HCA Holdings 1Q15 Earnings Call Notes

60% increase in EPS

“If you adjust the quarter’s performance for electronic health record incentive income and share based compensation, adjusted EBITDA increased 20.6% over the prior year. Net income attributable to HCA Holdings, excluding gains on sales of facilities and legal claims cost, increased 53%. And diluted earnings per share increased 60.7% over the prior year’s first quarter”

Medicare admissions up 5.9% during Q1

“During the first quarter, same-facility Medicare admissions and equivalent admissions increased 5.9% and 6.8% respectively. This does include both traditional and managed Medicare. Managed Medicare admissions increased 14.3% on a same-facility basis and now represent 32.2% of our total Medicare admissions.”

Seeing a growing number of exchange patients

“let me spend a minute talking about health reform. Health reform activity was strong for the quarter. In the first quarter, we saw approximately 9,880 exchange admissions as compared to the 1,600 we saw in the first quarter of last year. You may recall, we saw about 7,700 exchange admissions in the fourth quarter of 2014, or a 28% increase quarter-to-quarter. And we believe this is largely due to the new enrollment. We saw approximately 37,000 exchange ER visits in the first quarter, compared with the 4,000 in the first quarter of 2014 and the 26,000 in the fourth quarter of 2014.”

We think ~40% of exchange insureds were uninsured prior to ACA

“We have history on about 50% of our quarter one exchange volume and based on our look back at previous coverage, we estimate about 40% of these admissions (13:26) were uninsured to prior to health reform. Given this is the second year of reform, we are also tracking what the coverage was in 2014. Based on the exchange patients where we have 2014 experience, 36% were previously covered under a HIX product, 39% were covered by another insurance product, and 25% were uninsured in 2014. ”

Are seeing some wage pressure in stronger markets

“We have had in certain markets where the economy has historically been a little bit better seen some level of wage pressure. We’ve been able to deal with that on the fly, if you will. And we’ve adjusted certain compensation programs and so forth to give ourselves capacity to address some of those challenges. We are benefiting over the last few years from a relatively low inflationary environment and we are considering that in evaluating what we can do to prepare ourselves for possibly some level of inflation over time. I do think it will happen from one market to the other. It won’t happen in one big step across the whole organization.’

Strengthened balance sheet gives more flexibility

“Our balance sheet today, the leverage ratio is the lowest point it’s been since we entered the LBO in the fourth quarter of 2006. Our cash flow is as strong as it’s been, I think, in the history of the company. So, we’ve gained financial flexibility. And so we will continue to deploy capital in a way that we think will maximize shareholder value and shareholder returns at the same time with a view towards continuing to invest in our business for the long term.”

Better margins come from leveraging scale and more complicated service offerings

“The thing I think that we believe is driving margin production inside of HCA, you mentioned scale. We do believe leveraging the scale and continuing to find ways to leverage our scale both on making our business better with respect to quality, efficiency, patient experience, all those kind of things are very helpful in the discussion here and then finding ways, again, to take out administrative cost. We’re able to do that.

The other thing that I think is important to the company from a margin standpoint is we do have a growing complexity of services that we offer and, typically speaking, more complicated service offerings will generate higher margins. And if you put that on fixed cost base like our hospitals have, the operating leverage that comes from that is very powerful.

So we’ve been very intentional over the past four years or five years to add more complexity to our facility offering. And in most of our markets make sure we can offer pretty much any service to any patient that needs care.”

Focus on commercial segment also helps

“the fourth thing I would mention is that we have been intentional about our efforts to grow our commercial market share and put ourselves in a potion to generate margin from that particular segment.”

Learning from others also important

“And then the last thing and I think this is a powerful and tangible asset for HCA and one that we’re getting better at each and every year, is leveraging the learnings that we see across the various marketplaces. If we see a great physician strategy or we see a great outreach strategy or program strategy or quality initiative, whatever the case may be, bottling that up, finding a way to get it to the marketplace quickly is something we’re getting better at.”

There’s risk inherent to a value based reimbursement system

“Let me maybe take the last part of that question, then go back to the value equation, but we’re – as a company, we’re not looking to move and to take risk. We don’t see that right now in the intermediate term as something that we need to do. Now, do we have markets where we are taking a certain amount of risk that’s not material to the company. Sure. We have pilots going on.”

What is our value?

