HCA 3Q15 Earnings Call Notes

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Higher contract labor costs to fill vacancies and serve increased volume

“we carried more labor cost in the quarter compared to our plan. There are primarily two items that impacted our labor cost. We saw an increase in the use of contract labor during the quarter. Our contract labor expense was up $55 million or 36% as compared to the third quarter of 2014. We have seen growth throughout the year but it did accelerate during this quarter. This increased use of contract labor is used to fill in for staff vacancies that occur because of higher turnover rates and needs we have to serve the increased volume.”

Increases in Pharmaceutical costs also impacted results

“The second area that impacted our results in the quarter is the continued increases in pharmaceutical costs. Our pharmacy cost in the third quarter of 2015 were up in total just under 13%. When we adjust for borrowing growth, we estimate the company had about $15 million higher pharmacy cost due to price increases for certain classes drugs. We have seen multiple price increases for a small number of drugs which primarily relate to single manufactured pharmaceuticals.”

Also saw increase in uninsured admissions

“And the third area is we saw an increase in our uninsured borrowings in the quarter. Recall, we saw this developing in the second quarter. In Q3 of this year, our uninsured admissions were up 13.6% as compared to Q3 of 2014 and uninsured adjusted admissions were up 8.8% over the prior yea’

Saw insureds convert to self paid due to non-payment of premiums

“We also saw an increase in the number of people previously registered as insured that were converted to self-pay in the quarter. For instance, we saw 480 patients who were previously registered as health exchange convert over to self-pay in the quarter. We believe this is likely due to non-payment of premiums”

Volume growth was solid in 3Q

“As mentioned earlier, volume growth was solid in the third quarter. We believe this performance continues to reflect growing demand for healthcare services in HCA markets and further gains in market share for the company. ”

Improving economy is having some effects on labor equation

“we do have an improving economy as we have indicated across most of HCA’s markets and we think that is having some effect on our overall labor equation. It’s pocketed in some markets and more significant in others, but nonetheless it is having some effects we believe and we have been indicating that as a potential issue. ”

Significant supply competition in some service lines

“The other issue is, within certain service lines we have seen significant competition in new supply. And that’s especially relevant in the emergency room where we have seen difficulties in recruiting emergency room nurses and having to use contract labor to service our emergency room”

Texas economy so strong even with oil

“Clearly the oil economy have had some impact on Houston in particular and then some sprinkled impact across other Texas markets. However, the Texas economy is so strong that there still reported job growth even in Houston and obviously in the other markets and we are seeing that in the demand that we are studying within the Texas markets.”