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    HCA Healthcare Inc (HCA)

    Business Description

    HCA Healthcare, Inc. is a leading healthcare provider that operates hospitals and related healthcare entities across the United States and England . The company owns and manages a network of 188 hospitals, 125 freestanding surgery centers, and 23 freestanding endoscopy centers, offering a wide range of outpatient and ancillary services . HCA's facilities include general acute care hospitals, behavioral hospitals, and various outpatient facilities, providing comprehensive medical services such as surgery, emergency care, and diagnostics . The company is structured into three geographic groups: the American, Atlantic, and National Groups, each contributing to its diversified service line approach .

    1. American Group - Operates hospitals and healthcare facilities in various states, providing a broad spectrum of medical services and contributing significantly to the company's revenue.
    2. Atlantic Group - Manages healthcare facilities across different regions, offering extensive inpatient and outpatient services, including emergency and diagnostic care.
    3. National Group - Comprises hospitals and related entities, delivering a wide range of healthcare services and supporting the company's balanced revenue mix.
    4. General Acute Care Hospitals - Provides comprehensive medical and surgical services, including intensive care, cardiac care, and emergency services.
    5. Behavioral Hospitals - Offers specialized care for mental health and behavioral disorders.
    6. Outpatient Facilities - Includes ambulatory surgery centers, emergency care facilities, urgent care facilities, and diagnostic centers, enhancing community healthcare networks.

    Q3 2024 Summary

    Initial Price$321.13July 1, 2024
    Final Price$405.45October 1, 2024
    Price Change$84.32
    % Change+26.26%

    What went well

    • HCA is investing in AI and technology, leading to improvements in administrative functions, operational management, and clinical outcomes, with early promising results and expectations for incremental improvements in 2025 and beyond.
    • HCA has advanced commercial contracts, including major signings with Kaiser in Denver and Blue Cross of Tennessee in Chattanooga, resulting in broad payer participation and access, contributing to growth.
    • Despite challenges such as hurricane impacts, HCA anticipates earnings growth near or slightly above the upper end of their long-term target ranges, indicating strong financial performance ahead.

    What went wrong

    • Significant impact from recent hurricanes: HCA expects significant repair expenses and lost revenue due to Hurricane Helene affecting HCA Mission Hospital and Hurricane Milton affecting HCA Florida Largo Hospital. They anticipate ongoing effects into 2025, which could negatively impact financial performance.
    • Artificial intelligence investments not yet material: While HCA is making investments in AI and technology, they acknowledge that these are not material yet and benefits are expected to be more significant in 2025 and 2026 onwards. This suggests a delay in realizing returns on these investments.
    • Rising uninsured patient volumes and stable bad debt costs: HCA reports a 7% increase in uninsured volume growth for equivalent admissions due to Medicaid redeterminations. While they state that bad debt costs remain stable, the rise in uninsured patients could pressure margins if this trend continues.

    Q&A Summary

    1. 2025 Outlook and Hurricane Impact
      Q: Is the 2025 guidance accounting for hurricane impacts?
      A: Management confirmed that their 2025 outlook accounts for the ongoing effects of the hurricanes, primarily in North Carolina, with the Tampa facility expected to be operational by the end of 2024. They anticipate being near or slightly above the upper end of their long-term growth range. More details will be provided in January. ,

    2. Pricing Assumptions for 2025
      Q: What are the pricing expectations for 2025?
      A: They project a cash net revenue per adjusted admission growth of 2% to 3% in 2025. Commercial payer contracting is progressing well, with mid-single-digit updates and 80% completion for 2025 contracts. ,

    3. Volume Trends and Payer Mix
      Q: How are volume trends and payer mix expected to change?
      A: Exchange enrollment growth is expected to moderate to 8% to 10% in 2025, down from over 30% this year. Medicaid volumes are anticipated to flatten as the redetermination process concludes, leading to a generally stable payer mix moving from 2024 to 2025. , ,

    4. Labor and OpEx Assumptions
      Q: What are the labor and OpEx expectations for next year?
      A: They anticipate a stable operating environment for 2025, with wage inflation remaining in the 2.5% to 3.5% range, consistent with 2024 trends. Other cost assumptions are expected to be stable and in line with 2024. ,

    5. Claim Denial Activity and Two-Midnight Rule
      Q: What is the impact of claim denials and the two-midnight rule?
      A: Denials were not a material impact in the third quarter. Medicare Advantage admissions increased by 11%, with approximately 2% attributed to the two-midnight rule. They continue to see modest reductions in prior authorization denials but are still facing significant denials from a few large Medicare Advantage payers.

