HCA 4Q15 Earnings Call Notes

HCA Holdings (HCA) R. Milton Johnson on Q4 2015 Results

big acquisitions are hard to find because most come from the non-profit sector

“Of course, we do a lot of in-market acquisitions. But as far as the big ones you’re speaking to, things like say Kansas City that happened in 2003, those opportunities are really hard to find. They’re going to come out of the not-for-profit sector. And typically, we may engage in conversation, but many times, these organizations decide ultimately not to sell.”

Samuel N. Hazen – Chief Operating Officer

Strong markets yield 2% growth just from population

“when you think about HCA’s growth strategy, and we’ve spoken to this numerous times, we think, first and foremost, we have incredible markets where we do business. And those markets are yielding, on a composite basis, across the company approximately 2% increase in demand growth just coming from population growth, as well as aging baby boomers, increasing employment and so forth.”

Don’t generate as many downstream referrals from urgent care as ER

“we do generate downstream referrals from our urgent care centers to both our physicians who are connected to HCA system as well as our emergency room and then on into the inpatient activity. The volume of downstream referrals is not nearly as large as our freestanding emergency room, which produce a larger downstream flow to our hospitals. But the components that we’re trying to build here between physician clinics, urgent care centers, freestanding emergency room and then hospital-based emergency room is all part of having a system-wide approach to creating convenience, ease of access, user-friendly solutions for our patients, and then building out the geographical footprint of the HCA network”

William B. Rutherford – Chief Financial Officer & Executive Vice President

We are seeing some exchange volume move to uninsured

“Well, first, put in perspective that our exchange volume is roughly 2% of the total company volume. So the exchange activity by itself is relatively small going forward on that. So, as we look at kind of the activity within the exchanges, we did mention in the third quarter we were seeing some previous exchange volume move to uninsured. It was 400 admissions for HCA in the third quarter. It was roughly the same in the fourth. That’s on 460,000 admissions for the company.”

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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.”