Case study: "Hospital Corporation of America" by Kester, W. Carl

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II.Key Issues2




Hospital Corporation of America (HCA) is propriety, hospital management company founded in Nashville, Tennessee in 1968 with only one, 150-bed hospital and then grew to become the nation's largest hospital management company. As of 1981, HCA owned or managed 349 hospitals in the United States and overseas.

During the 1970s, HCA achieved its growth by acquisition of existing hospitals and construction of new ones. During the period of 1968-1981, it constructed 70 new and replacement facilities and acquired or leased the remaining 279 of its hospital. Each year HCA evaluated many potential acquisitions and areas for construction, with the criteria for selection including the target community's need for health care services, the quality of the target hospital's medical staff and personnel, the population growth pattern in the area served, the facilities' suitability for future expansion, and the hospital's overall financial position.

Although HCA's operation generated substantial cash for reinvestment, still it needed external financing for its ambitious construction and acquisition program. In early stage of development, external financing were mainly from revolving credits to finance hospitals under construction, industrial revenue bonds and privately placed, long-term mortgage loans fro insurance companies funded completed hospitals and acquisitions. Other sources were difficult to tap at first, due to the newness of propriety hospital industry and the small size and short track record of HCA, and the poor image of hospital management companies at that time. However, HCA could finally manage it as the industry matured, and HCA's strong performance became recognized.

II.Key Issues

Since its establishment, HCA's growth has been contributed by acquiring hospitals, constructing new ones, expansion of services, and the signing of new management contracts. Similarly to any other businesses that new markets are to be developed by developing a supply chain...