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The Keckley Report

Access to Capital for Hospitals: The Realities, The Consequences 

By July 23, 2018March 1st, 2023No Comments

This year, HCA Healthcare celebrates its 50th anniversary. The Nashville-based operator of 179 hospitals and 120 surgery centers is arguably the best known in the investor-owned hospital arena.

As a Nashvillian, I follow HCA closely. Across the industry, the company is respected as a savvy operator and solid investment for its shareholders. Through the years, it has reinvented itself as market conditions dictated, most recently emerging from private ownership through an IPO in 2011. Since then, it has generated $31.1 billion of operating cash flow which it has used for capital investments in its facilities ($15.5 billion), acquisitions ($5.3 billion), share repurchases ($11.0 billion) and dividends ($3.2 billion). (1)

Opinions about HCA and other investor-owned hospital operators are strong. Supporters view their modern facilities and efficient operations as needed competition to not-for-profits and government-run facilities. Opponents counter that investor-owned hospitals cherry-pick the market offering only profitable clinical programs in attractive locations to maximize shareholder profits. And though each investor-owned system is different, there’s evidence for both.

As HCA grew, it faced fierce challenges including relentless attacks from Arnold “Bud” Relman, the editor of the New England Journal of Medicine (1977-1991) who characterized the burgeoning role of investor-ownership a slippery slope where profits take precedence over patients. (2) It’s an allegation applicable to drug and device manufacturers, the majority of health insurers, pharmacy benefits managers and most sectors in healthcare that are investor-owned. However, investor ownership of hospitals became a hot issue that continues today. Perhaps it’s because hospitals have long been the centerpiece of care in most communities. Perhaps it’s because hospitals are the biggest sector in total health spending (32%%). Perhaps it’s because the public thinks hospitals are reimbursed by the government and not at risk of insolvency.

The reality is this: the hospital business is capital intense.  Every hospital, whether investor-owned, private or public, stand-alone or multi-hospital system affiliated, is dependent on capital to maintain technologies, facilities and clinical innovations Americans expect. All try to operate where their operating revenues cover their costs. All borrow when debt is needed for investments in their businesses and interest costs are manageable. All need capital to survive.

Tax exempt hospitals depend on debt, philanthropy and business partnerships. Investor-owned systems depend on debt and equity investments from investors. As lenders have tightened credit-worthiness, many not-for-profits have consolidated into multi-hospital systems. Some have elected to sell to investor-owned systems: last year, 11 not-for-profits sold to investor-owned systems with the proposed acquisition of Mission Health (Asheville NC) by HCA the most recent example. Thus, investor-ownership of hospitals is increasing: today, one in four (24%) hospitals is owned by a publicly traded company vs 15% in 1999.

Looking ahead, the role hospitals play in the U.S. health delivery system will change. Historically, inpatient services were their centerpieces supported by outpatient programs and emergency services. Tomorrow, for most hospitals, inpatient care will be a component of a larger system of health in which services provided in physicians’ offices, outpatient, in-home and virtual care settings are equally important and financing of care for individuals and groups essential to patient access. These systems will be investor-owned and tax exempt. They’ll be bigger, diversified and fully integrated. They’ll need capital to be competitive.

So, as hospital leaders and boards contemplate their capital requirements, the realities are these:

  • The debt market will be increasingly wary about not-for-profit hospitals: Credit rating agencies are increasingly cautious in their assessment of not-for-profit hospital credit worthiness. Moody’s Investors Service revised its not-for-profit and public healthcare 2018 outlook to negative from stable based on the expectation that operating cash flow will contract by 2%-4% over the next 12-18 months. (December 4, 2018). It noted that the ratio of downgrades to upgrades among not-for-profit hospitals and health systems more than doubled in 2017–even higher than during the Great Recession in 2008 and 2009. So, capital for not-for-profit hospitals will be harder to get and more expensive.

  • The competitive environment for hospitals will put their role at risk: Strategic investors—companies that envision a dramatic shift in how healthcare is financed and delivered—see new opportunities in which hospitals are likely to play a lesser role. Well-capitalized players like Amazon, CVS, Optum, Microsoft, Apple, Intel and others will invest in an alternative system of health wherein consumers play a prominent role, technology is deployed to facilitate care coordination, outpatient and virtual care settings are the front-lines and hospital care is limited. To compete, hospitals must deploy capital in programs and services that, for many, fall outside their comfort zones.

  • The political environment for hospitals is uncertain making long-range capital planning riskier: Last week, 70 members of the House of Representatives signed onto proposed legislation supporting Medicare for All with a goal of passage in 2020. HHS is signaling its intent to double-down on value-based purchasing programs that force hospitals to accept financial risks and absorb penalties. The 340B drug discounts and disproportionate share funds appear in jeopardy. Calls for hospital price transparency are deafening and hospital price sensitivity among consumers is palpable. The public policies of the current administration favor private market solutions, less government spending on healthcare and deference to states for insurance market stabilization. That means capital investments for hospitals must be re-calibrated from bricks to clicks and ambulatory services as the dust settles in DC and statehouses.  

  • The role private investors play will increase.
    Most hospital boards aspire to operate independently: 
    Most hospital CEOs prefer to run their hospitals with minimal board constraint. But market pressures and capital constraints have prompted a bigger role for investor-ownership of hospitals. There’s no such thing as complete autonomy when a hospital is acquired or merges with a partner. And when push comes to shove, shareholder earnings will take precedence over community health if earnings-per-share are at risk.

Healthcare plays an important role in the U.S. economy representing 13.9% of the Standard and Poor’s’ Index behind only technology (26%) and financial services (14.2%). It is a major employer: 11% of the workforce are healthcare workers and 8 of the 10 fastest growing careers are in healthcare. But access to capital is becoming more difficult: financial investors can do better placing bets in consumer discretionary, technology and energy than healthcare (compared to the S&P, year-to-date earnings for healthcare are 1.8% vs. 2.6% overall) and market conditions are volatile and uncertain.

Access to capital for hospitals is an imperative for sustainability.  The growth of investor-owned systems like HCA and the impact of Amazon et al in creating an alternative delivery system pose significant challenges to hospitals. Every board should reconsider its long-term strategies and capital obligations.


P.S. Friday, LifePoint, a prominent investor-owned system, announced it is in discussions to be acquired by Apollo, a private equity fund that already owns a stake in RCCH healthcare. Together, the combined entity would operate 90 hospitals. Another example of how the investor owned market adapts when capital is tighter and market conditions are volatile.


1-HCA Healthcare 2017 Year End Presentation (

2-Relman, Arnold S. (1980). “The New Medical-Industrial Complex”. New England Journal of Medicine. 303 (17): 963–970..