” with respect to value, and we talk a lot in our organization about healthcare and the value that we need to bring to our markets. And we see right now, our value as being turned by including, number one, patient safety, patient quality, patient experience, access points, so that it makes our system accessible, easy to get into, easy to access from a patient standpoint, from a physician standpoint, from the standpoint of bringing capability that Sam talked about in terms of being able to take care of any patient’s needs from basic care to some of the more complex acute care that they may need in the marketplace.”

HCA 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

30% EPS growth isn’t bad

“The fourth quarter performance was highlighted by strong volume metrics, favorable payer mix and excellent cost management. As a result, we produced revenue growth of 9.1%, adjusted EBITDA growth of 14.1% and diluted EPS growth of 29.3% over the prior year’s fourth quarter.”

Volume growth accelerated in 4Q

“volume growth accelerated in the fourth quarter as compared to the previous three quarters of the year. We believe this performance reflects a combination of solid execution of our growth agenda, our operating teams, improving macroeconomic trends in many of our markets, and capital spending that has been invested both to increase access to our networks and to add operational capacity.”

Huge swings in medicaid expansion states

“Our trends in Medicaid expansion states continued into the fourth quarter. In the fourth quarter, Medicaid admissions were up 51% and uninsured admissions were down 65% in expansion states. For full year 2014, Medicaid admissions and expansion states increased 40% and uninsured admissions were down 58%.”

Estimating that 42% of exchange patients are newly insured

“what we do is look back at exchange patients level we’ve seen this year, look back how we’ve previously seen them and what was their status when we saw them. And that’s what we’re coming up with our estimate of about 42% on a yearly basis of the patients we saw in exchanges who are newly insured.'”

Not factoring in more medicaid expansion but there should be some

“We do have a small physician in Indiana and it appears that Indiana is moving forward, so that’s very good moves.

Here in Tennessee you’re probably all aware that a special session of the legislature began last night. Governor Haslam is working very, very hard and many are working with him to try to help our state legislatures understand how important this is to the state of Tennessee and benefits that would accrue to many across states. So we’re hopeful and reasonably optimistically hope that that can get passed here early, but we have not put any of that into our numbers. We’ll obviously continue to watch other states and be supportive where we can be.”

Medicaid still struggles to get access to physicians, end up coming through ER

“We haven’t really seen a significant change in Medicaid activity and behavior. So the emergency room heavily, they struggle to get access to physicians in some markets. So that dynamic still exists.”

When people get commercial insurance, they have better access

“On the uninsured, who have gained access to commercial insurance products, we have seen less utilization of the emergency room and more availability to other facility opportunities or physician opportunities. And that’s been slight, but significant enough for us to notice that when they do get commercial insurance, there is different ability to access care through physician office or possibly through urgent care centers and the like and not through the emergency room.”

Investing in access points to our network

“We have numerous initiatives that should drive growth into marketplace, and Milton touched on them, it revolves around creating sufficient access points to our networks, so that patients can find it convenient to enter into an HCA network. So we have significant investments in additional outpatient access points. In 2015, that will hit the marketplace.”

HCA 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Exchange admissions increase, reduction in uninsureds

“Health care exchange admissions continued to increase in the quarter. We also saw significant reductions in our uninsured volumes during the quarter. ”

Healthcare reform accounts for 1/3 of the growth

“Consistent with our second quarter, we believe approximately 2/3 of our adjusted EBITDA growth can be attributed to our core operations and approximately 1/3 to health care reform.”

A little less than half of health exchange volume was newly insured

“Based on our look-back of accounts previously seen, we now believe about 44% of our health exchange volume was newly insured. The acuity of exchange volume, using case mix as a measure for intensity, is still running about 8% to 10% higher than our managed care book of business. ”

Health reform has been a boost

“The impact of reform has progressed favorably throughout the year, and we remain optimistic on the long-term benefits of health reform. And accordingly, we revised our full year health reform benefit guidance, where we now estimate a full year positive impact of approximately 4% versus our previous estimate of 2% to 3%.”

We’re prepared for Ebola

“Now let me say a few words about the company’s preparation for Ebola patients. We, like most health care providers, have redoubled our efforts across the company to make sure our hospitals and outpatient centers are prepared. ”

A few states may still be up next for medicaid expansion

“I think we’ve got 5 states you all know that have expanded. It appears Utah will be next, so we would expect Utah to come on. Indiana was in the mix, but it appears they have withdrawn their application. Tennessee, we would be hopeful going into next year, post the election, that there would be an opportunity here. Time will tell, but I think that would be maybe the next most likely to consider it. Florida, we’ll just have to wait post-election and see what happens in terms of the new governor and in terms of the state legislature. And again I say new governor, whether it’s the existing governor or a new governor, I think both support it, so the question is really the legislature down there.”

