Analysis of the For-Analysis of the For-Profit Hospital Profit Hospital IndustryIndustry

HCA and TenetHCA and Tenet

By:By:

Zach EvansZach EvansTodd PassmoreTodd Passmore

Rachel TaylorRachel Taylor

Gina ThroneberryGina Throneberry

Hospital Industry OverviewHospital Industry Overview

Total Number of All U.S. Registered* Hospitals 5,801

Total Staffed Beds in All U.S. Registered* Hospitals 987,440

Total Admissions in All U.S. Registered* Hospitals 35,644,440

Total Expenses for All U.S. Registered* Hospitals $426,849,488,000

*Registered Hospitals are those that meet AHA’s criteria for registration as a hospital facility. Registered hospitals include AHA member hospitals as well as nonmember hospitals.

Source: 2001 survey by the American Hospital Association – www.hospitalconnect.com

HCA Healthcare HCA Healthcare CorporationCorporation

www.hcahealthcare.cowww.hcahealthcare.comm

Overview of HCA Overview of HCA HealthcareHealthcare

FacilitiesFacilities Mission StatementMission Statement HistoryHistory Mergers and AcquisitionsMergers and Acquisitions

FacilitiesFacilities

HCA Inc. is one of the leading HCA Inc. is one of the leading healthcare services companies in the healthcare services companies in the United States. The company’s United States. The company’s facilities are located in 23 states, facilities are located in 23 states, England and Switzerland. HCA England and Switzerland. HCA operates 184 hospitals, comprised of operates 184 hospitals, comprised of 172 acute care hospitals, six 172 acute care hospitals, six psychiatric hospitals, six hospitals psychiatric hospitals, six hospitals included in joint ventures, and 79 included in joint ventures, and 79 freestanding surgery centers.freestanding surgery centers.

Mission StatementMission Statement

““We are committed to the care and We are committed to the care and improvement of human life. In improvement of human life. In recognition of this commitment, recognition of this commitment, we strive to deliver high quality, we strive to deliver high quality, cost effective healthcare in the cost effective healthcare in the communities we serve.”communities we serve.”

HistoryHistory In the 1960s, Dr. Thomas Frist, Sr. led an effort by a group In the 1960s, Dr. Thomas Frist, Sr. led an effort by a group

of physicians to build Park View Hospital in Nashvilleof physicians to build Park View Hospital in Nashville 1968- Dr. Thomas Frist, Sr, Dr. Thomas Frist, Jr, and Jack 1968- Dr. Thomas Frist, Sr, Dr. Thomas Frist, Jr, and Jack

Massey create their own hospital management company, Massey create their own hospital management company, HCA, to purchase Park View Hospital HCA, to purchase Park View Hospital

1969- HCA, with 11 hospitals, makes its first public 1969- HCA, with 11 hospitals, makes its first public offering, going from $18 to $40 per share in the first day of offering, going from $18 to $40 per share in the first day of tradingtrading

1972- HCA grows to 51 hospitals and takes on it first 1972- HCA grows to 51 hospitals and takes on it first oversees project which was a hospital in Saudi Arabiaoversees project which was a hospital in Saudi Arabia

1987- Restructuring leads the company to sell off 104 1987- Restructuring leads the company to sell off 104 acute-care hospitals to form HealthTrust Inc. acute-care hospitals to form HealthTrust Inc.

