There was much chasing of secretaries around the typing pool in the canyons of high finance when it was announced that HCA (formerly known as Hospital Corporation of America) was to be purchased by Bain Capital, Merrill Lynch and Kohlberg, Kravis, Roberts & Co.
If there is one thing the boys (and it is mostly boys) on Wall Street like better than a big deal, it’s a bigger deal. Some say the takeover of HCA was the second biggest in recorded history, though these numbers are highly fudgeable. The price was $21 billion, and the pirates of finance have been uncorking their best rum and dancing wildly on their peg legs at the thought of how vastly much money everybody is going to make.
In fact, it appears that somebody started making money even before the starter’s gun was fired. The Wall Street Journal reports that the Securities and Exchange Commission is looking into trading in HCA before the announcement was made, which gives rise to the suspicion that insiders, knowing that the company’s stock would go up once the news was made public, bought first, cheap and profitably.
HCA owns 182 hospitals, 94 surgical clinics or centers and other health facilities in 22 states, employing almost 200,000 people. It served somewhere in the vicinity of eight million patients who paid in over $24 billion last year. Profits? About $1.4 billion. Not bad, and up over the year before.
Besides the purchase price of $21 billion, the new owners of HCA will have to assume a corporate debt of $11.7 billion—a total debt of about $32 billion, which doesn’t bother them at all. One of the reasons it doesn’t is that this group of sharks faithfully follows rule No. 1 of high finance: never use your own money. They are going to borrow the dough.
Does that mean they will spend long years scraping together the money to pay off the debt bit by bit? No, because rule No. 2 of high finance is to start milking the company once you’ve got hold of it.
A recent Wall Street Journal article (that newspaper ought to be required reading) recounts how Texas Pacific Group, the private-equity arm of the Goldman Sachs Group and Bain Capital (also in on the HCA deal), had no sooner gotten their mitts on Burger King than they opened the cash register and paid themselves $22 million for what The Journal called “unspecified ‘professional fees.’” Next, the hamburger chain was signed up to pay $29 million to its new owners for a collection of nebulous services like monitoring, management and serving on the board. Then there was another $30 million payment for ceasing to monitor, manage and board-serve. Then came yet another payday for the hard-working owners: This time it was $367 million in dividends, which Burger King did not have and so had to borrow the dough. Lastly, they sold the company to the general public and walked out the door.
Presumably, HCA is in for the same kind of treatment. Bain Capital already has a track record, while Kohlberg, Kravis, Roberts & Co. has its own kind of track record showing how ideally suited it is to run a large health organization (or at least profit from owning one): Some time back, KKR made itself briefly famous by purchasing a tobacco company whose products include Camels, Kools, Winstons, Salems, Dorals, Pall Malls and Eclipse—which wouldn’t be a bad idea now.
This is not the first time that HCA has been bought as a publicly owned corporation and converted into a private one; it was done once before. Wall Street even has an expression for going private and then going public again. It’s called “pump and dump.” Get a company, loot it (or sometimes not)—but keep the press releases going so that the gullible ones with the 401(k)’s think marvelous things are being done to the company—then put it back on the market, sell it off to the public (who have been fed the conviction that buying its shares will lead to early retirement), and the deed is done. The company has been pumped and dumped, and next it will probably shrink and stink.
Speaking of odors, HCA has had the whiff of scandal about it for going on 10 years. There is the minor one concerning Republican Senator Bill Frist, whose father started HCA many years ago. Mr. Frist, a Tennessean, the Senate Majority Leader and a putative Presidential candidate, is suspected of using insider information to time his sale of inherited HCA stock.
That, however, is a minor smell for which there may be no rotting carcass. More injurious to HCA’s reputation was the series of government investigations concerning allegations that the company was indulging in Medicare fraud and over-billing. Nobody ever pleaded guilty—nobody ever does on these deals—but HCA has had to pay the government almost two billion bucks to buy its way out of the mess.
News that HCA was going private raised the question of how the new owners were going to pay off the debt. Some owls of finance were quoted as saying that there would be nothing to it, that interest rates are so low it would be a snap. Others had their doubts.
The doubters point out that the last time HCA went private, the owners cut expenses to the bone. They contend there are no management tricks left that will decrease the company’s expenses.
In all this speculation, one group was consistently not mentioned: the patients. No one wondered how this debt might impinge on patient care, though it stands to reason that every dollar taken out of medical care in profits is one less dollar available for taking care of sick people.
I will spare you the usual liberal’s lament about poor people: As an increasingly large number of formerly not-poor people fall into the poorish category, there is that much less tolerance for whinging about the down and almost-out. So let’s not dwell on how the billions in profits for the health speculators might have gone to pay for poor people’s medical treatments.
Instead, let’s speculate on what may lie in store for the people in HCA’s hospitals who do have health insurance. Will there be fewer supervising nurses? Nobody can deny that the quality of nursing care ain’t what it used to be. Will it mean an extra hour of lying in one’s own filth because there is no one on duty to clean the incontinent patient? Does it mean an extra 45 minutes of awful pain because there are not enough people on duty to respond promptly to someone in agony?
Or does it mean more people die? Hospitals kill a lot of people. We’re not talking medical mistakes; we’re not talking about leaving the occasional sponge in the peritoneal cavity. We’re talking about hospitals killing their own patients through—to use the technical term— nosocomial (hospital) infection. The Centers for Disease Control estimate that, annually, “nosocomial infections cost $4.5 billion and contributed to more than 88,000 deaths, one death every 6 minutes.”
Of these, at least a quarter—22,000 deaths per year—are preventable by better cleaning of hospitals and (again in the C.D.C.’s words) by stopping “the use of ‘community glove boxes,’ non-sterile invasive instruments and other so-called ‘cost saving’ electives.”
Untold lives can also be saved if medical personnel would kindly wash their hands. These small, life-saving changes demand nothing more than a dedicated staff that is remorseless in its determination to eradicate germs. That takes money, and that takes owners who have not tried to get rich selling cigarettes, who have not made their livings through pump and dump, or loot and boot, or wheel and deal.