HCA Healthcare CFO outlines M&A growth strategy, post-COVID hurdles facing the health system

HCA Healthcare
Growth is front of mind for the large for-profit system, particularly when it comes to in-market opportunities around continuing services. At the same time, CFO Bill Rutherford said HCA and others will likely feel the lingering impacts of disrupted utilization and workforce burnout for months to come. (HCA Healthcare)

After the ups and downs of a pandemic year, one of the largest health systems in the country is sitting on a balance sheet primed for new growth opportunities.

Speaking in a recent RBC Capital Markets Global Healthcare Conference Q&A, HCA Healthcare Chief Financial Officer and Executive Vice President Bill Rutherford said that his company has budgeted about $1.5 billion to $2 billion in growth capital for the coming year.

That money could potentially go toward a variety of focus areas, he said, such as building or buying additional inpatient capacity, expanding service line capabilities and fleshing out ambulatory care.

Rutherford said the company’s first priority for investments is always to shore up its existing markets, but it’s the company’s push into new downstream business opportunities that have garnered the most attention as of late. Chief among these was news from earlier in the year that HCA would be acquiring a majority stake in Brookdale Senior Living.

Rutherford said that his company hasn’t been active in the home health space for nearly two decades, but about two-thirds of Brookdale’s agencies are operating in markets where the health system is active and ready to synergize.

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The deal reflects HCA and the broader provider industry’s belief that more post-acute care will be moving into patients’ homes, he said. As such, the company is viewing its purchase as “more than just a test run.”

Rather, Rutherford likened the Brookdale deal to HCA’s purchase of CareNow about six-and-a-half years ago.

Much like how HCA used CareNow as a “nucleus entity” to build out its current urgent care service line, Brookdale will be “a platform by which we think we can grow and provide more services into the home. It’s a very strategic acquisition for us and we’re excited to see that closed in the summertime,” he said.

Rutherford went on to say that HCA is looking at freestanding behavioral health and inpatient rehabilitation facilities as additional examples of the company’s strategy to expand continuing services.

For the latter, he said that the recent relaxation of Certificate of Need (CON) laws in Florida is “an immediate opportunity” to match the footprint HCA has already built in Texas and other non-CON states. As such, HCA will be “dedicating a reasonable amount of capital” to grow inpatient rehabilitation units within the state, he said.  

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Contrasting the discussion on growth was the recent word that HCA would be paring down its portfolio within Georgia by selling off five of its hospitals.

Similar to the company’s communications at the time, Rutherford said that these facilities had not been well-positioned to develop the fleshed-out network of services the system has achieved in its other major markets. He noted that HCA has not completely divested from the Georgia market—it operates four other hospitals elsewhere in the state—and characterized those sales as another chance at future growth.

“It’s better for those communities, better for those facilities,” he said. “It makes greater sense for that marketplace to partner with a [type of] strategic network that we just have not been able to develop over a period of time. We had the advantage to divest those in a favorable economic environment and figure out other ways we can distribute those proceeds to continue to drive value.”

HCA and the other major for-profit systems may have generally bounced back from COVID-19’s initial barrage on their bottom lines, but that’s not to say that these organizations are immune from the long-tail financial impacts of a global pandemic.

Utilization trends involving lower volumes and a loss of low-acuity patients have persisted for the system through April, Rutherford said. Costs have also inflated due to a number of factors, chief among which have been challenges related to supply and demand among the healthcare workforce.

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“No doubt what we’ve been experiencing over the last 14 months has affected the clinical workforce more than any other segment,” he said. “They’re fatigued, they’re tired… it’s creating challenges where people are leaving the workforce.”

HCA has largely been able to weather these and roadblocks due to its size and revenue, the executive said. Still, he said the broader industry should expect and plan for these challenges to extend well beyond the public health emergency.

“Just because COVID subsides doesn’t mean those issues are going to go away, I think they’re going to be a little more longer lasting,” he said. “We are looking at ways to … support that clinical workforce and how do we manage through that. Our teams are doing really a great job with that, but I don’t think there’s any getting away that the labor market has been disrupted and it’s going to have some impact for a period of time.”