Credit Suisse’s Call to HCA

Credit Suisse https://www.credit-suisse.com an international financial organization, held a post quarterly conference call with HCA Healthcare https://hcahealthcare.com management to review their 2Q19 results, volume, and pricing trends, EBITDA growth, overall results, and the 2H19 outlook.

HCA Healthcare founded in 1968 headquartered in Nashville. HCA, is a for-profit health system serving patients in 185 hospitals plus 1,800 sites of care including surgery centers, freestanding ERs, urgent care centers, and physician clinics in 21 states and the UK.

A question was asked on how HCA considers growth in medical versus surgical admissions? Management reports that HCA had growth of 3% in medical admissions but was flat on surgical admissions. However, medical admissions generally have a longer length of stay and the reimbursement is the same for a patient who is in the hospital for four or five days.

Does HCA with three straight quarters with inpatient surgery cases slightly down mean that this is this the new normal given the push of outpatient procedures? Management answered by saying, some shift of procedures to outpatient is occurring and is putting pressure on inpatient surgical volumes, however, the numbers on that shift are still relatively small. HCA is always thinking about surgical volumes and has initiatives in place to achieve being the operating room of choice..

A question was asked concerning ER visits. In Q2, ER visits were strong with 3% growth Y/Y, but in Q218, ER visits were down 0.8%. Does this swing in ER visits pressure margins? Management answered by saying, this was the first time that HCA has seen ER growth in a while so HCA still believes that ER is an important portal to the hospital and wants to continue to invest and make the ER efficient.

HCA revealed statistics on the call. Rehab is up 8%, trauma up almost 15%, cardiac up 2.5%, electrophysiology up 4%, cardiovascular surgery up 4.5%, births down 0.1%, NICU admissions up 1.8%, behavioral health down 0.5%, observation visits up 10.7% and urgent care visits up 7.7%.

The company reports that the contribution to EBITDA growth from recent acquisitions was about 3% in Q1 and about 4% in the first half of the year. This suggests that the contribution from acquisitions in Q2 was somewhere in the 5% range. Reported EBITDA growth was 3% and that would imply that there was a core EBITDA decline of roughly 2%. Is this correct?

HCA management said the information was right and the core EBITDA growth was down which has to do with revenue dynamics. HCA is aware of the situation and has plans on the revenue side and on the cost side to move forward.

In terms of the question regarding price transparency, HCA describes transparency as the availability of information to patients so that they can make informed decisions and know what their financial out-of-pocket will be when they go to the hospital. Since this is the most important aspect of transparency, the company has pricing models in place and provides other ways for patients to work with hospitals.

Management also explained that if someone talks about transparency from the standpoint of posting pricing or negotiated rates with managed care, then it is a different dynamic. HCA would have to see a lot more information on it and exactly how it is supposed to work before giving a good answer on that subject.

An important question and issue concerns the talk about Medicaid disenrollment in some states with healthier people being pushed off the rolls? From HCA’s perspective, it seems that could decrease Medicaid utilization and potentially increase some self-pay utilization if individuals are taken off Medicaid and aren’t able to get other insurance.

Management responded to the disenrollment issue by saying Florida has seen a reduction in their Medicaid rolls and Texas has been sort of flat recently. Management concludes that it’s hard to guess why individuals are falling off the rolls. You can only hope they are getting jobs and going into the commercially insured population, but it’s hard to really know.

For more information and to provide feedback, contact Research Analyst A.J. Rice at aj.rice@credit-suisse.com or call 212-325-8134 or contact Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.

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