Wouldn't it be great if we could turn back the clock to 2007? Life was far simpler then. The Dow was cresting above 14,000, buyouts were booming and 'global financial meltdown' was not yet the topic of elevator conversations. It seems a consortium of private equity investors misses those heady days so much that it replayed a nifty financial move last week that feels very 2007. It didn't get a lot of coverage, but HCA, the giant hospital chain, announced that it was paying its shareholders a $1.75 billion special dividend. Normally, such a large dividend might be a bullish sign about the health care industry -- and perhaps even the broader economy. But look a little closer. Recall that HCA, which the family of former Sen. Bill Frist founded in 1968 as the Hospital Corp. of America, was taken private in 2006 at the height of the buyout boom for $33 billion. Its buyers included Merrill Lynch, Bain Capital, Kohlberg Kravis Roberts and, yes, some of HCA's own managers. Collectively, the group put down $5.5 billion in cash -- the rest was a giant loan from a syndicate of banks. So when HCA says it will pay a dividend to its shareholders, what it really means is that its shareholders -- the private equity firms that control the board -- have decided to pay themselves. That might be a reasonable thing to do in a bull market with a highly profitable company that has little debt. But just look at HCA's balance sheet: it has a staggering $25.7 billion worth of debt that it still needs to pay off. As Vicki Bryan, an analyst at Gimme Credit, wrote in a report to clients, HCA's $1.75 billion dividend payment last week 'completely offsets the comparatively meager $1.6 billion in debt paid off in 2008-2009.' Worse, Bryan noted, 'most of that debt reduction was funded not from HCA's chronically weak free cash flow but by $1.6 billion in asset sales.' Not one to mince words, she titled her report 'Shell Game.' Back in 2007, if you'll recall, private equity firms, buoyed by a peaking market, routinely paid themselves huge dividends. They would often take out new loans to write themselves giant checks, just like homeowners took out second mortgages to buy flat-screen TVs and boats. So when the economy turned against them, the companies owned by private equity firms found themselves with little cushion and were forced to resort to layoffs and to cut back on research and development; some were forced to file for bankruptcy, like the Simmons Co., which makes bedding. Now, the dividend is officially back, though none as large as HCA's. Vanguard Health Systems recently paid out $300 million to the Blackstone Group, for example, and Quintiles Transnational paid $275 million to a large consortium that includes Bain and TPG, among others. Of course, there is nothing inherently wrong with paying dividends to shareholders. Public companies do it routinely. But highly leveraged companies face bigger risks. In fairness to HCA and its investors, they say there are signs the hospital business is improving. HCA's revenue is expected to increase to $30 billion for 2009, from $28.4 billion in 2008; and net income is projected to rise to $1 billion, compared with $673 million for 2008. And HCA's leverage ratio has gone down, not up -- from 6.4 times to 5. (Then again, if HCA had used the $1.75 billion to pay down debt instead of its shareholders, the leverage ratio would have dropped to 4.7.) 'The distribution balances a return to stockholders with maintenance of a strong balance sheet,' a spokesman for HCA said. 'This is the first time since we went private in 2006 that we've provided a return to stockholders who invested in HCA at that time.' The spokesman also said 1,600 HCA employees would receive part of the dividend. Frank G. Morgan, an analyst at RBC, said the dividend reflected HCA's position of strength. 'As the largest hospital operator in the U.S. with 163 acute-care facilities located in 20 states, HCA represents a bellwether for the for-profit hospital industry,' said Morgan, suggesting that HCA's announcement was a 'positive early data point for the industry.' It also is true that HCA's investors still have skin in the game -- they will be taking out less than a third of their investment in the company, so arguably they have every incentive to want it to succeed. Nonetheless, the half-dozen investors and analysts I informally polled about HCA's dividend questioned the rationale of the payment amid an uncertain economy. None of them wanted to be quoted by name. So the microphone goes again to Bryan of Gimme Credit. 'We long have been wary of the quality of HCA's revenue and Ebitda,' Bryan said, using the shorthand for earnings before interest, taxes, depreciation and amortization, 'and now the payout of a fat dividend has slashed the odds that HCA will launch an IPO anytime soon. We also expect further pressure in 2010 as pricing fades for hospital operators and cost inflation outpaces revenue growth.'For the sake of the hospitals, let's hope she's wrong. 