1989- HCA becomes a private corporation again when 1989- HCA becomes a private corporation again when management with outside investors purchase the company management with outside investors purchase the company for approximately $5.1 billionfor approximately $5.1 billion

History (cont.)History (cont.) 1992- HCA returns to the NYSE and offers 34 millions shares of 1992- HCA returns to the NYSE and offers 34 millions shares of

common stock, raising $700 millioncommon stock, raising $700 million 1994- HCA merges with Columbia Hospital Corporation to 1994- HCA merges with Columbia Hospital Corporation to

become the largest operator of for-profit hospital in the become the largest operator of for-profit hospital in the country. The combined companies now hold nearly 320 country. The combined companies now hold nearly 320 hospitalshospitals

1997- FBI begins a full-blown criminal investigation of the 1997- FBI begins a full-blown criminal investigation of the company for Medicare fraudcompany for Medicare fraud

2000- Columbia/HCA agrees to pay the government a 2000- Columbia/HCA agrees to pay the government a settlement fee of $745 million in attempt to end their three-settlement fee of $745 million in attempt to end their three-year battleyear battle

2000- The company is renamed HCA- The Healthcare 2000- The company is renamed HCA- The Healthcare Company, unveils a new logo, and downsizes the company from Company, unveils a new logo, and downsizes the company from 345 hospitals to a goal of 200345 hospitals to a goal of 200

2001- 168,000 employees in 200 hospitals and facilities across 2001- 168,000 employees in 200 hospitals and facilities across the U.S. and Europethe U.S. and Europe

Mergers and AcquisitionsMergers and Acquisitions

June 2002, HCA acquired Northern June 2002, HCA acquired Northern Virginia Community Hospital, a Virginia Community Hospital, a 164-bed hospital in Arlington, 164-bed hospital in Arlington, VirginiaVirginia

November 2002, HCA acquired the November 2002, HCA acquired the 14-hospital Health Midwest of 14-hospital Health Midwest of Kansas City for $1.125 billionKansas City for $1.125 billion

Consolidated Income Consolidated Income StatementStatement

2001 2002

Net Operating Revenues: $17,953$19,729Operating Expenses: $16,997 $18,896Net Income: $956$833Earnings Per Share: $1.78$1.59

*Note: All dollar figures in millions except Earnings Per Share

Balance SheetBalance Sheet

2001 2002

Current Assets: $4,141 $4,505Investments & Other Assets: $2,133 $2,034Property & Equipment: $8,919 $9,721Other Intangible Assets: $2,051$2,080

Current Liabilities: $3,184$3,739Long-term Debt: $6,553 $6,497Shareholders Equity: $4,762 $5,702

*Note: All dollar figures in millions

RatiosRatios

2001 2002

Current Ratio: 1.300 1.202

Debt/Equity Ratio: 1.3761.139

Return on Equity: 0.201 0.146

Current Ratio – an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Source: investorwords.com.

Debt/Equity Ratio – a measure of a company’s leverage; a company with a higher debt/equity ratio can offer greater returns to shareholders but is considered riskier. Source: investorwords.com.

Return on Equity – a measure of a company’s return on money provided by the firm’s owners. Source: quickmba.com.

Tenet Healthcare Tenet Healthcare CorporationCorporation

www.tenethealthcare.cowww.tenethealthcare.comm

Overview of Tenet Overview of Tenet HealthcareHealthcare

HistoryHistory TodayToday Mission & VisionMission & Vision Significant DevelopmentsSignificant Developments Mergers and AcquisitionsMergers and Acquisitions

HistoryHistory Parent company – National Medical Parent company – National Medical

Enterprises, Inc – was incorporated in Enterprises, Inc – was incorporated in California in 1968California in 1968

Wholly-owned subsidiary emerges of the Wholly-owned subsidiary emerges of the same name in 1975same name in 1975

March 1995 – acquires American Medical March 1995 – acquires American Medical Holdings, Inc.Holdings, Inc.

June 1995 – changes name to Tenet June 1995 – changes name to Tenet Healthcare Corp.Healthcare Corp.

