America’s largest hospital company is booming. So why is one community trying to run it out of town? | Fortune

2022-04-25 09:32:20 By : Mr. David Tong

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Will Overfelt Jr. spent nearly two weeks of February 2020 at his father’s bedside. His father had just been diagnosed with terminal cancer and admitted to Mission Hospital, an 815-bed facility in downtown Asheville. Overfelt, who works as a behavior analyst for the local school system, had long held a sense of pride in the institution—it’s often ranked as a top hospital—and he had lured his ailing parents to Western North Carolina from his native Virginia in part because of the quality health care there.

But Overfelt’s time inside the hospital, keeping watch over his dying dad, was deeply upsetting. He found the facilities, from the room to the elevators, to be filthy, and the place felt so understaffed as to be unsafe for patients: When he rang the call bell, because his father was in ferocious pain, or because he had soiled the bed, no one came. Eventually, he’d wander the halls, looking for staff. The first day there, his father dropped a used tissue that landed on the floor, near the edge of the bed. In his comings and goings, Overfelt would check whether the tissue was still there as a sort of gauge—did anyone ever clean the room?—and, over the nearly two-week stay, it never budged.

It pained him that this is where his father would spend some of his final days. He realized his was one family in a very large hospital, but he wondered, Is this happening to everyone?

As a sort of “litmus test,” Overfelt, who is 44 and a self-described “super-introvert,” created a Facebook group and put the question out there. He had expected to hear from 10 or 15 people, but when he checked the site the next morning, requests to join the private group numbered in the hundreds. Every day there were more, many from people who would then post their own distressing experiences—understaffing, nightmare billing, care issues—at the hospital.

Many of us don’t feel cared for or safe in our hospital anymore.

To Overfelt, and the many amassing in his Facebook group, there was little question as to whom to blame for the problems: HCA Healthcare, the nation’s largest for-profit hospital operator. After 133 years operating as a community-based nonprofit, Mission Health, the hospital system that included Mission Hospital, as well as five smaller rural facilities, had recently been bought by HCA. The $1.5 billion sale went through in February 2019. It had been unanimously backed by Mission’s board, a roster of Asheville elite who championed the deal as the best way to ensure Mission’s future and improve health in the community. The proceeds would be used to create an enormous regional health foundation—the largest of its kind in the country, in dollars per capita—and HCA, unlike Mission, would pump more money into the area by paying taxes.

The broader public wasn’t convinced. In Asheville, a mountain town with strong buy-local vibes, the prospect of a corporate operator drew immediate concern and suspicion. In the surrounding, often remote 18-county area served by Mission’s rural hospitals, it registered as a betrayal. The board believed it was securing for Mission a long, healthy future; many in the public felt it had given it a death sentence.

Over the past two years, COVID-19 has been the battering ram at the gates of American health care, wearing down the system, one test after the next: patient surges, constrained supplies, business disruptions, labor shortages, worker burnout—on and on.

HCA has been at the center of it all; no U.S. health system has treated more COVID inpatients (a total of 260,000 through 2021). Yet the company, with its more than 180 hospitals across the country, had a blockbuster 2021, posting record revenues and profits: $58.8 billion and $7 billion, respectively. Not even 2020, a year when hospitals were required to suspend profit-generating elective procedures, hit HCA’s books particularly hard: Profits were up 7% over 2019. And those figures were after the company returned $6 billion in CARES Act funding—money intended to shore up hospitals during COVID—to the federal government. Since the pandemic began, HCA also invested $6.4 billion on capital projects, spent $8.7 billion on stock buybacks and paid its CEO, Sam Hazen, roughly $117 million (including vested stock and realized options).

Whit Mayo, a senior research analyst with SVB Leerink, called the company’s performance remarkable. “Inside HCA, by far, you have the best operating talent in the hospital industry,” he says. “No question.”

In Mission’s most recent report to the community, HCA North Carolina president Greg Lowe wrote that Mission capably navigated the pandemic thanks to the new corporate resources at its disposal. Unlike many of its peers, HCA did not furlough workers due to the pandemic, and at moments of scarcity, the company’s scale allowed it to distribute resources where needed, he said. That benefited Mission, which Lowe noted was awarded the industry’s top A safety grade—an improvement over the two previous years—and earned recognition for its nursing program. He emphasized that HCA continues to invest in Mission, which includes building a new hospital in rural Franklin and a much-needed behavioral health facility in Asheville.

