LifePoint Hospitals, Inc.

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LifePoint Hospitals, Inc.

103 Powell Court, Suite 200
Brentwood, Tennessee 37027
U.S.A.
Telephone: (615) 372-8500
Fax: (615) 372-8575
Web site: http://www.lifepointhospitals.com

Public Company
Incorporated: 1999
Employees: 9,300
Sales: $907.1 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: LPNT
NAIC: 622110 General Medical and Surgical Hospitals

LifePoint Hospitals, Inc. of Brentwood, Tennessee, a suburb of Nashville, came into existence when healthcare giant Columbia/HCA spun off a number of hospitals in 1999. LifePoint was initially comprised of 23 rural hospitals in the Southeast, while sibling spinoff Triad Hospitals was made up of 34 hospitals. Since its formation, LifePoint has suffered major setbacks yet managed to garner the respect and praise of the healthcare industry through consistent earnings, renovating its properties, and luring top physicians to its hospitals. In 2005 LifePoint merged with rival Province Healthcare Company to become one of the country's leading for-profit healthcare providers with 50 hospitals nationwide and revenues of more than $1.5 billion annually.

The Birth of LifePoint: Late 1990s

There were many factors prompting the formation of LifePoint Hospitals, Inc. The firm was the result of its parent company, Columbia/HCA, spinning off a number of its holdings after the federal government began investigating the hospital conglomerate's aggressive business practices. Columbia Hospital Corporation was founded back in 1987 by two Texans, lawyer Rick Scott and financier Richard Rainwater, to purchase two hospitals in El Paso. Columbia expanded rapidly into other states and merged with Smith Laboratories; next came a series of healthcare acquisitions until the advent of HMOs (health management organizations) and a crackdown of Medicare and Medicaid fraud that put many competing providers in jeopardy.

The end of 1980s' merger mania and the arrival of the sobering 1990s found Columbia in disarray. The company had been at the mercy of its executives. Firms were bought then sold, the firm went public, then private, and public again as its management changed hands. Columbia, fortunately, was able to weather the storms and went back on the acquisitions trail. In 1994 the company purchased the Tennessee-based Hospital Corporation of America (HCA) and merged operations. The new Columbia/HCA then went on a seemingly endless acquisitions spree, gobbling up dozens of healthcare providers over the next two years. The company's actions attracted the attention of the federal government, however, which initiated inquiries into Columbia/HCA's acquisitions and business tactics in 1997. In the ensuing investigation, several executives were indicted and/or fired and a chastened Columbia/HCA, still the country's largest for-profit hospital corporation, began selling off some of its holdings.

In 1998 Columbia/HCA filed a lawsuit of its own against a former financier for fraud; by the following year, the company was still selling assets, including two regional units christened LifePoint Hospitals, Inc. and Triad Hospitals. LifePoint Hospitals was made up of 23 nonurban hospitals in predominantly southeastern states, headquartered in Brentwood, Tennessee. Most of the hospitals spun off to become LifePoint were not sterling moneymakers, but could certainly benefit from corporate independence. Up and coming maverick Scott Mercy, who had originally worked at HCA since the 1980s and had become a senior vice-president at the merged Columbia/HCA, was appointed LifePoint's chairman and chief executive with James Fleetwood, Jr., who had served as Columbia/HCA's head of operations for Florida, named president and chief operating officer.

LifePoint seemed poised to make a splash in the healthcare industry, yet Wall Street was not impressed. With financing tight, top LifePoint executives were offered stock in the new company. All bought into the new venture, including Mercy, who commented to Modern Healthcare (December 6, 1999), "This management team is willing to bet their house basically on the success of the operating strategy.… I'm willing to put my money where my mouth is." Mercy initially invested almost $3 million of his own funds, then spent an additional $200,000 on stock before the year was out.

