Despite stabilizing labor costs and an apparent return to normal volume seasonality, HCA Healthcare executives said Friday that the company is hesitant to provide guidance for 2023 due to unpredictable macroeconomic challenges such as inflation and a potential recession.
“Currently, we have reasonable insight into certain aspects of our business such as demand, which we believe will grow around 1% to 2%,” HCA Healthcare CEO Sam Hazen said during the company’s third-quarter earnings call. “Next year, we also expect payer mix and acuity to remain stable. However, with respect to inflation, we are less certain.
“We have responded to these unprecedented inflationary and macroeconomic pressures, and we will continue to respond with our workforce initiatives and our financial resiliency program. But it is too early to judge the effectiveness of our response as these forces and the related governmental responses continue to evolve and impact various categories of our costs,” he said.
HCA's stock fell more than 9% Friday after its earnings report. Hospital operator peers Universal Health Services and Community Health Systems followed, declining 4.3% and 14% respectively, Bloomberg reported.
The for-profit hospital chain, which typically releases its projections for the upcoming year around this time, now plans to share its outlook in early January. Waiting will allow HCA to complete its planning process for the year and provide three more months of performance “to assess the overall environment as well as our response to it,” Hazen said.
As for the recently completed quarter, HCA executives said they were pleased with the company’s performance despite largely logging year-over-year declines.
Revenues landed at $14.97 billion, down from last year’s $15.28 billion. Net income attributable to the company totaled $1.13 billion ($3.91 per diluted share), well below the $2.27 billion ($7.00 per diluted share) of the previous year’s third quarter.
Same-facility admissions and emergency room visits, respectively, dipped 1.5% and 1.3% year over year. On the other hand, same-facility inpatient surgeries and outpatient surgeries increased year over year by 5.6% and 2%, respectively.
Executives noted that year-to-year volume comparisons are “difficult as “significantly higher” COVID-19 volumes had represented 12.7% of same-facility admissions during the third quarter of 2021. COVID-19 accounted for 5.2% during the most recent period, with Hazen noting that HCA is anticipating the disease’s volume impact to shrink further in the coming year.
While the company was mum on 2023 projections, Hazen said an apparent return to normal seasonality trends should lead to higher outpatient surgery volumes during the fourth quarter. The system also hopes to continue addressing capacity constraints that had limited its patient volumes through much of 2022.
HCA said its results for the most recent quarter include over a billion in gains from its sale of four Georgia hospitals and other investments. Its revenues include roughly $266 million related to Florida’s newly approved directed payment program.
Executives also touched on the impacts of Hurricane Ian on HCA’s sizable Florida hospital markets. Hazen said that the company had evacuated four hospitals in the Tampa-St. Petersburg area and, when trajectory projections shifted further south, moved “our most critically ill patients” from two hospitals in Charlotte County.
HCA has since reopened all but one of its Florida hospitals and expects the remainder to be fully operational by year-end. Still, Hazen said the storm had “a modest impact” on the company’s overall volume numbers for the quarter alongside additional expenses and an estimated $35 million in lost revenues (prior to any potential insurance recoveries).
A bright spot for the 182-hospital chain was labor costs, which have dragged down much of the hospital industry through 2022. While HCA executives said the system is still seeing capacity issues in some facilities due to staffing issues, the third quarter included a roughly 19% cut in contract labor expenses compared to the second quarter.
This reduction offset annual wage adjustments for the systems' employees, Chief Financial Officer Bill Rutherford said, and led salary wages and benefit costs per hour to remain flat.
“That was encouraging, that’s the first quarter in a while where we’ve seen stabilization in our labor cost per hour when you mix all components of our labor costs,” he said. “So we continue to hopefully make some strides in that area and moderate some of the pressures that exist in the labor market as we continue to execute on a recruitment agenda, our retention agenda, our capacity management and so forth."
HCA continued its stock repurchases during the quarter with an additional 3.36 million shares at $698 million. Its board also declared a $0.56 per share quarterly cash dividend.
Investors on the call polled the executives on rate negotiations with managed care and whether the company is ready to weather a likely recession.
For the former, Hazen said that contracts closed during the quarter landed “somewhere in the mid-single digits” and reflect understanding from the payer community of HCA’s increasing costs incurred.
He said the system is about 70% contracted for 2023 and about 45% contracted for 2024. HCA has not needed to terminate contracts “in any significant fashion,” he said, and escalators included in new negotiations are so far elevated compared to historical trends.
As for the threat of recession, executives reiterated prior statements that a large system like HCA is better poised to handle an economic downturn now than it was in 2007 thanks to the Affordable Care Act safety net preserving demand for care. Hazen also highlighted the robust economies surrounding HCA’s primary markets as a point in its favor.
“We think our balance sheet is strong, and that should create opportunities for us to invest in certain situations and hopefully gain market share," he said. “You look at our markets as a whole—Florida, Texas, Nashville, Vegas—these are fairly strong, durable economies. We believe it may be a little stronger than the nation as a whole, so that can hopefully add some support as we go into a recessionary cycle, potentially, in the future.”