January 30, 1997 – completes acquisition of January 30, 1997 – completes acquisition of OrNda HealthCorp for $3.22 billionOrNda HealthCorp for $3.22 billion

TodayToday

Headquartered in Santa Barbara, CAHeadquartered in Santa Barbara, CA Owns or operates 115 hospitals in Owns or operates 115 hospitals in

16 states16 states Employs approximately 115,000Employs approximately 115,000 28,502 licensed beds28,502 licensed beds Publicly traded on New York and Publicly traded on New York and

Pacific Stock ExchangesPacific Stock Exchanges Current share price: $17.81Current share price: $17.81

Mission StatementMission Statement

““Tenet will remain at the forefront Tenet will remain at the forefront of healthcare delivery by: leading of healthcare delivery by: leading our industry in quality and service; our industry in quality and service; becoming the employer of choice; becoming the employer of choice; and being a technology leader in and being a technology leader in our field.”our field.”

Vision StatementVision Statement

““Tenet will distinguish itself as a Tenet will distinguish itself as a leader in redefining health care leader in redefining health care delivery and will be recognized for delivery and will be recognized for the passion of its people and the passion of its people and partners in providing quality, partners in providing quality, innovative care to patients it innovative care to patients it serves in each community.”serves in each community.”

Significant DevelopmentsSignificant Developments

November 2002: Class action suit November 2002: Class action suit filed on behalf of purchasers of THC filed on behalf of purchasers of THC between Oct 2001 to Oct 2002between Oct 2001 to Oct 2002

Nationwide audit of its Medicare Nationwide audit of its Medicare outliner paymentsoutliner payments

January 2003: Justice Department January 2003: Justice Department sues THC for falsified Medicare claimssues THC for falsified Medicare claims

In the last four months, THC shares In the last four months, THC shares have declined by almost 70%have declined by almost 70%

Mergers & AcquisitionsMergers & Acquisitions December 2002: Acquisition of December 2002: Acquisition of

Roxborough Memorial Hospital in Roxborough Memorial Hospital in Philadelphia completedPhiladelphia completed

November 2002: Construction begins on November 2002: Construction begins on new hospital in Texas; initial phase of new hospital in Texas; initial phase of construction complete on new facility east construction complete on new facility east of Memphis, TNof Memphis, TN

May 2002: THC and CHRISTUS Santa Rosa May 2002: THC and CHRISTUS Santa Rosa for a partnership – pursue acquisition of for a partnership – pursue acquisition of Baptist Health Systems in San Antonio, TXBaptist Health Systems in San Antonio, TX

Tenet’s DirectionTenet’s Direction

Voluntarily adopting a new policy Voluntarily adopting a new policy on Medicare Outlier Paymentson Medicare Outlier Payments

Propose innovative solution for Propose innovative solution for hospital patients without insurance hospital patients without insurance – ‘Compact with Uninsured – ‘Compact with Uninsured Patients’Patients’

Consolidated Income Consolidated Income StatementStatement

2001 2002

Net Operating Revenues: $12,053$13,913Operating Expenses: $10,506 $11,819Net Income: $643$785Earnings Per Share: $1.34$1.60

*Note: All dollar figures in millions except Earnings Per Share

Balance SheetBalance Sheet

2001 2002

Current Assets: $3,226 $3,394Investments & Other Assets: $395 $363Property & Equipment: $5,976 $6,585Other Intangible Assets: $133$183

Current Liabilities: $2,166$2,584Long-term Debt: $4,202 $3,919Shareholders Equity: $5,079 $5,619

*Note: All dollar figures in millions

RatiosRatios

2001 2002

Current Ratio: 1.190 1.310

Debt/Equity Ratio: 0.8270.698

Return on Equity: 0.130 0.140

Current Ratio – an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Source: investorwords.com.

Debt/Equity Ratio – a measure of a company’s leverage; a company with a higher debt/equity ratio can offer greater returns to shareholders but is considered riskier. Source: investorwords.com.

Return on Equity – a measure of a company’s return on money provided by the firm’s owners. Source: quickmba.com.

Analysis of the For-Analysis of the For-Profit Hospital Profit Hospital IndustryIndustry

HCA and TenetHCA and Tenet

By:By:

Zach EvansZach Evans Todd Passmore Todd Passmore

Rachel TaylorRachel Taylor

Gina ThroneberryGina Throneberry