Pharmacy and surgery are two areas that we can get better purchasing efficiencies

“pharmacy and surgery, in particular, are areas where we are moving our supply chain deeper into our operations and creating a better controlled system for purchasing, and at the same time freeing our teams up to interact with our physicians and other clinicians to drive improvement in pharmacy utilization and other type of clinical utilization.’

HCA at Baird Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

High level stats

“we are the largest nongovernmental hospital operator in the U.S. We’re usually number one or number two in market shares in the markets we operate. We average about just over 24% market share on average across our 42 markets and our markets are 17 of the 25 fastest growing MSAs with populations over 500,000, and we provide about 4% to 5% of all U.S. hospital services.”

Not for profit guys are thinking narrower networks, integrated care

“Some of the large, not-for- profit competitors in the market spend more time, I guess, thinking about maybe narrow networks, more in terms of physician strategies in terms of clinical integrated networks and you’re starting to see that, but again we’re reacting to that as well in many of our markets. Physician employment continues to increase although at a much lower rate than we were seeing probably five, six years ago. So I wouldn’t say at the macro level, there’s a big sea change but certainly around the edges, there has been some change.”

Not for profit competitors also more focused on gearing up for risk based reimbursement

“The not-for-profits also seem to be focused on more of the financing of healthcare in terms of thinking about risk and risk-based reimbursement, where we are more, I would say, at this point, focused on the fundamentals of creating value in delivering our care and not so much the financing of healthcare. But if the financing of healthcare changes to more of a risk model, I think with our fundamentals that we’re putting in place which is improving quality, improving patient experience, improving access points, that, that would be successful in any sort of financing for healthcare that we face. So I don’t feel like we’re deficient there, but we probably spend less time just thinking about that in the short-term than I think some of the not-for-profit competitors.”

Certainly seeing macro improvements in key markets

” certainly, we’re seeing some macroeconomic improvements in our key markets. Florida markets, we’re seeing improvements; Texas markets, we’re seeing improvements. And when you look at our performance in the second quarter, we certainly saw a strong performance in the state of Florida and the one soft market in Florida would be Jacksonville due to some new competition in the market. Our Texas markets did very well. Houston is a stand-out market for us in the second quarter; San Antonio, a good quarter for us. And so – Nashville had a very strong performance as well. Vegas performed well in the second quarter, as did the California markets.”

Example of using big data within the company

“We’re in the early stages of it, but one, through what we call our Clinical Excellence program, which is a program led by physicians and they use this data analytics and big data techniques to determine what I’ll call, what good looks like within the system and then how do we move more markets or more facilities into what that good looks like.

For example, in terms of hospital-acquired infections, you see a particular facility that’s excelling at reducing hospital-acquired infections. Well what are they doing? What are their protocols? What are their approaches? And then sitting down with physicians and other hospitals that may not have that sort of performance and showing them the data and moving them closer, if not into the best practices range. So that’s just one example, kind of benchmarking sort of techniques.”

Can’t employ every physician that’s on the medical staff

“quite frankly, when you think about HCA and our physician relationships, we have, I mentioned, 35,000 active physicians on our medical staff. And so we can’t employ all those physicians. So what we’re looking at is, how do we make our facilities the place that they want to work. If they’re a surgeon or they’re a physician that would perform their services within the walls of our hospital, how do we make our facility the best facility for them.”

HCA 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Results exceeded expectations

“Volume trends were solid. expense management was excellent, and improving payor mix and increasing acuity continue to drive higher revenue per equivalent admission. Results for the quarter exceeded our own internal expectations”

Noticeable decrease in uninsured volume

“In our second quarter of health care reform, we experienced continued growth in exchange and Medicaid volume, with fairly noticeable reductions in our uninsured volume.”

Healthcare reform driving EBITDA growth

” as noted in our revised guidance, we now believe health care reform will comprise 2% to 3% of our 2014 adjusted EBITDA growth, up from 1% to 2% in our earlier guidance.”

Medicaid growth of 7.8%. Self pay and charity admissions decline

“Same facility Medicaid admissions and equivalent admissions increased 7.8% and 8.8%, respectively, in the quarter. This compares to increases of 1.4% and 2.4%, respectively, in the first quarter of this year.”

“Same facility self-pay and charity admissions declined 14.7% in the quarter, while equivalent admissions declined 4.9%. Self-pay and charity admissions represent 6.8% of our total admissions compared to 8.1% last year.”