    6. Medicare Advantage Contracting Environment
      Q: How is contracting with Medicare Advantage plans progressing?
      A: They are largely contracted across major Medicare Advantage payers and have secured renewals in 2024, maintaining consistency with past agreements. They continue to work through challenges with payer partners but remain committed to being contracted.

    7. Capital Allocation and Leverage Strategy
      Q: How are hurricanes affecting capital allocation and leverage?
      A: Despite the hurricanes, they do not plan to alter their long-term capital allocation strategy. Facilities have recovered from past storms and are performing at higher levels. Leverage is at the low end of their target range, and any changes to financial policies will be announced on the first-quarter call. ,

    8. AI and Technology Investments
      Q: What progress is being made with AI and technology investments?
      A: They are early in their digital agenda but see promising results, particularly in scheduling, workforce allocation, and revenue cycle management. While not yet material, these initiatives are expected to yield incremental improvements in 2025, 2026, and beyond.

    9. Resiliency Program and Cost Savings
      Q: How is the resiliency program contributing to savings?
      A: The program is on track, contributing to a 1.5% reduction in length of stay and margin improvements in labor. These efforts are helping fund investments in technology and innovation while supporting margins.

    10. Outpatient Surgery Trends
      Q: What is driving the decline in outpatient surgery volumes?
      A: Declines are focused almost entirely on Medicaid and uninsured patients. Despite lower volumes, revenue per surgical case increased by 7% due to acuity growth and payer mix improvement, leading to higher profitability. They do not anticipate significant changes in this trend next year.

    11. Bad Debt Impacts from Medicaid Redetermination
      Q: How is Medicaid redetermination affecting bad debt?
      A: Uninsured volume growth was 7.2%, but bad debt and uninsured costs remain stable. They do not anticipate significant changes moving into next year. ,

    12. Valesco Update
      Q: What is the status of the Valesco integration?
      A: The integration is on plan and slightly ahead, though not material to the company. Long-term objectives include improving clinical outcomes, efficiency, and leveraging the group to support technology and growth agendas, turning it into a strategic asset.

    13. Value-Based Care and Quality Metrics
      Q: What impact do quality metrics have on revenue?
      A: Quality incentives in commercial contracts are incremental and not material to revenue escalators. However, improving quality outcomes is core to their operations, aiding in attracting physicians and patients. ,

    14. Insurance Recoveries and CapEx Changes
      Q: Any updates on insurance recoveries and CapEx guidance?
      A: They anticipate insurance recoveries related to the hurricanes but cannot estimate timing or amounts yet. The change in CapEx guidance is due to the timing of capital projects, with no implications on investment opportunities.

    15. Professional Fees and Stability
      Q: Will professional fees remain stable in 2025?
      A: While it's early to provide detailed guidance, they are pleased with efforts to manage professional fees, which have shown decreasing growth rates throughout 2024, contributing to a stable operating environment for next year. ,

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    National Group4,616----4,7954,8174,891
    Atlantic Group5,109----5,6775,7195,578
    American Group5,199----5,9145,9786,019
    Corporate and Other667----953978999
    - Medicare--2,560-----
    - Managed Medicare--2,535-----
    - Medicaid--1,001-----
    - Managed Medicaid--1,039-----
    - Managed care and insurers--7,687-----
    - International (managed care and insurers)--375-----
    - Uninsured--------
    - Other--1,016-----
    Total Revenue15,59115,86116,21317,30364,96817,33917,49217,487
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    National Group4,6164,3724,3524,76518,1054,7954,8174,891
    Atlantic Group5,1095,0385,4705,5521,1675,6775,7195,578
    American Group5,1995,5365,4916,09222,3185,9145,9786,019
    Corporate and Other6679159008963,378953978999
    Total Revenue15,59115,86116,21317,30364,96817,33917,49217,487

