How HCA Healthcare—one of the country's largest hospital systems—is planning amid COVID-19

Here's what HCA executives had to say about how they're weathering COVID-19. (HCA Healthcare)

When it comes to knowing how COVID-19 will shape the future of healthcare, HCA Healthcare doesn't claim to have any special insight into how it will play out. 

Leaders of the Nashville, Tennessee-based healthcare giant went above and beyond to hedge their projections on an earnings call with analysts Tuesday, saying they'd withdrawn their guidance for the rest of the year. 

"Given this is an ongoing and unprecedented public health event, there are just too many unknowns to provide any specific estimates of the impact at this time," said HCA's Chief Financial Officer Bill Rutherford as the company posted its first-quarter results.

But that isn't stopping the company from making plans.

Saying they are putting together a "reboot," officials said they've identified a "cascading range of management actions" broken into three distinct phases: the response phase, the restart phase and the recovery phase.

Their stage one actions taken as part of the response phase, which is currently underway, have already begun, Rutherford said.  

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They expect the second stage, or the restart stage, could begin toward the second half of the second quarter.

After the restart phase, the health system said it plans to move into the "recovery phase" of getting back to a "new normal"  to begin sometime during the summer should they believe there is a long-term structural change to revenue.

"There will be many factors that influence how long this phase will last and what the impact will be to our operating results," CEO Sam Hazen said. "We are preparing for a range of scenarios with varying durations of the recovery period."

That includes major variables such as how payer mix could change, how quickly volumes rebound and the impact of cost reductions, he said.

Rutherford said officials believe the impact to the company will be "most pronounced" during the response phase as the health system continues to sustain volume declines in April.

Inpatient admissions this month are running about 30% below the prior year while emergency room visits and inpatient surgeries are down about 50% year over year and hospital-based inpatient surgeries have dropped 70% below the prior year.

"We have started to see these volume declines stabilize of the past week. We believe we will begin to see some recovery of these volumes as different regions around the country begin to open up during the second half of the quarter."

A number of states, including Texas, Oklahoma and Alaska, have announced plans to begin reopening some segments of their economy, including allowing elective procedures.

Results

HCA Healthcare ultimately missed Wall Street projections, posting $581 million in profits in the first quarter ending March 31, down from about $1 billion in the same quarter a year earlier. That was on $12.9 billion in revenue, up from $12.5 billion in revenue the same quarter a year earlier.

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Not surprisingly, HCA officials described the first part of the year as a tale of two quarters representing their operations before and after the impacts of COVID-19 set in. Most measures were moving in a positive direction until mid-March when volumes began to collapse.

For the quarter, same facility admissions increased about 1% while same facility equivalent admissions dropped about half a percent compared to the prior-year period. Meanwhile, same facility emergency room visits dropped 1% in the first quarter of 2020 compared to the prior-year period. Same facility inpatient surgeries declined 1.8%, while same facility outpatient surgeries declined 5.9% in the first quarter of 2020, compared to the same period of 2019.

But, as Rutherford explained, same facility emergency room visits grew about 5% through March 15 before dropping close to 30% in the last half of March compared to the prior year.

Similarly, same facility inpatient and hospital-based surgeries both grew about 2% through March 15 and then declined by about 20% and 30%, respectively, in the last half of March

"In essence, we saw strong results across the board until the impact of COVID-19 started to materialize in the last half of March," he said.

Officials also discussed: 

  • Federal help: The health system has already benefited from about $4 billion in accelerated Medicare payments provided under the CARES Act. That money will be repaid over an eight-month period beginning in August. HCA also received about $700 million of funds from the first phase of the public health and social services emergency fund. Those two pieces of economic assistance have had the greatest impact so far, Rutherford said. "We understand there are planned future distributions from this fund but do not know what future funds, if any, we might receive at this point." The company has also benefited from the deferral of the employer portion of payroll taxes, which the company estimates at $75 million a month. Those deferrals will have to be paid in 2021 and 2022, he said. 
     
  • Cuts: The company is planning to make major cuts to routine capital spending, as well as some technology investments, over the next year. The company has instituted hiring and travel freezes and reduced its variable cost structure and discretionary spending over the next year. "We believe the steps we have implemented enhance the company's financial flexibility as we navigate these unprecedented times," said Hazen.
     
  • Dividend suspension: The company also suspended its dividend program. It was quickly applauded. "The suspension of HCA Healthcare, Inc.’s cash dividend is credit positive because it will free up approximately $150 million per quarter of liquidity," said Jonathan Kanarek, a Moody's vice president."This, along with several recent significant actions including the reduction in costs and capital spending, suspension of share repurchases, increase in credit facility availability, and receipt of both grant funding and accelerated Medicare payments under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will enhance HCA’s financial flexibility during the COVID-19 pandemic."
     
  • Employees:  A point of pride for the company is that they have not laid off a single employee but instead committed to a payment plan to help employees who have seen their pay reduced due to cuts in their hours, Hazen said. There were some "voluntary" salary cuts taken by some around the health system to help support those who have sustained drops in compensation due to reductions in hours.

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