Upon further review, HCA overturned what it initially said was behind its sharp drop in earnings for the third quarter.
When HCA warned on Oct. 13 that its profits would be down about a quarter in the three months ended Sept. 30, the company thought that one factor was a shift of managed-care patients to lower-paying plans. Like watching a slow-motion replay, HCA used the nine days between the warning and the earnings report to discover that the shift isn't what's having a material impact on its results.
The problem is that the overall acuity level of the company's patients was flat in the third quarter compared with 2003's third quarter, Chief Financial Officer Milton Johnson said. Case-mix index, a measure of inpatient acuity, increased about 3% in the first and second quarters when compared with the year-ago quarters. With acuity unchanged from a year ago, HCA also had flat revenue under the stop-loss provisions of its managed-care contracts, which boost reimbursements for the costliest cases the way Medicare's outlier payments do.
The Nashville-based company said earnings also were hit by hurricane damage at its Florida operations and the continuing problem of bad debt. HCA said it earned $227 million, or 47 cents per share, in the third quarter, compared with $306 million, or 61 cents per share, in the year-ago quarter. Revenue was up 5.9%, to $5.79 billion.
For the nine months ended Sept. 30, profits were down 9%, to $924 million, or $1.88 per share, compared with $1.02 billion, or $1.98 per share, in the year-ago period. Revenue was up 8%, to $17.56 billion, for the nine months.
HCA said the four hurricanes that battered Florida in August and September caused its 40 hospitals and 28 surgery centers there to incur costs and lose business worth a total of $40 million, or 5 cents per share, net of estimated insurance payments of $15 million. HCA also took a charge of $12 million, or 2 cents per share, in the third quarter related to its planned closure of San Jose (Calif.) Medical Center in December.
Bad debt increased to 11.9% of revenue for the quarter, compared with 10.3% in the year-ago quarter. HCA said self-pay accounts continue to become harder to collect, although its efforts to make upfront collections of copayments and deductibles has improved those collections.