EDITOR'S NOTE _ Nowhere was corporate upheaval felt more than
in the trillion-dollar health care industry this past year,
largely because of enormous political and economic forces pushing
the nation toward a less costly system known generally as managed
care. The second part of a three-part yearend series looks at how
health providers are adapting.
By Mariann Caprino
NEW YORK _ Over the span of a few brief weeks last fall,
Columbia Healthcare Corp. transformed itself from a mundane
hospital operator into the nation's largest for-profit hospital
With two swift, successive acquisitions, Columbia came to
embody the merger drive among health care providers in the race
to survive in a post-reform world.
Yet even without the Clinton administration's plan to revamp
the nation's health care system, companies have been reshaping
the way they do business to offer a concentration of low-cost,
quality services demanded under managed care.
"This has been a year where there's been an inordinate amount
of activity," said Eran Broshe, a vice president at the Boston
Consulting Group. "The whole structure of health care is
shifting, and the dynamics of the marketplace are what's moving
Managed care is fast replacing fee-for-service medicine, and
that's put tremendous price pressure on providers. Doctors are
increasingly dependent on the stream of patients generated from
managed care networks, which pay flat fees. Suppliers, including
drug makers, have been forced to restrain prices because big
buyers like Columbia demand discounts.
Through its mergers with Galen Health Care Inc. and
HCA-Hospital Corp. of America, Columbia's assemblage of hospitals
exploded from 24 a year ago to 190. Days after the HCA
announcement, Columbia unveiled yet another deal to broaden its
range of services _ an affiliation agreement with out-patient
provider Medical Care America Inc.
"Columbia's message very clearly is to very quickly develop
marketplace clout," said Mike Hamilton, a national director at
the consulting firm KPMG Peat Marwick. "And with that clout, they
believe _ correctly so _ that they can direct more profitable
managed care contracts to their facilities."
He said Columbia's $9 billion takeover spree probably served
to accelerate the pace of the industry's evolution.
"When one company makes a strategic move that appears to give
them an enhanced competitive advantage, their competitors feel
the need to do something," Hamilton said.
Virtually without exception, the deals that took place this
past year were friendly in character. There were no proxy wars or
hostile bidders, no eleventh-hour searches for white knights that
shaped the merger wave of the 1980s.
These were partners of necessity. The pace was frenzied.
Like many others, Columbia didn't even complete one deal
before signing the next. Its $3.2 billion acquisition of Galen
was announced in September. The Galen hospital chain itself
resulted from a restructuring by Humana Inc., which spun off
Galen a year ago after deciding to concentrate exclusively on its
health maintenance organizations. …