    Executive Team

    NamePositionStart DateShort Bio
    Samuel N. HazenChief Executive OfficerJan 2019Samuel N. Hazen has served as the CEO of HCA Healthcare since January 2019. He was appointed as a director in September 2018. Prior to becoming CEO, he served as President and COO from November 2016 through December 2018. He has been with HCA for 40 years, holding various leadership roles .
    Erol R. AkdamarPresident of the American GroupJan 2023Erol R. Akdamar is the President of the American Group at HCA Healthcare, a position he has held since January 1, 2023. He previously served as President of the North Texas Division from October 2013 to December 2022 .
    Jennifer L. BerresSenior Vice President and Chief Human Resources OfficerNov 2019Jennifer L. Berres serves as the Senior Vice President and Chief Human Resources Officer at HCA. She was appointed to this position effective November 1, 2019. Ms. Berres joined HCA in 1993 and has held various roles, including Vice President of Human Resources from April 2013 through October 2019 .
    Phillip G. BillingtonSenior Vice President of Internal Audit ServicesJan 2019Phillip G. Billington is the Senior Vice President of Internal Audit Services at HCA. He was appointed to this position effective January 1, 2019. Prior to this role, he served as Vice President of Corporate Internal Audit from June 2005 to December 2018 .
    Jeff E. CohenSenior Vice President — Government RelationsOct 2019Jeff E. Cohen serves as Senior Vice President — Government Relations at HCA. He was appointed to this position effective October 1, 2019. Before joining HCA, Mr. Cohen spent 20 years with the Federation of American Hospitals, where he most recently held the position of Executive Vice President of Public Affairs .
    Michael S. Cuffe, M.D.Executive Vice President and Chief Clinical OfficerJan 2022Michael S. Cuffe, M.D. serves as the Executive Vice President and Chief Clinical Officer at HCA Healthcare, a position he has held since January 1, 2022. Prior to this role, he was the President of the Physician Services Group from October 2011 through December 2021 .
    Jon M. FosterExecutive Vice President and Chief Operating OfficerJan 2023Jon M. Foster is the Executive Vice President and Chief Operating Officer at HCA Healthcare, a position he has held since January 1, 2023. Prior to this role, he served as President of the American Group from January 2013 to December 2022 .
    Richard A. HammettPresident — Atlantic GroupJan 2023Richard A. Hammett was appointed as President — Atlantic Group effective January 1, 2023. He previously served as President of the North Florida Division from June 2020 to December 2022 .
    Michael A. MarksExecutive Vice President and Chief Financial OfficerMay 2024Michael A. Marks serves as the Executive Vice President and Chief Financial Officer at HCA Healthcare. He was appointed to this position effective May 1, 2024 . Prior to this role, he served as Senior Vice President of Finance from January 1, 2023 .
    Michael R. McAleveySenior Vice President and Chief Legal OfficerJan 2022Michael R. McAlevey serves as the Senior Vice President and Chief Legal Officer at HCA. He was appointed to this position in January 2022. Before joining HCA, Mr. McAlevey held senior legal and executive roles at General Electric .
    Timothy M. McManusPresident — National GroupJan 2023Timothy M. McManus serves as President — National Group at HCA Healthcare. He was appointed to this position effective January 1, 2023. Prior to this role, Mr. McManus served as President of the Capital Division from August 2016 to December 2022 .
    Sammie S. MosierSenior Vice President and Chief Nurse ExecutiveDec 2021Sammie S. Mosier serves as Senior Vice President and Chief Nurse Executive at HCA. She was appointed to this position effective December 1, 2021. Dr. Mosier joined HCA in 1996 as a medical-surgical bedside nurse and has held progressive leadership roles .
    Deborah M. ReinerSenior Vice President — Marketing and CommunicationsOct 2017Deborah M. Reiner serves as Senior Vice President — Marketing and Communications at HCA. She was appointed to this position in October 2017. Prior to that, she served as Vice President of Marketing and Customer Relationship Management from August 2017 to October 2017 .
    William B. RutherfordExecutive Vice President and Chief Financial OfficerJan 2014William B. Rutherford serves as the Executive Vice President and Chief Financial Officer at HCA Healthcare. He has held this position since January 2014. Prior to this role, Mr. Rutherford served as Chief Operating Officer of the Company’s Clinical and Physician Services Group .
    Joseph A. Sowell, IIISenior Vice President and Chief Development OfficerDec 2009Joseph A. Sowell, III serves as Senior Vice President and Chief Development Officer at HCA. He was appointed to this position in December 2009. Before joining HCA, Mr. Sowell was a partner at the law firm of Waller Lansden Dortch & Davis .
    Kathryn A. TorresSenior Vice President — Payer Contracting and AlignmentJul 2016Kathryn A. Torres serves as Senior Vice President — Payer Contracting and Alignment at HCA. She was appointed to this position in July 2016. Ms. Torres joined HCA in 1993 and has served in various capacities .
    Chad J. WassermanSenior Vice President and Chief Information OfficerFeb 2024Chad J. Wasserman serves as the Senior Vice President and Chief Information Officer at HCA Healthcare, effective February 1, 2024. Prior to this role, he was the Senior Vice President and Chief Operating Officer of the Information Technology Group since July 2023 .
    Kathleen M. WhalenSenior Vice President and Chief Ethics and Compliance OfficerJan 2019Kathleen M. Whalen serves as the Senior Vice President and Chief Ethics and Compliance Officer at HCA. She was appointed to this position effective January 1, 2019. Prior to that, she served as Vice President of Ethics and Compliance .
    Christopher F. WyattSenior Vice President and Controller; Principal Accounting OfficerApr 2016Christopher F. Wyatt was appointed as Senior Vice President and Controller at HCA in April 2016. He will succeed William B. Rutherford as the Principal Accounting Officer effective May 1, 2024 . Prior to his current role, Mr. Wyatt served as Vice President and Chief Financial Officer for IT&S .