But many Mission patients say they don’t recognize the thriving hospital system Lowe describes. Mission has lost hundreds of employees, and those who remain speak of understaffed and unsustainable conditions. Community members contend services have been reduced at Mission’s rural hospitals. The office of North Carolina’s attorney general has received hundreds of complaints concerning HCA’s practices, from billing to quality of care to staffing and cleanliness, subjects that have also been doggedly reported by local press.

Overfelt’s Facebook group, meanwhile, has grown to nearly 13,000 members who use the site as a bulletin board for bad experiences, a few positive ones, and general discussion of American health care. He, along with five other citizens, has filed an antitrust suit against Mission and HCA, alleging that the N.C. system is a monopoly. (In response to Overfelt’s experience, Nancy Lindell, a spokesperson for HCA’s North Carolina division, says “we’re always disappointed” when patients have a negative experience, but adds that the hospital continues to deliver quality care.)

Fortune spoke with dozens of people—patients, nurses, doctors, local leaders, Wall Street analysts, and academics—for this story. (HCA declined to make executives available for interviews.) It’s difficult to reconcile the two vastly different pictures that emerge. Many people in North Carolina feel passionately that HCA has ruined Mission. Others seriously wonder in what shape Mission would be had it had to manage the pandemic on its own.

“It’s all anecdotal. It’s all spin,” says Paul Keckley, a longtime health care consultant who splits his time between Asheville and Nashville, and is himself puzzled by the case. “You hear a little bit of everything.”

The saga of HCA’s acquisition of Mission Health is a highly specific but also revealing story about the brutal economics that underpin the U.S.’s increasingly consolidated hospital landscape. COVID didn’t create the industry’s razor-thin margins, or make it a field in which the financial rewards flow only to those willing to cut costs, amass scale, and chase profits, but it has exacerbated the situation. It also raises questions: After our health system bowed under the unprecedented strain of the pandemic, how is it that the country’s biggest hospital player has emerged such a winner? And if HCA is a sign of what “works,” what does that mean for the future of care?

Asheville may feel like a buzzy, progressive center, but the Blue Ridge Mountains that ring the city are an ever-present reminder that it’s the gateway to Appalachia and the mostly rural counties that make up North Carolina’s western tip. Once part of the Cherokee nation, the region was a draw for frontiersmen like Daniel Boone and a country playground for wealthy scions such as George Vanderbilt; today, the city of 90,000 is an increasingly crowded destination for artists, foodies, and health-care-conscious retirees.

For the nearly 1 million living in Western North Carolina, Mission is a household name. It’s the region’s dominant health system, with the most comprehensive trauma services and complex medical care. So for many in the community the news of Mission’s prospective buyer came as a shock. “Never in my wildest dreams would I have guessed HCA,” says Steve North, a physician who served as Mission’s regional medical director in rural Spruce Pine, N.C.

What some see as the fundamental divide between Mission and HCA can be traced all the way back to their origin stories. Mission’s roots date to the late 1800s, when four local women began selling flowers on the street to raise funds for a hospital that would treat all, regardless of their ability to pay. “The Little Flower Mission,” as the group came to be known, operated out of a rented house and served its first patient, a woman in labor, in October 1885.

HCA was also started out of a house, but the similarities end there. Founded in 1968, HCA was launched by two physicians in the Frist family—28-year-old Tommy Jr. and his father, Thomas Sr. (another of Thomas Sr.’s doctor sons, Bill, would go on to become Senate majority leader)—along with their businessman friend, Jack Massey, an owner of Kentucky Fried Chicken. The trio wanted to bring the same formula of standardization and scale that had powered the success of KFC to private hospitals. The name said it all: HCA, for Hospital Corporation of America.

HCA has been though several iterations, but the latest began in 2011, when it went public for the third time in its history as the nation prepared for the expansion of insurance coverage through the Affordable Care Act. Since then, HCA’s stock has risen 738%, and its revenues nearly doubled, from $30.7 billion to $59 billion.

In all that time, HCA never really strayed from its original recipe: scale. “They operate very efficiently … They’re going to procure their supplies with aggressive negotiations; they’re going to keep their staffing costs low,” says Keckley. The company keeps beds filled as well, with occupancy rates above 70%.

Today, HCA operates in 43 markets. The company is strategic about its locations, selecting fast-growing areas with vibrant economies, the sort where affluent people with private health insurance tend to live. (Providers are paid significantly higher rates for those patients, compared to those with Medicare or Medicaid.) When it moves into an area, HCA builds out a dense network of care sites—including freestanding emergency departments, as well as urgent care and surgery centers.

