Hca's Offspring Are Making Nashville A Proud Parent

Nashville will always be best known as a town of twanging guitars and country crooners. But lately, the home of the Grand Ole Opry also has been playing host to the Grand Ole IPO: Nashville has become a hotbed of initial public offerings by health care companies. HCA-Hospital Corp. of America will be the ninth Nashville-area health care company to go public in the past year. Collectively, they will have raised about $1.5 billion in equity (table). To paraphrase Willie Nelson: "If you've got the money, honey, they've got the stock."

This swelling health care band got its start as a duet back in 1968. That's when businessman Jack C. Massey and cardiologist Thomas F. Frist Sr. came up with the notion that hospitals could be run as profitably as a chain of Holiday Inns. Massey--fresh from selling his Kentucky Fried Chicken chain--provided the capital, and Frist furnished the contacts. Their Hospital Corp. of America quickly spawned a Nashville competitor, Hospital Affiliates Inc., which HCA bought in 1981.

Over the years, many HCA executives left to strike out on their own. Others got their start when HCA sold off a collection of ancillary businesses. All told, more than 20 companies have been founded by veterans of HCA and Hospital Affiliates. These include Allied Clinical Labs, which went public in 1990, as well as Quorum Health Group Inc., a hospital-management firm that reached the public market in 1989.

But HCA did more than supply the talent for a growing industry. It furnished the pattern for success, showing upstarts how to profit from health care and offering a game plan for attracting investors. Early in his career, remembers National Rehabilitation Centers Inc. Chairman William Youree, "I was like a little kid watching the big kids play." Now 44, he took the company public last year.

Even Nashville's mayor, Phil Bredesen, is a health care entrepreneur. Bredesen started a health-maintenance organization in 1980, and netted $400 million for a small group of investors when he sold out. A year later, in 1986, he started building another HMO provider, Coventry Corp. Bredesen took Coventry public last year. Since his election as mayor, a full-time position, he has stepped down as chairman.

Although unexpected losses at an insurance unit have battered Coventry's stock price, most of the Nashville IPOs have ridden the strong market to big gains. HealthTrust Inc.'s stock is up 50% in its first month of trading. The company was created in 1987, when 104 of HCA's smaller hospitals were spun off. Another favorite is American Healthcorp, whose stock has doubled in price since its August IPO. It runs diabetes treatment centers.

CASHING IN. Such niche plays are the rule for the Nashville IPOs. National Rehabilitation Centers' forte is workers-compensation cases. Inforum Inc. sells hospital-management software, while Diversicare Corp. of America is a nursing home chain. Medical Waste Systems operates incinerators. Community Health Systems runs 10 rural and suburban hospitals.

Nashville also is home to one of the hottest health care stocks going, Surgical Care Affiliates Inc., an outpatient surgical-center operator that is selling at a stratospheric 87 times earnings. Such multiples could mean the market is nearing its peak. PhyCor Inc., an operator of freestanding clinics, and Pinnacle Care Corp., which has nursing homes and rehab centers, both recently announced plans to go public. With any luck, they'll cash in before the music stops.

      Initial public offerings in last year
      Company               Amount raised    Initial price    Price on
                                Millions       per share      Jan. 13
      HEALTHTRUST                 $560.0              14      21 1/4
      COVENTRY CORP.                43.5              14 1/2  14
      COMMUNITY HEALTH SYSTEMS      33.6              16      24 1/8
      INFORUM                       22.0              11      16 1/2
      AMERICAN HEALTHCORP           20.0              10      20 3/4
      CENTERS                       15.6              13      16 3/4
      DIVERSICARE                   13.8              12 1/4  11 5/8
      NATIONAL MEDICAL WASTE         5.4               7 1/2   4 1/8