HCA Healthcare raises FY2023 guidance following strong volume, labor momentum through Q1

HCA Healthcare rode a wave of recovering revenues, volumes and labor to $1.36 billion in first-quarter profit, prompting the for-profit giant to increase its projections for all of 2023.

The Nashville, Tennessee-based health system reported first quarter revenues of $15.6 billion, a 4.1% year-over-year revenue increase over the opening quarter of 2022. Expenses rose from the first quarter of 2022’s $13.13 billion to $13.67 billion, generally reflecting a year of rising expenses, wages and inflation.

The $4.85 per diluted share net income attributable to the company was an improvement over the prior year’s $4.14 per diluted share gain (representing $1.27 billion in net income).

“We believe there’s momentum that we’re seeing in the market—we saw that [in] late ’22, we were fortunate that continued into the first quarter,” Chief Financial Officer Bill Rutherford said to investors during a Friday morning earnings call. “Generally speaking, we think our revised guidance and our outlook reflects our view for the balance of the year.”  

HCA's stock is trading roughly 5% higher as of Friday afternoon.

Same-facility admissions were up 4.4% year over year while same-facility equivalent admissions rose 7.5% over the prior year, according to the earnings numbers. Though surgical growth was slightly higher in the outpatient setting, CEO Sam Hazen said the company was still “very pleased” with growth across its inpatient surgical activities, where every category except C-sections had seen improvement.

Same facility revenue per equivalent admission dipped from the prior year’s first quarter, though executives said this was primarily the result of higher-paying COVID-19 volumes falling from 9.7% of same facility admissions in the first quarter of 2022 to 3.1% in the first quarter of 2023.

On the expense side, contract labor costs were 21% lower year over year and comprised 7.1% of the quarter’s salaries, wages and benefits (SWB) expenses, which executives attributed to ongoing efforts to bolster retention and recruitment.

Still, comparisons to the COVID-riddled first quarter of 2022 could be viewed as a low bar. Executives acknowledged the awkward benchmark and highlighted changes in the system’s sequential volume and workforce metrics to investors as their primary signal of better things to come.

On the labor side—which executives described as the largest variable for 2023’s projected performance—the first quarter of 2023 registered nurse hiring increased almost 19% compared to 2022’s full-year average, Hazen said. Contract labor’s 7.1% claim of the first quarter of 2023 SWB expenses was also an improvement of the “mid-sevens” percentages HCA was logging through the back half of 2022, Rutherford said.

Staffing-related capacity constraints still weighed HCA down in the latest quarter as instances where HCA couldn’t accept patients from other hospitals dropped from 2% of total admissions in the fourth quarter of 2022 to 1.5% of total admissions in the first quarter of 2023, Hazen said. HCA’s non-COVID case mix and revenue yield has improved both year over year and sequentially, the executives said, and general performance has broadly improved from January to March.

“We remain encouraged by the backdrop of strong demand that we saw in our markets,” Hazen said during Friday morning’s earnings call. “We intend to maintain our disciplined approach to executing our strategic and capital allocation plans as we push through the rest of this year.”

The strong first quarter and upward momentum led HCA to adjust its guidance for 2023. The prior revenue range of $61.5 billion to $63.5 billion rose to between $62.5 billion and $64.5 billion. Net income attributable to the company also increased from $4.53 billion to $4.9 billion to $4.75 billion to $5.16 billion, with earnings per diluted share rising from $16.40 to $17.60 to $17.25 to $18.55.

Of note, executives said the stronger performance and improved cash flow ($1.8 billion in the first quarter of 2023 vs. $1.3 billion in the first quarter of 2022) will now allow HCA to be more aggressive with its capital expenditure.

For starters, Rutherford said the company had closed on a transaction to increase its ownership interest in the Valesco Physician Services joint venture with Envision, which HCA expects will generate about $1 billion in annual revenues with no material impact to adjusted EBITDA. The company also spent $846 million during the quarter to repurchase common stock.

Strategically, HCA is looking to new development and M&A alike with its funds. To do so, Hazen said the company is prioritizing a combination of land acquisition for new hospital development, outpatient network development and facility expansions.

“We believe that’s one of the differentiating attributes of HCA, that we are in great markets that have great growth prospects in and of themselves,” Hazen said. “Before we get to share gain possibilities in those markets, that is going to require us to build out some new hospital facilities.

“… I think it’s important for everybody to understand we are still in a situation where we have a lot of facilities that have high levels of occupancy—in the first quarter, the company ran approximately 73% to 74% occupancy in its inpatient facilities. And we need to have sufficient capacity as we build up our staffing over time. We need physical capacity to accommodate what we believe to be the demand for healthcare," he said.

As of March 31, HCA operated 180 hospitals and roughly 2,300 ambulatory care sites across 20 states and the U.K. The for-profit system reported $60.2 billion in 2022 full-year revenues and $5.64 billion in net income attributable to the company.