Q1 2024 Earnings Summary
- HCA experienced broad-based volume growth across the company, with inpatient admissions increasing in every division. 56 hospitals grew more than 10%, representing almost one-third of their portfolio, and another quarter grew more than 5%. This is described as the best portfolio performance the CEO has seen in his experience.
- Commercial emergency room visits increased by 20% year-over-year, indicating strong demand in higher-margin segments and an improved payer mix. Patient satisfaction and service levels in emergency rooms have also improved markedly, contributing to overall growth.
- Occupancy levels are at an all-time high, and HCA has made solid improvements in recruitment and retention, enhancing staffing capacity to meet increased demand efficiently. Despite higher acuity, length of stay decreased, allowing for more admissions and demonstrating effective capacity management.
- Decline in outpatient surgery volumes: Outpatient surgeries declined 2% in the quarter, attributed mainly to calendar effects and a considerable decline in Medicaid volume due to the redetermination process. ,
- Increasing operating expenses and uncertain timing of supplemental payments: Operating expenses, such as state supplemental payment expenses and professional fees, continued to grow, with sequential increases and variability in timing, potentially impacting margins. ,
- Occupancy at all-time high may limit further operating leverage: Occupancy levels are at an all-time high, suggesting limited room for additional operating leverage through occupancy gains, potentially peaking operating leverage on labor and other operating expenses.
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Volume Growth Outlook
Q: What are the current volume trends and future expectations?
A: HCA experienced strong volume growth with inpatient admissions up over 5%. Every division saw inpatient growth, with 56 hospitals growing greater than 10%. While comparisons will be tougher in the second half, they expect demand to remain strong and sustain growth, even if not at the current levels. -
Operating Expenses
Q: What's driving OpEx pressure and future expectations?
A: Primary factors impacting operating expenses are increased professional fees and higher provider taxes related to supplemental payment programs. Professional fees began pressuring expenses in the second quarter last year, and while they are moderating sequentially, they still affect year-over-year comparisons. OpEx as a percentage of revenue has been consistent over the past three quarters, and HCA expects this trend to continue. -
Labor Costs and Contract Labor
Q: Can you update on labor costs and contract labor trends?
A: Core labor trends are in line with expectations, with wage inflation around 2.5% to 3%. Contract labor costs are down 20% year-over-year, and HCA believes there's still more room for reduction. Initiatives on recruitment, retention, and enhanced care models have improved staffing supply, allowing them to accommodate strong demand. -
Medicaid Redetermination Impact
Q: How is Medicaid redetermination affecting volumes and payer mix?
A: Medicaid redeterminations have led to a slight negative impact on volumes, particularly in outpatient surgery. However, many patients transitioning off Medicaid are moving to employer-sponsored plans or health insurance exchanges, with exchange volume up nearly 50%. This shift contributes positively to the payer mix. -
Guidance and Volume Expectations
Q: Are you adjusting guidance based on strong Q1 volumes?
A: HCA reaffirmed their guidance, noting that ranges are wide enough to accommodate various outcomes. While pleased with strong volume trends, they anticipate year-over-year comparisons will become more challenging in the second half due to strong prior-year volumes. They prefer not to adjust guidance quarterly unless material circumstances warrant it. -
Medicaid Supplemental Payments
Q: What's the outlook on Medicaid supplemental payments and DSH?
A: HCA expects a modest headwind in revenue from Medicaid supplemental payment programs in 2024 versus 2023 due to settlements realized in 2023 that won't recur. The ratios of associated operating expenses remain relatively consistent. The recent CMS final rule is viewed positively, potentially leading to changes in how providers receive payments. -
Occupancy Levels and Capacity
Q: Are high occupancy levels affecting operating leverage?
A: Occupancy levels are near all-time highs , but HCA believes there's still room for operating leverage through fixed cost absorption. They are investing in additional inpatient bed capacity, expecting to grow capacity by about 2% this year. Initiatives in case management and staffing supply have improved capacity management without compromising leverage. -
Capital Expenditures
Q: What's the plan for CapEx and capacity expansion?
A: CapEx is expected to be around $5.2 billion for the year. Investments include a new hospital in San Antonio opening later this year and major projects across campuses. HCA is also investing in emergency room capacity and outpatient surgery platforms. -
Commercial Outpatient Surgeries
Q: How did commercial outpatient surgeries perform?
A: Commercial outpatient surgeries were generally flat but performed better than the overall aggregate. Calendar effects impacted outpatient surgery volumes, with softness in Medicaid volumes. HCA doesn't see any structural issues and continues to invest in the outpatient surgery platform. -
Emergency Room Volumes
Q: What's happening with emergency room volumes?
A: Emergency room visits were up 7%, with commercial ER visits up 20% year-over-year. Medicaid ER visits were down 10%, likely due to redeterminations. Improved service levels and investments in ER capacity have led to better patient satisfaction and processing times. -
Valesco Performance
Q: How is Valesco performing relative to expectations?
A: Valesco operations are expected to generate the same amount as in 2023, but over four quarters instead of three, resulting in sequential improvement. Valesco is providing a modest benefit, and HCA is starting to see encouraging signs. -
Galen Nursing School
Q: How is the integration of Galen nursing graduates progressing?
A: HCA is integrating Galen campuses into the organization, aiming to retain graduates within the company. They plan to have about 30 campuses by 2027 with 30,000 students, graduating 7,000 to 8,000 per year. It's early, but they're encouraged by the progress.
Research analysts covering HCA Healthcare.