    Questions to Ask Management

    1. Given the significant impact of recent hurricanes on HCA's operations, including the closure of HCA Florida Largo Hospital and ongoing issues at HCA Mission Hospital, how do you plan to mitigate the financial and operational risks associated with natural disasters, and has this influenced your long-term capital allocation strategy?

    2. With Medicaid adjusted admissions declining by 8.5% due to redeterminations, and considering Medicaid accounts for 17%-18% of your adjusted admissions, what specific strategies are you implementing to offset this volume decline and potential revenue impact?

    3. Despite your investments in AI and technology, which are still in early stages and not yet yielding material results, can you provide more details on the expected timeline for these initiatives to significantly enhance operational efficiency and how you plan to measure their success?

    4. As wage rates have stabilized in the 2.5% to 3.5% range but labor costs remain a challenge, what additional measures are you taking to optimize labor expenses and improve your wage and compensation expense ratio?

    5. In light of pressures on Medicare Advantage plan rates and margins, how are you addressing potential reimbursement challenges in your contracts with MA plans, and what changes do you anticipate in your contracting strategy to ensure sustainable revenue growth?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateJanuary 2023 January 2024
    End Date/DurationCompleted Q1 2024 Ongoing as of 2024-09-30
    Total Additional Amount$3 billion $6 billion
    Remaining Authorization$0 $2.433 billion
    DetailsCompleted Active

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and preliminary comments on FY 2025
    • Guidance:
      • Volume Growth: 3% to 4% for 2025 .
      • Earnings Growth: Near or slightly above the upper end of long-term target ranges for diluted earnings per share and adjusted EBITDA for 2025 .
      • Capital Expenditures: Approximately $5 billion for 2024 .
      • Impact of Hurricanes: Additional expenses and loss of revenue of $200 million to $300 million or $0.60 to $0.90 per diluted share during Q4 2024 .
      • Revenue Growth: 7.9% over the prior year .
      • Adjusted EBITDA Margin: Improved by 90 basis points over the prior year .
      • Labor Costs: Improved by 160 basis points from the prior year .
      • Cash Net Revenue per Adjusted Admission: Growth of 2% to 3% for 2025 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Revenues: $69.75 billion to $71.75 billion .
      • Net Income Attributable to HCA Healthcare: $5.675 billion to $5.975 billion .
      • Adjusted EBITDA: $13.75 billion to $14.25 billion .
      • Diluted Earnings Per Share: $21.60 to $22.80 per share .
      • Share Repurchases: Estimated to be around $6 billion in 2024 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • The documents do not provide specific details on the exact metrics included in HCA's guidance for Q1 2024. It is mentioned that HCA reaffirmed their full-year 2024 guidance ranges during the earnings call .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Revenues: $67.75 billion to $70.25 billion .
      • Net Income Attributable to HCA Healthcare: $5.2 billion to $5.6 billion .
      • Adjusted EBITDA: $12.85 billion to $13.55 billion .
      • Diluted Earnings Per Share: $19.70 to $21.20 .
      • Capital Spending: $5.1 billion to $5.3 billion .
      • Cash Flow from Operations: $9.5 billion to $10 billion .
      • Depreciation: About $3.2 billion .
      • Interest Expense: Around $2 billion .
      • Fully Diluted Shares: Around 264 million for the year .