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Case Study: "Hospital Corporation Of America" By Kester, W. Carl

1844 words - 8 pages

TABLE OF CONTENTSI.Introduction1II.Key Issues2III.Recommendations6IV.References7I.IntroductionHospital 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 ...view middle of the document...

Similarly to any other businesses that new markets are to be developed by developing a supply chain to service that area and building a customer base, but in this sector HCA had to send more substantially comparing with other industries. It meant a more substantial investment in capital to purchase equipment, acquire other hospital management corporations or to build new hospitals.New construction and acquisition activities of HCA have been quite aggressive and they had to work it out carefully for such new facilities to generate a required return and most profitable. Roughly 40% of HCA's U.S. facilities were only the hospitals in their areas. Such strategy helped HCA to gain impressive revenues year after year in steadily manner, started at $172,650 in 1972, $506,484 in 1976 to $2,406,472 in 1981. Net profits also grew steadily in the same fashion proving that HCA has been doing very well as a business and their performance shows the effectiveness of their business strategy.However, beginning the business like a real-asset company for sometime with substantial investment in hospital construction, HCA's strategy has been proved to be effective, but in the long run a change in this strategy is foreseen. As the whole scene was stated by Bill McInnes - Vice President of Finance "There is a feeling here that we must be prepared to strike while the iron is hot. There are only 7,000 hospitals out there, and we can't expect to have them all. With, perhaps, three to five good years [of growth by acquisition] left", we will have to move along expeditiously to get our fair share."Taking into account the regulatory change in the near future, it became obvious that HCA's business strategy is in need of revision. Since the change in regulatory environment will constitute a less favorable environment where hospitals will have to compete based on price in addition to in other aspects, HCA should immediately study measures for cutting costs in of their operation. Once the certificates of need are no longer required, it becomes evidence that the emergence of hospitals will take form and possibly the shortage of patients in areas with too many hospitals will seriously affect their strategy and targets. In addition, as HCA continues into the future with the consumers more cost conscious about the healthcare provider that they choose, it will also affect them.Under such circumstances, HCA should continue its strategy as aggressive as possible with their existing strategy of acquisitions and new construction likes "to strike while the iron is hot". To build their base in areas that do not currently have a hospital or only have one will help to ensure that HCA has a strong user base that does not have to look for the cheapest hospital in the area, as there is no other choice for the customers. In parallel with continuing growth, HCA should introduce efficient program to make their existing hospitals to reduce costs, and increase bed occupancy rates. This increased...

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