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HCA: 50 years ago, a chicken-fried idea launched Nashville’s most important company

HCA Healthcare August 16, 2018

It was the summer of 1967 when a letter tried to lure Tommy Frist Jr. away from medicine.

Frist, then the 28-year-old son of a respected Nashville doctor, was working in a sick bay at Robins Air Force Base in Georgia while a war raged in Vietnam. Frist had always planned to return to Nashville and follow in his father’s footsteps, but his time in the military had given him a chance to think. He found himself torn between two futures.

Medicine had been his destiny since he was boy, Frist thought, but he was quietly tempted by the world of business. Sometimes Frist dreamed of building a company from the ground up. And this dream had not gone unnoticed.

HCA: From single hospital to health care behemoth

Businessman Jack Massey, then owner of KFC, sent this brochure to Dr. Thomas Frist Jr. in the 1960s hoping to persuade him to take a job with the company. Instead, the brochure inspired Frist to envision HCA, a new kind of hospital company.
(Photo: Provided by HCA)

For years, Frist’s fledgling interest in business had been encouraged by a close friend of his father, Jack Massey, a legendary businessman who had bought Kentucky Fried Chicken in the mid-'60s, then transformed the restaurant into a massive chain. Now KFC was invading new territory — challenging Arby’s by selling roast beef sandwiches — and Massey wanted Frist to embrace his aspiration for business and lead the new venture.

So Massey sent a letter to the air base. Inside was a brochure for “Kentucky Roast Beef” with a job offer scribbled in chicken scratch. Massey was urging the young doctor to choose.

“Chicken, beef or medicine,” the message said. “Make your decision soon.”

Frist had a better idea.

One year later, Massey, Frist and his father, Dr. Thomas Frist Sr., officially launched Hospital Corporation of America, an ambitious Nashville company built on the new idea. Melding his interests in business and medicine, Frist Jr. was inspired by the strategies of KFC and Holiday Inn, two corporate chains that found success where individual competitors had tried and failed. HCA would attempt to do the same by consolidating the administration of multiple hospitals under one corporate umbrella.

“It took an idea from me, and it took Massey’s expertise and credibility with Wall Street and Dad’s vision and reputation,” said Frist Jr., now 80, the only surviving HCA founder. “We all came together at the right time in the right place — and that was Nashville, Tennessee.

“It was chemistry,” he added. “And it is history from there.”

50 years of HCA Healthcare

Today, 50 years later, Frist’s idea has grown to more than he ever could have envisioned. HCA Healthcare is the second-largest hospital chain in the United States and has used its size to become a Fortune 500 company and a leader in medical innovation. HCA spans 178 hospitals — including 13 in Tennessee — and about 38,000 doctors, 87,000 nurses and about 250,000 overall employees, according to the company. Officials proudly boast that one in every 20 babies born in the U.S. is delivered in an HCA hospital.

Dr. Thomas Frist Jr. is the only surviving founder of HCA, which was launched in 1968 with the purchase of Park View Hospital, a 200-bed facility in Nashville where his father, Dr. Thomas F. Frist Sr., had worked for about seven years.
(Photo: Larry McCormack / The Tennessean)

Over these five decades of growth, the roots that HCA first planted in Nashville have sunk deep — and a forest has grown around them. Experts inside and out of the company describe HCA as the very core of Nashville’s health care industry. And while the city may be most known for country music, the entertainment industry is dwarfed by the business of health care, which spans approximately 800 companies and nearly $40 billion in annual revenue, according to the Nashville Health Care Council.

Many of those companies are children or grandchildren of HCA. Others are competitors or partners. But almost all of them are, in one way or another, in Nashville because of HCA.

“Nashville would be a much different city today without HCA being here,” said CEO Milton Johnson, who has been with the company for 36 years, always in Nashville.

“We’ve created this ecosystem of health care here in Nashville that is very unique, and over the past 50 years the growth of that ecosystem and Nashville’s growth has gone hand in hand.”

Milton Johnson is CEO of HCA. He's been with the company for 36 years.
(Photo: Larry McCormack / The Tennessean)

Hayley Hovious, president of the Nashville Health Care Council, said HCA’s founding was the beginning of the city’s health care industry, and over the past five decades the unprecedented growth of the company has fueled the city to follow. As HCA grew, buying and building hospitals throughout the nation, the natural gravity of the company inevitably drew other businesses to the city where it was headquartered.

