HCA Healthcare sent out a pre-earnings shockwave Tuesday morning with preliminary second-quarter results suggesting that coverage disruptions from the end of enhanced Affordable Care Act exchange subsidies are hitting harder than executives expected at the top of the year.
The major for-profit health system, in a release, said it “experienced a payer mix shift driven by an increase in uninsured volume, primarily due to patients who lost coverage on the health insurance exchanges.”
The shift brought a roughly $400 million pre-tax hit in Q2, which includes an approximately $75 million increase over its previous estimates tied to exchange impact during the first quarter. And whereas HCA said in April that it was expecting a $600 million to $900 million full-year unfavorable impact from payer mix shifts on the exchanges, it’s now anticipating a $1 billion to $1.2 billion drag.
These and other factors, positive and negative, led the company to revise its guidance for the full year. Though the new revenue guidance ($77 billion to $79.5 billion) is still within the prior window, HCA lowered its ranges for net income (then $6.5 billion to $7 billion, now $6.3 billion to $6.7 billion), adjusted EBITDA (then $15.6 billion to $16.5 billion, now $15.4 billion to $16.1 billion) and earnings per diluted share (then $29.10 to $31.50, now $28.70 to $30.50).
"Our colleagues continue to manage well through the positive and negative factors that have impacted our business in the first half of the year, and I want to thank them for their great work,” Sam Hazen, CEO of HCA Healthcare, said in a statement. “As we look to the balance of the year, we have adjusted our guidance to reflect these factors. Moreover, we remain confident in our ability to navigate through this dynamic environment, maintain our focus and investments on improving patient care, and execute on our strategic plan to digitize and grow our healthcare networks.”
HCA’s shares were trading about 6% to 7% below their opening value as of mid Tuesday morning, with similar drops in confidence spreading to its for-profit health system peers such as Tenet Healthcare, Community Health Systems and Universal Health Services. Early insights on the exchanges’ upheaval had been a chief area of interest for analysts quizzing the heads of these companies during their Q1 earnings calls back in April.
HCA’s commentary on the preliminary Q2 results also noted a decline in surgical volume that impacted the company’s service mix shift, but suggested this impact wasn’t in the same ballpark as the payer mix shift. Specifically, same-facility inpatient surgeries dipped 2.3% year over year while same-facility outpatient surgeries fell 3.4%.
But the quarter wasn’t all bad news for HCA, which said its preliminary results showed growth in same-facility admissions (2.5%), same-facility equivalent admissions (2.7%) and same-facility ER visits (3.6%).
What’s more, it landed about $400 million of incremental net benefit from Medicaid Supplemental Payment Programs it will recognize in the second quarter, led by the approval of funds tied to Florida’s state-directed payment program.
This also led to a full-year guidance revision, in which HCA said it now expects to pull in between $300 million and $500 million more of these Medicaid supplemental payments compared to last year. The company previously forecasted a -$50 million to -$250 million incremental net impact, though executives had often noted that their prior estimate had intentionally left out supplemental funding decisions like Florida’s that weren’t a solid guarantee.
All told, HCA said in the preliminary guidance that it is expecting its Q2 revenues to hit $20.2 billion, up from last year’s $18.6 billion. Net income is expected to reach $1.7 billion ($7.62 per diluted share), up from last year’s $1.65 billion ($6.83 per diluted share).
HCA on Tuesday also set a July 24 date for its Q2 earnings call. Community Health Systems will be leading off the health systems when releasing its numbers on the afternoon of July 22, though insurer Elevance Health will be launching the healthcare earnings season in earnest on Wednesday.