Center for Studying Health System Change

Columbia/HCA Retreats
Cleveland, Ohio

olumbia/HCA is reported to be looking for a way out of the Cleveland market. Three years ago, Columbia/ HCA, the nation’s largest hospital corporation, entered into an unusual joint venture with the Sisters of Charity of St. Augustine Health System. This joint venture resulted in the formation of Caritas, a Cleveland-based, four-hospital system co-owned by both parties.

This new system languished in a market dominated by two prestigious not-for-profit health systems. In 1998, Caritas hospitals’ occupancy rates were reportedly below 50 percent. By March 1999, the four-hospital system was sold to one of its competitors, University Hospitals Health System (UHHS).

Columbia/HCA had thrived in competitive markets before, but by mid-1997 the corporation had become entangled in multiple federal in- vestigations of its billing practices and physician relationships. Moreover, Columbia/HCA suffered a major setback in Ohio when a proposed merger with the local Blue Cross and Blue Shield health plan was blocked by the state’s attorney general in March 1997. After the federal investigations led to a management coup at the Nashville-based corporate headquarters, the new team pulled out of a number of markets where the company did not have a substantial market share. Cleveland was one such market; Little Rock was another.

Through much of the 1990s, many local health care executives viewed Columbia/HCA’s arrival in a market with anxiety and apprehension. Even though other for-profit hospital corporations were consolidating and expanding their influence, Columbia/HCA had a greater ability to shake up the markets it entered, usually sparking intense provider reconfiguration, as hospitals braced for new levels of competition and bottom-line consciousness. In Cleveland, the entry of Columbia/HCA-with its deep reserves and reputation for cost cutting- prodded the two major not-for-profit delivery systems there to rapidly increase market share through acquisitions and affiliations.

The Cleveland Clinic, for example, merged with the four-hospital Meridia Health System, the two-hospital Fairview Health System and the stand-alone Health Hill Hospital, giving it control of 40 percent of the hospital beds in Cuyahoga County. The Cleveland Clinic’s super PHO, known as the Cleveland Health Network, included 9 owned and 16 affiliated hospitals and, as of HSC’s 1998 site visit, had negotiated 40 managed care contracts with 20 different payers.

UHHS fell behind in this acquisition race, but it bought Columbia/HCA out of the Caritas joint venture for $65 million, giving the university system 3,600 beds to the Cleveland Clinic’s 4,070. This deal left only five hospitals in Cleveland’s Cuyahoga County unaffiliated with either system.

Columbia/HCA set a somewhat similar phenomenon in motion in Little Rock. The Hospital Corporation of America (HCA) already controlled Little Rock’s Doctors Hospital when it merged with Columbia in 1994 to form Columbia/HCA. The same year, the combined company purchased the largest medical group in town. When Columbia/HCA announced plans in 1997 to acquire Southwest Hospital, it sparked concerns among Little Rock providers about the company’s growing influence. The deal never went through. In 1998, as part of its general pullback, Columbia/HCA sold Doctors and three family clinics to St. Vincent Health System, a locally controlled not-for-profit.

Despite its general retreat, Columbia/HCA’s presence has had a ripple effect in markets, which is expected to be felt for years to come. At an HSC roundtable of Wall Street analysts in June 1998, Geoffrey E. Harris of Warburg Dillon & Read commented on Columbia/HCA’s pervasive influence. "The overall trend toward consolidation continues," Harris said. "And Columbia, notwithstanding its problems, set a lot of that in motion."

"A lot of the consolidation momentum among not- for-profit hospitals has definitely slowed because of the Columbia/HCA situation. People are sitting back and trying to reconsider what their strategies are."

Norman M. Fidel,
Alliance Capital Management, at HSC’s 3rd Annual Wall Street Street Comes to Washington Conference

"One of the dominant themes in our site visits two years ago was that the entry, or the threat of entry, by Columbia/HCA or other national for-profit chains was motivating a lot of defensive behavior on the part of local provider systems in terms of mergers and other types of corporate restructuring."

Joy M. Grossman, HSC, at HSC’s 3rd Annual Wall Street Comes to Washington Conference

"Local not-for-profits in Cleveland have reasserted their dominance...as the threat of for-profits subsided. Rather than reducing excess capacity, local hospital systems have expanded excess capacity...and propped up other vulnerable institutions."

From a summary of the Cleveland Community Report in Modern Healthcare