Hospitals and Health Systems

Hospital Corporation of America was founded in Nashville in 1968 on a simple observation. Medicare, three years old, paid hospitals their costs plus, for proprietary hospitals, a return on equity. A well-run community hospital full of Medicare patients had become a government-backed cash flow that could be financed and rolled up. HCA went public in 1969 and bought and built hospitals across the South. When Medicare switched to fixed payments per admission in 1983, the boom ended, and HCA spent the next three decades showing every way a hospital company can create and destroy value: a management buyout (1989), the Columbia/HCA merger (1994) and its federal fraud case, settled for a reported ~$1.7 billion by 2003; a ~$33 billion leveraged buyout (2006); a ~$3.8 billion IPO (2011), then the largest private-equity-backed IPO in US history.

By 2025 HCA ran about 190 hospitals and some 2,400 sites of care in 20 states and England, with revenue of about $75.6 billion, net income attributable to HCA of about $6.8 billion and adjusted EBITDA of about $15.6 billion (reported). Its EBITDA margin, typically in the high teens to about 20%, is several times what most nonprofit hospitals earn. And its 2019 purchase of Mission Health in Asheville, North Carolina, for about $1.5 billion became the leading test of what a for-profit chain owes the community it buys into: the state attorney general sued in December 2023 alleging cuts to services in breach of the purchase agreement, and CMS cited the hospital for "immediate jeopardy" safety issues (reported). This chapter explains why the same industry contains HCA's margins and hundreds of hospitals that cannot stay open.