Eventually, Nashville was home to not just hospital companies but hundreds of indirectly related businesses — like law firms, accountants, public relations firms — that work almost exclusively in the health care industry.

HCA also spawned many of those companies itself, Hovious said. More than 160 Nashville health care-related spinoffs have been started by HCA executives alone, according to Health Care Council records. Some of these spinoffs, like LifePoint Health, have become giants of their own. The end result is a web of companies, mostly anchored in Nashville, that has grown too large to track.

“The executives of HCA were very supporting of people reinventing themselves and reinvesting in the industry,” Hovious said. “Instead of getting upset when people went off to start new companies, they would support them actively. That mindset has become a big part of the Nashville culture. It has been very much like the growth of Silicon Valley.”

HCA, founded 50 years ago with a single hospital, is now the second largest hospital company in the world and the core of Nashville's healthcare industry. Brett Kelman, The Tennessean

But growth, HCA officials say, has been good for more than just the bottom line. In a series of interviews with The Tennessean, HCA executives stressed that the company has used its expansive network of hospitals to improve medicine in ways that are out of reach for smaller companies.

Dr. Jonathan Perlin, HCA’s chief medical officer, cited two modern examples: a pregnancy study in 2007 and a hospital-acquired infections study that followed in 2010. In both cases, HCA drew data from its millions of patients, and the resulting company findings changed medicine throughout the country.

Sunny Owunah, an HCA patient, receives an anti-septic sponge bath to prevent a MRSA infection at TriStar Centennial in 2013. HCA pioneered a procedure to prevent the spread of MRSA using data collected throughout its hospital network.
(Photo: John Partipilo/The Tennessean)

In the pregnancy study, HCA spent three months studying close to 18,000 births at 27 hospitals to assess the risks of inducing labor for non-medical reasons in the final weeks of pregnancy. The study upended the widespread belief that there was no risk to inducing labor after 37 weeks, revealing that these babies were four times as likely to be sent to intensive care than babies who were induced two weeks later.

A few years later, HCA did it again. This time the company used dozens of hospitals to compare strategies for preventing MRSA, a hard-to-treat infection that is commonly spread among hospital patients. The results were a new strategy, combining nasal antibiotics and anti-septic sponge baths, that has cut infections by about 40 percent.

The findings of both studies became HCA policy, and were later accepted as an industrywide standard, improving medicine for all, Perlin said. Technically, a single hospital could have developed either of these innovations, but it would have taken ages to study so many patients.

“It didn’t take one hospital 64 years to get the data. It took 43 of our hospitals about 18 months,” Perlin said of the MRSA study. “The ability to use scale to learn more quickly, and improve faster, has been our unique contribution, not only to the patients of HCA, but to the understanding of medicine overall.”

Park View Hospital and humble beginnings

A single hospital was all it took to get started.

Park View Hospital, a 200-bed Nashville facility seen here in an undated photo, was where HCA began.
(Photo: Provided by HCA)

HCA launched in 1968 with the purchase of Park View Hospital, a 200-bed facility in Nashville where Frist Sr. had worked for about seven years. Next door to Park View, the HCA headquarters opened in a green and white house, barely large enough for a family.

These were humble beginnings, but HCA’s founders were upfront with big plans.

“The founders of our corporation believe that private enterprise can build and operate hospitals with an efficiency which will combat the spiraling cost of hospitalization,” Frist Sr. said on June 25, 1968, as the sale was announced. “We also believe that a corporation, using its experience and combined abilities, can produce significant savings in the architecture, construction and management of a chain of hospitals."

In its first year, HCA had proved its model could work. The company quickly acquired two more hospitals and planned to build five new ones — four in Tennessee and one in Virginia. Massey set a lofty goal of 100 hospitals in 10 years. Then the company went after it.

At first, hospitals were largely bought or built with stock in the new company, said Frist Jr., and much of this expansion occurred in rural areas, where there was either no hospital or a single, struggling nonprofit hospital.

This small house was the original HCA headquarters when the company launched in 1968. Today, this space has been absorbed by TriStar Centennial Hospital.
(Photo: Provided by HCA)

Even so, HCA wasn’t always welcomed. At least, not at first.