Another aspect of the company’s growth strategy is to draw “higher acuity” patients—those who are sicker or in need of more complex medical care. Those patients represent more money, too, and the pursuit of them has driven HCA’s investment in things like trauma centers, neonatal intensive care units, and stroke centers.

Despite operating in the unpredictable realm of life and death, HCA is famously data-driven and consistently on-target. (It took a pandemic to end its 23-quarter streak of increased admission rates.) “HCA teaches to the test,” says Keckley. “They will hit the number necessary to hit the level of quality or efficiency that optimizes their shareholder value. Period.”

From that point of view, Western North Carolina seems like a bad bet. Older, poorer, and sicker than elsewhere in the state, nearly three-quarters of Mission’s patients have Medicare, Medicaid, or no insurance coverage at all. Pre-HCA, Mission actually lost money on most of its patients, says John Ball, a former hospital executive who chaired Mission’s board at the time of the sale.

The system needed to change the math, and in the years before the sale, that’s what CEO Ron Paulus tried to do. Paulus, a physician turned hospital executive with Wharton polish, arrived in Asheville in 2010 at a moment when many believed America’s runaway, then– $2.6 trillion health system was poised for revolutionary change.

The engine of that change was something called “value-based care,” and Paulus, who hailed from one of the few places that had successfully implemented it—Pennsylvania’s Geisinger Health—was a believer. The idea, which animated Obama-era health policies, was to pivot an industry focused on treating sick people to one that aims to keep people healthy. It’s a strategy that requires investment in areas like preventive medicine and primary care, with the goal of catching problems early, before patients need costly, complicated care. It also demands a new business model: paying providers not for the services they perform, but for successful outcomes.

Paulus plowed money into the model, and by 2015, Mission had a network of eight hospitals and 1,100 primary care physicians providing value-based care in the region. Only Medicare patients were eligible, but in its first years, the experiment was successful, delivering high quality scores and a $5 million payment to Mission.

Paulus’s plan was working, but not fast enough. The ambitious expansion cut into Mission’s operating margins. Leadership wanted to offset costs by charging patients with commercial insurance more—a strategy that the system’s major payer, Blue Cross and Blue Shield of North Carolina, crushed when it refused to raise rates in 2017.

“We’d gotten to the point where all of the low-hanging fruit have been cut,” recalls Ball. That left drastic options, he says: ultimately closing hospitals and lines of service, and cutting 1,400 jobs. The board decided, instead, to find a buyer.

The sale of Mission to HCA was probably never going to be an easy process. But the board’s communication strategy didn’t do it any favors. Locals didn’t even know Mission was up for sale, let alone have the chance to offer input before HCA emerged as the likely buyer. That made people distrusting and resentful even as Paulus and Ball publicly pushed what they considered the deal’s biggest selling points: HCA’s purchasing power, tax revenue, and the creation of a $1.5 billion foundation focused on community health.

As North Carolina’s attorney general reviewed the sale, concerned citizens campaigned for stronger protections and got them—leading to a final purchase agreement that requires HCA to keep open Mission’s five rural hospitals and provide certain services for at least 10 years.

For those who had witnessed the success of the value-based care efforts, a painful dismantling followed. Though the program wasn’t killed outright, “There was an attitude primary care was no longer really important,” North, the former Mission doctor, says. He treated a number of patients with substance abuse disorders, and when HCA terminated contracts with therapists who provided essential support to the primary care efforts, he left, as have all but two of system’s nine primary care physician leaders. HCA’s Lindell says the system is currently expanding its commitment to value-based care.

For HCA, the Mission deal represented a new chapter in its playbook. Typically, the company acquired hospitals in urgent financial distress. But Mission, as HCA executives described it, was a “uniquely successful system,” a “showcase” acquisition that they hoped would help them court other deals involving large, well-run hospital systems.

Those ambitions gave the Mission board confidence the company wouldn’t “screw this up,” says Ball, but in hindsight, they also created a new dynamic, seemingly leaving HCA unprepared for pushback. “In every other place, they’ve come in and rescued a hospital, and the community liked them. They didn’t have a lot of experience with coming in and having a community not like them.”

