HCA gets bigger boost than expected from reform

HCA, the country's largest for-profit hospital chain by revenue, previewed strong second-quarter results last week, highlighting a 12.2% increase in income before taxes. It also raised its financial guidance for the year.

The Nashville-based company is the first to offer investors a glimpse into what is widely expected to be a strong quarter for hospital operators. The chain's full results are scheduled for July 29.

HCA expects to report $904 million in pretax income on $9.2 billion in revenue compared with $806 million in pretax income on $8.5 billion in revenue in the second quarter of 2013.

After seeing only a modest effect from healthcare reform in the first quarter, HCA said the law's effect on second-quarter earnings has exceeded its expectations. Its revised financial projections assume a 2% to 3% impact on earnings before interest, taxes, depreciation and amortization, an increase from 1% to 2%.

HCA also reported a 1.2% boost in same-facility admissions and a 2.2% increase in same-facility equivalent admissions. Its revenue per admission rose 5.4% on higher-acuity patients.

The magnitude of the increase was even more impressive given that HCA faced a tough standard against last year's strong second quarter, wrote A.J. Rice, an analyst at UBS, in a research note.

HCA shares were trading up nearly 10% after the announcement, which also boosted shares of peers Community Health Systems, Tenet Healthcare Corp., Universal Health Services and LifePoint Hospitals.

“If HCA's performance is any indication, 2Q14 earnings season should be strong for acute-care hospital investors,” wrote Frank Morgan, an analyst at RBC Capital Partners.

Other one-time items included a $142 million adjustment to Medicaid revenue after it underestimated its reimbursement from the Texas Medicaid waiver program for providing indigent care. It also booked a loss of $226 million from retiring its debt, and a gain of $11 million from selling facilities.

Follow Beth Kutscher on Twitter: @MHbkutscher