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Milton Johnson, HCA CEO
Johnson

HCA sees minimal earnings impact from healthcare reform


By Beth Kutscher
Posted: April 29, 2014 - 12:45 pm ET
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Healthcare reform had only a minimal impact on first-quarter earnings for HCA, one of the country's largest hospital chains. The impact of reform was not enough to help overcome operational challenges that flattened net income.

Yet the modest impact from reform was anticipated and the chain is comfortable with its earlier financial guidance for the rest of the year, said President and CEO Milton Johnson. One development was evident in the quarter—the number of Medicaid patients increased significantly in Medicaid expansion states.

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In comparison, LifePoint Hospitals, which reported earnings last week, said, for it, the impact of healthcare reform had been larger than expected.

HCA, which typically sees some of the strongest patient volume among its peers, said same-facility admissions declined 0.6%, or 0.3% when adjusted for outpatient activity. The greatest fall-off was among pulmonary patients and one-day stays, William Rutherford, chief financial officer, said on an earnings call.

But it also saw higher acuity admissions, with greater volume among orthopedics, cardiovascular, obstetric and transplant surgery patients.

HCA reported $347 million in net income on revenue of $8.8 billion for the first quarter compared with $344 million in income on $8.4 billion in revenue during the first quarter of 2013.

On the healthcare reform front, the company said it saw 1,700 admissions among patients with an insurance plan purchased from an exchange, representing 0.4% of admissions. About half of those patients previously had been treated at an HCA hospital, and one-third had been uninsured during their earlier stays.

HCA also saw a 22.3% increase in Medicaid admissions in its four Medicaid expansion states, compared with a 1.3% decline in Medicaid admissions in non-expansion states. In total, 1,000 previously uninsured patients gained Medicaid coverage in the first quarter, the company said.

The volume of Medicaid patients also doubled each month as insurance expansion ramped up.

Yet even with healthcare reform underway, self-pay and charity-care patients increased 2.1% year over year, representing 7.6% of admissions, compared with 7.4% during the first quarter of last year.

HCA also faced challenges outside of patient volume.

Cash flows from operations declined 40.1%, the company said. It incurred $78 million in legal costs as it fended off a lawsuit alleging that it did not honor its capital expenditure and uncompensated care commitments at Health Midwest, which it purchased in 2003.

It also saw $16 million in losses from the sales of facilities, and $17 million from debt retirement. In addition, electronic health-record expenses were a “$26 million drag on the quarter,” Rutherford said.

Johnson acknowledged on the call that HCA had an easy comp in the first quarter after its results were below expectations during the same period last year. Next quarter sets a higher bar for its performance.

The company's shares fell nearly 4% this morning as investors digested results.

Follow Beth Kutscher on Twitter: @MHbkutscher


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