HCA’s signature lean operating model was not well received on the ground. One of company’s first big changes was to eliminate many of the system’s health unit coordinators, or HUCs. The HUCs had long played a vital, order-keeping role at the hospital—answering phones, tracking orders, communicating messages to the right people. Getting rid of them effectively decapitated many units of the hospital, unleash- ing chaos. Staff were now pulled from care to pick up phones. “That was a really big deal,” says Angela Foster, who worked at Mission as an administrative assistant from 2013 until late 2020 when her own job was eliminated (along with hospital translators and some chaplains). “It was one of the first things that had a real detrimental effect to patient care and to staff satisfaction.” Lindell says the change was “meant to bolster clinical care” and noted that the company walked back the change, reinstating HUCs later that year.

Nurses also told me they often ended up delivering food and emptying trash bins after HCA outsourced the hospital’s food service and janitorial functions. Meanwhile, staffing changes piled more on them, too. When Kerri Wilson started working at the Asheville hospital’s cardiac step-down unit in 2016, she was one of 13 nurses who worked with a team of five nursing assistants (CNAs), two HUCs, and two telemetry techs when the unit was fully staffed. Under HCA, Wilson says the same patient load is covered by 11 nurses, four CNAs, one HUC, and one off-site telemetry tech. (She says that because of the labor shortage, the unit is often not fully staffed.)

For at least one of Mission’s more remote hospitals, the arrival of HCA felt like an existential threat. The system’s 25-bed Transylvania Regional Hospital (TRH) is based in Brevard, a town of 8,000 that borders the Pisgah National Forest, 45 minutes southwest of Asheville. Like many rural hospitals that serve the typically poorer and older populations that would otherwise have to travel a long distance for care, TRH had struggled financially in recent years (Mission shuttered its labor and delivery unit in 2015). Even with the protections of HCA’s purchase agreement, many in the community worried for its future.

I met with Brevard’s mayor, Maureen Copelof, in early December. It was her first official day in the job, but her office at City Hall, a small, squat building on Main Street, looked fully settled, with framed photographs on the walls and stacks of papers arranged neatly on her desk.

And as a former city council member, Copelof was already enmeshed in the HCA saga. In January 2021, the majority of TRH’s physicians left their jobs en masse when HCA tried to renegotiate their contracts with lower, performance- based pay rates. The company was unmoved by arguments that a different pay model may be better suited to rural areas or that there’s a value in holding on to experienced physicians.

“They have a standard contract,” Copelof said, exasperation in her voice. “The idea of trying to tailor something to meet the needs of our community—it was a nonstarter.”

HCA insists it’s investing in all its regional facilities. At TRH it points to $14 million in improvements, including a new MRI machine and a paved helipad. But while Lindell says the company is preparing TRH for “explosive population growth,” Copelof and others see a slow, quiet erosion of services.

The question, says Copelof, is what counts as “providing” service, as promised in the purchase agreement. People who use and work in the hospital say services and appointments are available fewer days of the week, and fewer hours per day. Patients who need financial assistance for nonemergency treatment can’t be seen until their charity care is approved, a bureaucratic process that in some cases requires sign-off from Mission’s chief medical officer.

Others say the hospital has disengaged with the community. “It’s just a different corporate culture,” says Lex Green, president of Brevard’s Pisgah Health Foundation. When he set up a drive-thru COVID testing site in early 2020, Pardee, the hospital in the neighboring county, sent its CEO, an epidemiologist, and a community outreach person to help. HCA’s response to Green was, essentially, “We do not provide free tests.” (Lindell notes that the hospital paid $60 million in state and local taxes in 2020.)

Green, who spent years as a fundraiser for Mission, had been a cheerleader for the sale. He thought the $1.5 billion foundation it created could transform the community—and he’d had some previous experience with HCA: His children were born at one of the company’s Florida hospitals.

But then he had his first experience with HCA-run Mission. Last summer, his late mother, a dementia patient, was admitted to Mission Hospital. Staffing was so stretched that he says his mother went unfed at times. On one visit, he recalls a nurse telling him, “There is no way we can ensure all the doctor’s orders are going to be done. We’re just too busy here.” Another day, she’d been moved. A staff member directed him to a room on the sixth floor where he found a stranger. The staff member apologized and told him, actually his mother was in surgery. He sat in shock, before asking again. It turned out his mom was not in surgery, but in a room on the seventh floor.

“HCA teaches to the test. They will hit the level of quality or efficiency that optimizes their shareholder value. Period.”

Green is not sure how much the pandemic factored into that failing care, but he describes the hospital conditions as “tragic.” His family members believe it contributed to his mother’s decline.

