HCA: Management Reform Needed

NEW YORK ( TheStreet) -- Hospital Corp. of America ( HCA) is unique among American businesses for giving us not one, but two Republican political leaders -- former Senate Majority Leader Bill Frist and current Florida Governor Rick Scott.

Frist, a transplant surgeon as well as a legislative deal-cutter, is the son of HCA co-founder Dr. Thomas Frist; his brother, Dr. Thomas Frist Jr., was twice chairman of the company, eventually leading a private buyout in 2006 by KKR valuing it at $33 billion, according to a company history.

Scott sold his Columbia Hospital Corp to HCA in 1993, leaving as chairman in 1997 with cash and stock worth about $360 million, according to Wikipedia. Scott was called an "icon of greed" in a 1995 piece by the Healthcare Forum Journal, and he left under a cloud of investigation that eventually led to huge fines against the company.

All this was known to Florida voters when they elected him governor in 2010.

Although HCA has made some people fabulously wealthy and others very powerful, public shareholders haven't always shared equally. HCA was a good stock in the 1980s but has since gone private twice and public three times. Private equity has done very well in the buyouts, tripling their money in the last one, according to a New York Times profile of the company last year.

Right now the stock is on the rise, up 24% since coming back to the market in 2011 and paying out $8.50 a share in dividends since then. But the government has also collected $1.7 billion in Medicare fraud fines from the company over the years, according to Investment Watchdog, with the initial case -- estimated at $840 million in 2000 -- causing Forbes to call the stock a "disaster."

It's great for the people at the top. Current CEO Richard Bracken reports total income of over $46 million for the most recent fiscal year, notes Reuters, with President Milton Johnson bringing in over $27 million, almost all of it from stock.

It's also good for construction workers. HCA is presently building a new $900 million headquarters in Nashville, twin 22-story skyscrapers, due for completion in 2015. Meanwhile, HCA has gone through repeated strikes and strike threats, most recently last month in San Jose, Calif., as the San Jose Mercury News reported.

If you want to know what gave President Obama the political momentum to pass the Affordable Care Act, in 2010, look no further than HCA. Look at where its money has gone, and what it has done with its power.

You might think that health reform would sink HCA but the company is powering ahead, and the 24 analysts who follow it have a mean price target of $46 a share -- almost 20% higher than it's priced at currently. Most have a buy rating on the stock.

So is this time going to be different for the public shareholders? I don't know, but I can practically guarantee it's going to be great for HCA insiders because it always is.

HCA is a great example of what makes American medicine unique in the world, and what makes it so ferociously expensive. Only in America can doctors refer patients to facilities where they hold a financial interest and get rich in the process.

At the time of publication, the author had no investments in companies mentioned here.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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