By the end of its maiden year, LifePoint opened its first new facility, the $32 million Bartow Memorial Hospital, replacing a 74-year-old property in Bartow, Florida. At over 120,000 square feet, the new hospital was a dream come true for the under-15,000 population of Bartow in Polk County. LifePoint had also shed two underperforming hospitals, began renovating its other 20 hospitals (excluding Bartow), and finished the year with revenues of $515.2 million.

Tragedy Striking Twice: 2000–01

Under Mercy and Fleetwood, LifePoint's raison d'être was to invigorate its properties and make them the most desirable medical facilities in their region. Underperforming hospitals were sold in favor of others poised to outperform in their sectors, like the Putnam Community Medical Center in Palatka, Florida, which LifePoint bought from former parent Columbia/HCA (renamed HCA—The Healthcare Company). With a number of its hospitals the only major facility in rural or small towns, LifePoint was determined to keep patients in the area, to not feel compelled to drive to major cities, sometimes hours away, for better treatment. Millions were poured into replacing outdated equipment, remodeling, and hiring physicians away from competitors. New labor/delivery and intensive care units were built, operating rooms were refurbished and enlarged, and more outpatient services and procedures were added.

By 2000 LifePoint was comfortable in its independence; the company continued upgrading its properties and hired more doctors and support staff, bringing the total number of affiliated medical professionals to 6,000. Mercy and Fleetwood had achieved solid success in fighting migration to larger, better equipped metropolitan hospitals. It all came to a sudden halt, however, in May 2000 when Scott Mercy was killed in a plane crash. Mercy had been piloting the small plane, and a flight instructor also died in the crash near Smyrna, Tennessee.

Fleetwood was immediately given the duties of chief executive with longtime board member DeWitt Ezell becoming interim chairman. As if the loss of the 38-year-old Mercy was not enough, LifePoint's rating was downgraded and its stock plummeted nearly 6 percent when news of Mercy's death was reported. Robert Mains, an analyst with the Connecticut-based Advest, commented to Modern Healthcare (June 5, 2000) about Mercy's death and LifePoint's future: "When somebody of that stature dies suddenly, it raises questions about both continuity and succession."

Fleetwood easily stepped into wunderkind Mercy's shoes, officially becoming chief executive and chairman in June, two weeks after his predecessor's demise. Fleetwood, along with Kenneth Donahey, executive vice-president and COO, redoubled efforts to fight LifePoint's biggest problem: keeping both patients and doctors from migrating to better equipped facilities. While Mercy and Fleetwood had been able to staunch the flow the previous year, the new millennium would set the stage for years to come. LifePoint continued to put millions into state-of-the-art medical equipment and upgrading facilities. Revenues for 2000, despite the year's difficulties, were strong at $557.1 million, with net income of $17.9 million.

In March 2001 LifePoint made a secondary public offering of common stock, raising over $100 million to pay off debt, sending share prices upward despite weakness in the healthcare industry itself. The company had rebounded after Mercy's untimely death and Fleetwood had maintained both steady growth and revenues. Yet tragedy struck LifePoint again: in May Fleetwood suffered a massive heart attack and died a year and three days after Mercy's death. The 54-year-old Fleetwood had been sailing with his wife off the coast of Florida. The impact of Fleetwood's death sent shockwaves through the company; upon Mercy's death there was a likely successor since Fleetwood had been his right-hand man. LifePoint's board was now in a quandary since Fleetwood had served as chief executive, president, and chairman.

DeWitt Ezell was again appointed interim chairman as rumors circulated over whether executive vice-president and COO Kenneth Donahey would take the reins of the company. Some believed the board would look to an outsider. Business, however, went on as usual at LifePoint despite the loss of Fleetwood. Donahey ran the company until he was officially named chief executive and chairman less than a month after Fleetwood's death.