“These cities where these hospitals were located were in need of a new one. And nobody could do it,” Frist Jr. said. “They didn’t embrace us — we were their last choice. But we came in over the next five or six years and proved that we could do quality patient care with warmth and compassion.”

HCA’s business model largely began to pay off in the ‘70s when the company had acquired enough hospitals to make significant savings by consolidating much of their administration. The company discovered it could more easily borrow money to build hospitals because lenders were more comfortable with the credibility of an entire hospital chain instead of a single large facility.

Even expansion became a group effort — architects designed standard plans that could be used over and over, and construction materials were bought for several projects at once, knowing that another hospital was never far away. Hospitals were organized in clusters, with small facilities encircling a "mother hospital" that could handle routine lab tests and shuttle specialists by helicopter, according to the company.

Five years after it started, HCA had amassed 57 hospitals and spread into Panama, Australia and Brazil, and then soon after the company surpassed a milestone of 10,000 hospital beds. At its 10th anniversary, Massey proudly announced the company had met the 100-hospital goal that once seemed so impossible.

Three years later, in 1981, HCA would make its largest acquisition to date by buying longtime competitor Hospital Affiliates International, another Nashville-based hospital chain. Hospital Affiliates International was founded the same year as HCA, and the companies had been rivals for years. Now together, their revenue reached into the billions.

But HCA's biggest deal ever was still ahead.

And, for once, it would be a mistake.

Columbia, big deals and dark days

HCA made its biggest deal ever in October 1993 when it negotiated a $10 billion merger with Columbia, the only other hospital company that could rival in size. At the time, HCA and Columbia owned more than 90 hospitals and 20,000 hospital beds each.

Together, they formed the single largest for-profit health care company the world had ever known.

But amid all that growth, the family and city that had steered HCA since its founding lost control. The merged company was now led by Columbia CEO Rick Scott, and Frist Jr., then in his 50s, was relegated to vice chairman — a position from which he has said his advice was largely ignored. The headquarters of Columbia/HCA also briefly moved to Louisville, Kentucky, in 1993, then returned to Nashville in 1995.

HCA Chairman and CEO Milton Johnson, center, company executives and NYSE President Stacey Cunningham applaud as Johnson rings the New York Stock Exchange opening bell Tuesday, Aug. 14, 2018, to celebrate 50 years since the company's founding.
(Photo: Richard Drew/AP)

Under Scott's leadership, the company began to expand more aggressively than ever, gobbling up hospitals and advertising heavily on TV, in newspapers and the newborn internet. At one point, Columbia/HCA even erected a snarky billboard next to a competing hospital — asking "Why stop here?" — according to The New York Times.

Then the feds came. In 1997, agents from the FBI and other federal agencies raided Columbia/HCA offices throughout the country as part of one of the largest health care fraud investigations in American history. By the time the case was done, Columbia/HCA would plead guilty to 14 felony charges related to defrauding the federal government. The company would ultimately pay more than $2 billion in fines and civil penalties, according to the U.S. Justice Department.

Scott was ousted (he's now the governor of Florida) and Frist Jr. returned to the corporate helm, stripping Columbia from the name of the company he had helped found all those years ago. He knew that HCA's reputation had been devastated, but behind the scenes, the reality was even worse.

“I returned thinking that solving the fraud and abuse issues was the primary challenge, but we quickly learned we had a company that was operationally out of control,” Frist Jr. said in "The Legend of HCA," a corporate history book. “If the federal government had not caused a change in management, I believe Columbia would have imploded within six months, not unlike Enron and WorldCom several years later.”

The new 17-story HCA building on Charlotte Avenue is an unmistakable sign of continued growth for Nashville's most important company.
(Photo: Larry McCormack / The Tennessean)

History would show that HCA would not implode, however. Two decades after returning to its roots in Nashville, the company remains central to both the city and the nation’s health care industry.

HCA, which went public in 2011, reported more than $43 billion in revenue last year — rising for at least the fifth year in a row. The company is buying more hospitals in Georgia and North Carolina and recently completed construction of a 17-story office building on Charlotte Avenue, contributing to development in the North Gulch. And finally, HCA is using its vast hospital network to analyze the diagnosis of sepsis, hoping to repeat its success of studying MRSA and induced labor.

“I don’t see anything slowing it down,” said Johnson, the CEO, when asked about the future of HCA. “I think the future is as bright as ever as far as the growth of health care and Nashville’s outlook as well.”