His was one of numerous stories I heard that paint a picture of chaotic and at times unsafe care at Mission under HCA. There was a woman whose lab specimen got lost. There were multiple people who had to sit for long periods in their own feces or were kept for hours on a bed in a hallway or operating bay. Many had been told by frank and apologetic nurses, “We’re understaffed.”

Wilson, the cardiac step-down nurse, says her unit has struggled to prevent patient falls—an event that typically happens when, absent a nurse, people try to get to the toilet on their own—and the skin issues that arise when patients have been sitting too long in a soiled bed. She often feels, despite doing her best, that she is failing her patients.

Lindell emphasizes that quality care is the system’s top priority, and cites the system’s top ratings and positive feedback it receives as evidence that it’s succeeding. In communications with patients, HCA places such experiences in the context of COVID and the broader, nationwide shortage of health care workers. It’s hard to know how much of Mission’s staffing woes to blame on the pandemic versus attrition driven by new ownership. Certainly COVID’s disruption of the labor market has not helped: HCA currently lists 1,080 job openings in the Mission Health system. Lindell says the company is working diligently to fill them.

I spoke to nurses who left Mission because of the environment, but also because of the opportunity to get paid at least three times as much to work as a travel nurse. And like other hospital companies, HCA has itself turned to “travelers,” an imperfect staffing solution: They’re often unfamiliar with local systems and patients, and they get paid way more than those who are. (Some Mission units have been staffed by more than 70% travelers, say employees.)

“HCA didn’t have a lot of experience with coming in and having a community not like them.”

Analysts say HCA, which owns nursing schools and a staffing firm, has managed the labor challenges better than most. And despite the issue, the company’s margins are higher than they were pre-pandemic, which analysts in part credit to its swift cost restructuring in response to COVID. The company’s geography also helped, says Mizuho Americas senior analyst Ann Hynes. Texas and Florida, HCA’s largest markets, reopened quickly and had generally less restrictive policies, making for a closer-to-normal operating environment.

Counterintuitively, some aspects of the pandemic actually made HCA even more profitable. Across the industry, fewer people have been going to the hospital. But those who have, have been more likely to be commercially insured (because older Medicare patients are staying home) and to be sicker (either with COVID or because of delayed treatment for some other condition). While caring for COVID patients is expensive, the federal government pays providers an additional 20%, making those cases more profitable than they would otherwise be for HCA; one of the company’s strongest quarters was also the one where had its highest level of COVID patients (though Hynes attributes the results to high admission rates generally).

“The big debate with HCA and hospitals broadly speaking,” says Bank of America analyst Kevin Fischbeck, “is has COVID been a positive or a negative?” Had government money not propped up margins, the answer would almost certainly be no. Mayo, the SVB Leerink analyst, wonders if some of that money might eventually be clawed back: “There are companies that have done very, very well. At some point, the federal government is going to begin to criticize this.”

The business of health care will always have awkward tension around the patient-centered mission and the profit-driven one. As the nation’s largest for-profit hospital operator, HCA is an easy villain, though experts say it’s not that simple. On one prominent hospital index, HCA rates poorly on pay equity and value, but quite well when it comes to clinical outcomes.

On earnings calls, HCA discusses the acquisition in positive terms. In its first year, the company raised prices 10% and took in $549 million more in gross patient revenues than not-for-profit Mission had in the year before the acquisition.

But the drama that surrounds Mission feels far from resolved. “Many of us don’t feel cared for or safe in our hospital anymore,” says Overfelt, who still spends 15 to 20 hours a week tending the Mission Facebook group.

While HCA disputed many of the more contentious points raised in this reporting, the company does show a tacit awareness of discontent. Lowe, the N.C. division president, made his personal phone number available to anyone experiencing billing issues.

In Asheville, the company’s work continues. These days, there’s an emphasis on “throughput”—getting the patients in and out of the hospital as efficiently as possible. Wilson is adjusting to the hospital’s discharge protocols, which involve sending the patient to the discharge suite, stripping the bed, and clearing the room. The environmental services team is budgeted 30 minutes for cleaning the room.

Says nurse Wilson, “If they could turn us into an assembly line, they would.”

A grant from the NIHCM Foundation helped fund reporting for this story.

Editor’s note: This story has been updated to clarify that the physician leaders Steve North refers to are primary care physician leaders. This article appears in the April/May 2022 issue of Fortune with the headline, “Profit and loss.”

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