Setting a Stable Course: 2002–05

LifePoint proceeded cautiously in early 2002 after its own tragedies and the national crisis caused by the terrorist attacks of September 11, 2001, affected the entire nation. The company had been buying select hospitals to bolster its presence in the Southeast, especially in Georgia and Louisiana, then bought three Alabama hospitals in 2002. LifePoint also completed the acquisition of the Kansas-based Dodge City Healthcare Group, the majority of which had been bought by HCA in 1995, before LifePoint's formation. Additionally, LifePoint submitted the winning bid for a bankrupt hospital in Logan, West Virginia, in November 2002. By the end of 2002 LifePoint owned and operated 28 hospitals with a workforce of over 7,000 and had generated revenues of $743.6 million, a healthy 20 percent increase over 2001's $619.4 million.

Company Perspectives:

LifePoint Hospitals, Inc. operates 30 hospitals in nonurban communities. In most cases, the LifePoint Hospitals facility is the only hospital in its community. LifePoint Hospital's nonurban operating strategy offers continued operational improvement by focusing on its five core values: delivering high quality patient care, supporting physicians, creating excellent workplaces for its employees, providing community value, and ensuring fiscal responsibility. Headquartered in Brentwood, Tennessee, LifePoint Hospitals is affiliated with over 9,800 employees.

In early 2003 Wall Street was atwitter with rumors of a merger between LifePoint and Province Healthcare. LifePoint's stock fell sharply, by over 9 percent, when Donahey denied any deal. Instead, LifePoint continued to buy smaller facilities, like Lebanon, Kentucky's Norton Spring View Hospital (which also included a nursing home and pediatrics practice), bringing its total hospital count to 29. The company received good publicity late in the year when four of its hospitals were named to Modern Healthcare 's annual listing of the nation's "100 Top Hospitals." The four facilities, selected from more than 5,600 hospitals nationwide, were Meadowview Regional Hospital (Maysville, Kentucky), Georgetown Community Hospital (Georgetown, Kentucky), Crockett Hospital (Lawrenceburg, Tennessee), and Ashley Valley Medical Center (Vernal, Utah). LifePoint finished 2003 with robust revenues of $907.1 million, a 22 percent climb from the previous year, and net income of $68.5 million.

Five years after its creation, LifePoint had survived the deaths of two chief executives and a tumultuous healthcare industry. The company had proven resilient and its chief executive, Donahey, steered a well-plotted course to expand Life-Point's holdings. In 2004, like previous years, the company sought small- to medium-sized hospitals to add to its growing roster. River Parishes Hospital in LaPlace, Louisiana, met the necessary requirements to join the LifePoint family in May. LifePoint then stunned many with its agreement to acquire rival Province Healthcare Company for $1.7 billion. Although LifePoint had strenuously denied rumors of a buy or merger with Province back in 2003, the two companies had since worked out the details. The merger would give LifePoint a total of 50 hospitals in 19 states and estimated annual revenues in excess of $1.5 billion.

By the second quarter of 2005 LifePoint and Province had completed their merger. Prospects for the new and improved LifePoint were bright and the company had become far more successful than imagined when spun off from Columbia/HCA only six years earlier. In the wake of tragedy, Donahey had proved a stalwart leader, guiding the company to soaring stock prices and continually climbing revenues.

Principal Competitors

Catholic Healthcare Partners; Community Health Systems, Inc.; HCA, Inc.; Health Management Associates, Inc.; Tenet Health-care Corporation; Triad Hospitals, Inc.

Key Dates:

1987:: Columbia Hospital Corporation is founded.
1994:: Columbia buys Hospital Corporation of America; the new company is called Columbia/HCA.
1995:: Columbia/HCA buys a majority stake in Dodge City Healthcare Group.
1999:: LifePoint Hospitals Inc. is formed following the spinoff of 23 hospitals from Columbia/HCA.
2000:: LifePoint's chief executive is killed in a plane crash.
2001:: LifePoint's second chief executive dies of a heart attack.
2002:: The company buys the remaining interest in Dodge City Healthcare Group.
2003:: Stock plummets after LifePoint denies merger talks with Province Healthcare Company.
2004:: LifePoint announces its intention to acquire Province and merge operations.
2005:: Province Healthcare's holdings are merged into LifePoint.