Uninsured admissions down by 48% in expanded medicaid states

“On a year-to-date basis, we have seen a 32% increase in Medicaid admissions and a corresponding 48% decline in uninsured admissions year-to-date in our 4 expansion states. It is interesting to note that uninsured volume from non-expansion states has also declined just under 2% on a year-to-date basis”

Tough to say whether these utilization trends will stay high for newly insured

“I think that is one of the variables where there’s a lot of uncertainty in. And we read about it, that’s what we’re keeping our eyes on. I think one can kind of argue that as people get newly insured, there may be some pent-up demand. And so in the early periods of coverage, that’s where you start to see some of the higher demand and maybe some of the outpatient and others trails off. And I think the uncertainty around the future of health reform is that’s just a factor of utilization trends we’re going to have to monitor. As we look forward and see really the progression throughout the early periods of health reform, we have seen higher utilization rates than maybe we originally anticipated. Where do they go for the balance of the year? We are making some assumptions that the month-over-month grow will moderate, but will still grow. ”

More people enrolled, higher utilization and medicaid expansion

“I think one of the first ones is enrollment was greater than we originally anticipated. At the time in January, we were sitting there with probably 2.5 million, 3 million people enrolled in exchanges and used some assumptions, as you know, bouncing off CBO estimates, and we saw that exceed. So I think that is really a key driver. And then the corresponding utilization and how it ramped up was probably a little bit more. It happened a lot faster than maybe we anticipated. And then I’d say the other third variable would be is in the Medicaid expansion states, the shift into the decline in uninsureds and the increase in Medicaid in those 4 expansion states, even though it’s a relatively small percentage of our footprint, about 12% of our beds. I think that change in mix happened quicker than maybe originally anticipated. So those are really, I think, the 3 major variables that as we’ve got 6 months now of reform experience”

HCA 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“the most successful and sustainable strategies to participate efficiently over the long run in the ACA will be those that emphasize comprehensive patient access points, state-of-the-art and well-capitalized facilities and clinical technologies, a proven and transparent track record of providing high-quality care and service and the ability to leverage the cost structure to provide better value for the consumer.”

“the result of our work has been that we have access to bronze plans in most of our hospitals, 97%. Almost 100 of our hospitals in the lowest or second-lowest bronze plan, so we feel good about that. We do think that in certain markets over time, where we may not be in the lowest-priced offering in a particular market, it’d be interesting to see how that evolves. In many of these markets, we have a large footprint. We have significant capacity with our emergency rooms. And it will be interesting to see how that plays out over time with respect to certain out-of-network activity in certain markets.”

“I think when you think about what HCA is trying to go, it’s more of a systemic effort at trying to gain efficiencies than it is an episodic effort at responding to certain dynamics here or there…through eliminating redundancies in overhead, eliminating process inefficiencies and identifying new ways to leverage our supply chain. On our biggest cost trend, our labor, at this particular point, we’re not seeing any unusual wage pressures in the marketplace as we think about our positioning today and look forward.”

“The variables are, I think, the biggest one is, especially here in the early part of reform, what will be the overall uptake in our markets through the exchanges. Will states ultimately expand Medicaid or not? And as you know, only 4 states that we operate in expanded Medicaid. So the big states to us, like Texas and Florida, did not expand. So how will that evolve over the coming couple of years would be very interesting for us and material, I think, to our model.”

“We have a good sense right now of what our pricing would be, of course, now that we’ve negotiated our rates. But still the overall volume uptake is going to be the big question.”

“I think one of fundamental aspects of our growth agenda is to ensure that we have adequate access to our system. And that includes a host of different capabilities, everything from emergency room capacity, as Richard mentioned, to physician clinics to other outpatient settings in locations that make it convenient and easy for patients to access an HCA system. We are exploring the concept of urgent care in a very substantial way to understand how it can fit into our overall network of offering care spot in 2 markets, largely at this particular point in Nashville and Kansas City. We are studying the effects of that. It is intended to be more around creating access than it is to move patients necessarily from one setting or the other, although it does play a part in that approach. But we believe it’s a convenient and efficient way for patients to get low in care and then provide access to an HCA network if they need more substantial care or sophisticated care down the road. ”

HCA 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“I’ll retire from the role of CEO. But more importantly, that Milton Johnson, whom you all know is our President and Chief Financial Officer, will become CEO effective at that same time.”

