MedCath, a Charlotte-based hospital operator that once had annual revenue of $636 million, is filing paperwork to dissolve Friday, brought down by changing regulations, consolidation, and a heavy reliance on the rapidly changing business of cardiac care.

The company already has finished selling off its eight majority-owned hospitals, its two minority stakes in hospitals, and other cardiac care practices. After filing a certificate of dissolution in Delaware on Friday, the company will distribute $6.33 per share to its stockholders and halt trading of its shares for good.

MedCath’s fall highlights the swift pace of changes in the health care landscape. Shifting regulations threatened the company’s fundamental business structure. And as its core business of cardiac care began to suffer, the company’s moves to diversify – into weight-loss surgery and general acute care – couldn’t boost its fortunes quickly enough.

After Friday’s distribution, stockholders will have received liquidation payments totaling $13.18 per share – still a steep fall for a stock that sold at $33.07 when new shares were offered in 2007. MedCath had concluded that continuing to run the business was unlikely to generate greater returns for shareholders than selling off the company’s parts

MedCath’s facilities, none of which was in Charlotte, were mostly sold to large, community hospital systems. That points to another industry trend that vexed MedCath: consolidation. MedCath’s hospitals were spread across many markets, such as Bakersfield, Calif., and Austin, Texas, leaving them separate from larger systems.

“There are strong winds blowing the industry toward more consolidation, not only from the hospitals themselves, but from physician’s practices being aggregated to the hospitals,” MedCath CEO Art Parker told the Observer. “That’s a trend that will continue.”

MedCath founder Steve Puckett, who left the company in 1999 and now runs a medical supply company, said the trend toward consolidation is driven largely by pricing and the way Medicare reimbursements are structured.

“It also is easier to negotiate managed-care contracts if you are part of a larger system,” said Puckett. “You can see that by what’s happened in the Charlotte market,” where Carolinas HealthCare System and Novant dominate the region.

Physician ownership

MedCath was founded in 1988, operating cardiac catheterization labs. It began selling stock in 1994, to fund its first specialty heart hospital.

Parker said Thursday that selling off the company in pieces was the best way to maximize shareholders’ payouts, given regulatory changes under President Barack Obama’s health care overhaul that block new physician-owned hospitals – which were the core of MedCath’s business plan.

“The center of our business model was the physician ownership piece of it,” said Parker. “With changes regulated around that, that eliminated the ability to open new physician-owned facilities. … It would be difficult, especially for a company that is trying to grow, to exist in that environment.”

General care hospitals criticized specialty physician-owned hospitals, which MedCath helped pioneer. The larger hospitals accused physician-owned hospitals of cherry-picking the least-sick patients, leaving other hospitals with sicker and less profitable ones.

The arrangement also was seen as a potential conflict of interest for the doctors. Before the new health care law curtailed them, Congress had put a moratorium on new physician-owned hospitals from 2003 to 2005.

Shareholders authorized MedCath to liquidate last September. The board of directors considered other alternatives, such as a merger or acquisition by another company, but was unable to find a buyer.

Small staff wraps up business

MedCath is still wrapping up its business, with a skeleton staff of nine at its Charlotte offices near Providence and McKee roads. That’s down from about 120 several years ago. It’s handling ongoing legal matters, such as a lawsuit this week by former members of a partnership that owned a hospital in San Antonio, Texas, seeking $9.6 million in damages for breach of contract.

But MedCath was already facing financial difficulties brought about by a changing medical landscape. All of its eggs were in the specialty cardiac care basket. A shift to more outpatient procedures meant fewer hospital stays. And lower government reimbursement rates for cardiac procedures were hurting revenue.

“The reimbursement rates for the individual cardiac surgeries have dropped in an inflation-adjusted way,” said Puckett. Medicare accounted for more than half of the company’s revenue. The number of inpatient cardiac catheterizations at MedCath hospitals fell from 13,418 in 2007 to 10,219 in 2010.

In 2009, the company reported a $50 million loss for the year, on $602 million in revenue, and in 2010, MedCath lost $48 million on $443 million in revenue.

The company made some progress toward diversifying away from cardiac care, opening two larger, general acute care hospitals before the dissolution. But cardiac care still made up the bulk of the business.

Former MedCath CEO Ed French declined to comment Thursday when reached by the Observer. In a 2009 interview, he said the company needed to diversify into areas such as weight loss, spine and orthopedic surgery and build bigger hospitals if it hoped to survive and expand.

“MedCath came into being at a time when there really wasn’t specialization in heart care aside from what existed in hospitals. … At MedCath, everything was dedicated to hearts,” French said then. “By definition, the design of our hospital, our success in heart care, limited our potential.”