Financial History Issue 116 (Winter 2016) | Page 35
on the NYSE in order to raise even more
capital for growth.
In 1968, Richard K. Eamer was a Los
Angeles, California lawyer and financial
consultant specializing in the development, financing and operation of hospitals. He saw the advantages that economies of scale and sound business practices
could bring to the industry. The following
year he joined classmate John Bedrosian
and partner Leonard Cohen in the formation of National Medical Enterprises.
Those ambitious entrepreneurs raised $23
million in an IPO and used the proceeds to purchase four general hospitals,
three convalescent hospitals and a medical
office building. By the end of the decade,
it too became a leader in applying classic
management techniques to the traditionbound hospital industry.
By 1970, these four publicly-owned
hospital management companies owned
about 250 of the nation’s 1,000 proprietary hospitals. Meanwhile, entrepreneurs
had established other for-profit healthcare
service businesses to take advantage of
Medicare’s generous reimbursement policies. For example, Community Psychiatric
Services owned several psychiatric hospitals. And in addition to the previously
mentioned Extendicare, publicly-owned
firms Hillhaven Corporation and Manor
Care also operated nursing homes.
During the next decade, groups of entrepreneurs and investors would establish
companies providing physical rehabilitation, kidney dialysis, respiratory therapy,
ambulatory surgery, diagnostic radiology,
home healthcare, etc. And they would
fund most of them by selling stock to the
public. The idea of making a profit from
providing such services would become
one of the most controversial topics in the
health care world.
But the genie was out of the bottle. The
Medicare rules were rewritten, business
conditions changed and some companies
floundered while others succeeded. Yet
investors were no longer deprived of the
opportunity to participate in the growth of
companies providing a variety of healthcare services.
Michael A. Martorelli, CFA is a Director
at Fairmount Partners in West Conshohocken, Pennsylvania, and a frequent
contributor to Financial History. He
earned his MA in History from American
Brock, Dan W. and Allen E. Buchanan. “The
Profit Motive in Medicine.” The Journal of
Medicine and Philosophy, Vol. 12. 1987.
Gray, Bradford H. Ed. The New Health Care for
Profit. Washington, DC: National Academy
Steinwald, Bruce and Duncan Neuhauser. “The
Role of the Proprietary Hospital.” Law and
Contemporary Problems, Vol. 35. October
Stevens, Rosemary. In Sickness and in Wealth:
American Hospitals in the Twentieth Century. New York: Basic Books. 1989.
Twight, Charlotte. “Medicare’s Origin: The
Economics and Politics of Dependency.”
Cato Journal, Vol. 16, No. 3. Winter 1997.
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