“second quarter results, which were the product of solid volumes, better than expected revenue unit growth attributable to increase in acuity and excellent expense management by operating management teams.”

“emergency room visits were soft in comparison to past trends.”

“I would just add that we still think that given health care reform and over the longer view that there will be consolidation in the industry, we think our platform allows us to participate very efficiently in that process.”

“the uncertainty of health care reform, there’s 2 main drivers where we still have a great deal of uncertainty. One, and to your question, what’s going to be the ramp-up or the uptake on health care reform? In other words, how many — at what rate and how many of the uninsured will sign up for coverage in the exchanges. That’s a significant uncertainty for us. And then second, of those that do come into the marketplace and go into the exchange, how many will recapture?”

“we monitor what we call the in-migration of business from the rural markets into these major metropolitan markets. And that segment of our business is the fastest-growing segment of admission activity on the inpatient side. The composite growth in 2012 was actually 2.8%. And as I indicated, for 2012, overall inpatient demand was only 0.4%. So you can see that at least in rural markets surrounding HCA’s urban markets, there is a growing in-migration volume that’s taking place”

“[In ER] we actually had a decline in the lower level, the lowest levels of acuity, and that was fairly broad-based across the company…There are increased competitors in both the urgent care space, as well as the emergency room space in a lot of our markets, whether that’s coming from hospitals or freestanding entities, and we think that is yielding some pressure on the overall demand in this particular area.”

“[new] hospitals are in demographics in major metropolitan markets where there are opportunities to introduce an HCA facility and round out our network. As Richard mentioned, we usually start out with 40 to 60 beds, inpatient beds, as an example. And typically, you will see a younger population in these markets. So they’re not demanding as much inpatient health care as you might in a market where there’s a different kind of demographic. And so we’ll start out with basic services on the outpatient areas, clearly emergency room capability, outpatient surgery, a lot of imaging, and then we’ll have a lot of women services in those facilities because they’re connected to a younger population and in our obstetric service line and so forth. But what’s important is that they now are connected to a larger network and when there’s a need for more sophisticated or tertiary service, we can work with our physicians and our other hospitals to transfer patients to more tertiary level hospitals and deliver the services that those folks need. Then over time, it grows. We add beds, we add services, we bring in new physicians, and we start to get the certifications that we just spoke about, and we put ourselves in a position where it becomes a much more substantial hospital, and they move to different levels of capability over time. And that life cycle can vary, it can be 10 years in some cases, it can be 5 in very unique cases. But it’s typically a 10 to 20 years kind of cycle where these hospitals will move into a much more sophisticated level.”

HCA at Goldman Sachs Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“The shift to the outpatient is continuing. It’s unclear how much technology will allow us to continue to do that. But there is growth opportunity there.”

“Most Americans sitting here in this room don’t get their indicated care at the rate that they should. That is a quality opportunity. It’s a growth opportunity for company like us under a fee for service reimbursement model. And that in the outpatient setting, as well as what’s precipitated as a result of that is a growth opportunity. And obviously with Healthcare Reform, we have a cohort that has not previously been insured or at least underinsured. There’s a general belief of somewhere in the range of 1% to 3% at least by our view of increased utilization among that cohort wants to have insurance and a fair amount of that’s going to be in the outpatient setting as well. So we clearly have our eyes on access strategies, on everything from urgent care and retail to the emergency room to solve their acute problems, as well as continued growth in our ambulatory surgery centers and other ambulatory constructs to capture that.”

“what we’re seeing is this declining physician take-home compensation. And so we see physicians looking for income stability. That’s got 2 sides to it. The obvious side is the declining physician professional reimbursement, as well as the fairly historically lucrative reimbursement around diagnostics in the outpatient setting. That has really declined more than the evaluation of management fees. But on top of that, the expense base for the physicians has been growing, not just from the standpoint of labor, but the IT initiatives, the electronic health record, has rarely perhaps resulted in core operational efficiencies, but certainly has added overhead and initial costs, as well as an initial drag during implementation where there’s typically a 30% or 40% production loss for a period of time. You put all those things together and the net result is in the small practices, you end up seeing declines.”

“mom and pop practices that have not been perhaps as deeply operationally managed. They’ve not had the leverage of scale, whether in their contracts, their supplies, their labor or understanding what best practice can look like. So in many cases, we’ve been able to pull this together, operate it at market level integrate them into larger practices, larger footprints and create some pretty important efficiences that might have otherwise, stabilized them. So as we look forward, we see growth in employment, but I don’t necessarily see the same trajectory of cost growth.”