 11 hospitals, makes its first public offering, going from $18 to $40 per share in the first day of trading
    • 1972- HCA grows to 51 hospitals and takes on it first oversees project which was a hospital in Saudi Arabia
    • 1987- Restructuring leads the company to sell off 104 acute-care hospitals to form HealthTrust Inc.
    • 1989- HCA becomes a private corporation again when management with outside investors purchase the company for approximately $5.1 billion
  • 8. History (cont.)
    • 1992- HCA returns to the NYSE and offers 34 millions shares of common stock, raising $700 million
    • 1994- HCA merges with Columbia Hospital Corporation to become the largest operator of for-profit hospital in the country. The combined companies now hold nearly 320 hospitals
    • 1997- FBI begins a full-blown criminal investigation of the company for Medicare fraud
    • 2000- Columbia/HCA agrees to pay the government a settlement fee of $745 million in attempt to end their three-year battle
    • 2000- The company is renamed HCA- The Healthcare Company, unveils a new logo, and downsizes the company from 345 hospitals to a goal of 200
    • 2001- 168,000 employees in 200 hospitals and facilities across the U.S. and Europe
  • 9. Mergers and Acquisitions
    • June 2002, HCA acquired Northern Virginia Community Hospital, a 164-bed hospital in Arlington, Virginia
    • November 2002, HCA acquired the 14-hospital Health Midwest of Kansas City for $1.125 billion
  • 10. Consolidated Income Statement 2001 2002 Net Operating Revenues: $17,953 $19,729 Operating Expenses: $16,997 $18,896 Net Income: $956 $833 Earnings Per Share: $1.78 $1.59 *Note: All dollar figures in millions except Earnings Per Share
  • 11. Balance Sheet 2001 2002 Current Assets: $4,141 $4,505 Investments & Other Assets: $2,133 $2,034 Property & Equipment: $8,919 $9,721 Other Intangible Assets: $2,051 $2,080 Current Liabilities: $3,184 $3,739 Long-term Debt: $6,553 $6,497 Shareholders Equity: $4,762 $5,702 *Note: All dollar figures in millions
  • 12. Ratios 2001 2002 Current Ratio: 1.300 1.202 Debt/Equity Ratio: 1.376 1.139 Return on Equity: 0.201 0.146 Current Ratio – an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Source: investorwords.com. Debt/Equity Ratio – a measure of a company’s leverage; a company with a higher debt/equity ratio can offer greater returns to shareholders but is considered riskier. Source: investorwords.com. Return on Equity – a measure of a company’s return on money provided by the firm’s owners. Source: quickmba.com.
  • 13. Tenet Healthcare Corporation www.tenethealthcare.com
  • 14. Overview of Tenet Healthcare
    • History
    • Today
    • Mission & Vision
    • Significant Developments
    • Mergers and Acquisitions
  • 15. History
    • Parent company – National Medical Enterprises, Inc – was incorporated in California in 1968
    • Wholly-owned subsidiary emerges of the same name in 1975
    • March 1995 – acquires American Medical Holdings, Inc.
    • June 1995 – changes name to Tenet Healthcare Corp.
    • January 30, 1997 – completes acquisition of OrNda HealthCorp for $3.22 billion
  • 16. Today
    • Headquartered in Santa Barbara, CA
    • Owns or operates 115 hospitals in 16 states
    • Employs approximately 115,000
    • 28,502 licensed beds
    • Publicly traded on New York and Pacific Stock Exchanges
    • Current share price: $17.81
  • 17. Mission Statement
    • “ Tenet will remain at the forefront of healthcare delivery by: leading our industry in quality and service; becoming the employer of choice; and being a technology leader in our field.”
  • 18. Vision Statement
    • “ Tenet will distinguish itself as a leader in redefining health care delivery and will be recognized for the passion of its people and partners in providing quality, innovative care to patients it serves in each community.”
  • 19. Significant Developments
    • November 2002: Class action suit filed on behalf of purchasers of THC between Oct 2001 to Oct 2002
    • Nationwide audit of its Medicare outliner payments
    • January 2003: Justice Department sues THC for falsified Medicare claims
    • In the last four months, THC shares have declined by almost 70%
  • 20. Mergers & Acquisitions
    • December 2002: Acquisition of Roxborough Memorial Hospital in Philadelphia completed
    • November 2002: Construction begins on new hospital in Texas; initial phase of construction complete on new facility east of Memphis, TN
    • May 2002: THC and CHRISTUS Santa Rosa for a partnership – pursue acquisition of Baptist Health Systems in San Antonio, TX
  • 21. Tenet’s Direction
    • Voluntarily adopting a new policy on Medicare Outlier Payments
    • Propose innovative solution for hospital patients without insurance – ‘Compact with Uninsured Patients’
  • 22. Consolidated Income Statement 2001 2002 Net Operating Revenues: $12,053 $13,913 Operating Expenses: $10,506 $11,819 Net Income: $643 $785 Earnings Per Share: $1.34 $1.60 *Note: All dollar figures in millions except Earnings Per Share
  • 23. Balance Sheet 2001 2002 Current Assets: $3,226 $3,394 Investments & Other Assets: $395 $363 Property & Equipment: $5,976 $6,585 Other Intangible Assets: $133 $183 Current Liabilities: $2,166 $2,584 Long-term Debt: $4,202 $3,919 Shareholders Equity: $5,079 $5,619 *Note: All dollar figures in millions
  • 24. Ratios 2001 2002 Current Ratio: 1.190 1.310 Debt/Equity Ratio: 0.827 0.698 Return on Equity: 0.130 0.140 Current Ratio – an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Source: investorwords.com. Debt/Equity Ratio – a measure of a company’s leverage; a company with a higher debt/equity ratio can offer greater returns to shareholders but is considered riskier. Source: investorwords.com. Return on Equity – a measure of a company’s return on money provided by the firm’s owners. Source: quickmba.com.
  • 25. Analysis of the For-Profit Hospital Industry HCA and Tenet By: Zach Evans Todd Passmore Rachel Taylor Gina Throneberry