HCA Deal One of Largest in Its Recent History

After its initial letter of intent was disclosed in March,

On the surface, the acquisition appears to run counter to our prevailing thesis underpinning HCA's narrow moat--Mission is a rural provider, in a state new to HCA, with a patient mix that skews heavily toward Medicare, Medicaid, and uninsured populations. That said, we think the uniqueness of Mission's competitive position makes it a prime candidate to see improved operational efficiency under HCA's ownership. Mission boasts roughly 50% market share of the counties in which it operates and is the largest single employer in the area. Until 2016, it was governed under a certificate of public advantage granted to it in the 1990s that sanctioned its combination with St. Joseph's Hospital in 1998, its neighboring competitor in Asheville, North Carolina. The agreement required Mission to operate under margin, cost per case, and employment caps that limited its ability to benefit from its market power. Now free from these restrictions, its acquisition gives HCA an immediately dominant presence in the area. We expect the Mission system to benefit from HCA's cost advantages in procurement, while also seeing stepped up investment from a for-profit parent organization with much deeper pockets.

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