Merger Activity Engulfs U.S. Health Care Industry
Caprino, Mariann, THE JOURNAL RECORD
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 chain.
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 it."
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. …