HCA, one of the nation's largest hospital operators, raised its earnings guidance for the fourth consecutive quarter as greater demand for hospital care boosted revenue.
The Nashville-based company released a preliminary look at its first-quarter results, which continued the strong growth of recent quarters. Revenue in the first quarter, according to the preliminary numbers, increased 9% to $9.68 billion, compared with the same quarter in 2013. Earnings before interest, taxes, depreciation and amortization during the first three months of the year are expected to be $1.96 billion, an increase of 19% from early 2013.
HCA expects a 5.1% increase in same-facility admissions for the quarter and a 6.8% for same-facility equivalent admissions, which include outpatient activity.
Other for-profit hospital companies are also expected to report strong growth in the first quarter. Thanks to the rebound in the economy, momentum from the second enrollment in Affordable Care Act exchanges and strategies to expand outpatient reach are expected to boost hospital company performance.
HCA has seen employment growth in its core markets. “Utilization and volume trends appear to be experiencing continuing improvement, as evidenced by another quarter of robust volume growth for HCA,” Baird Equity Research analysts said in a note to investors.
Weak growth in the first quarter of 2014, though, are also making the first months of 2015 look particularly strong.
Economic Indicators point to more demand for hospital care in the early months of this year. The Altarum Institute reported hospital spending accelerated in January and February from the prior year, even after the first-ever drop in hospital prices in January and 0.4% hospital inflation in February. With prices stagnant, volume is driving hospital spending growth. Altarum reported a 12-month average growth in hospital volume of 3.6% as of February.
The pace won't last, however, said Megan Neuburger, a managing director for Fitch Ratings who follows the for-profit hospital industry. Insurance companies and price-sensitive patients will continue to seek care outside of hospitals, where treatment is more costly. “I don't think HCA will keep that up,” she said.
HCA raised its revenue guidance to $39 to $40 billion for the year. That's up from previously announced guidance in February of $38.5 billion to $39.5 billion.
The company said it now expects adjusted earnings before interest, taxes, depreciation and amortization to be $7.55 billion to $7.85 billion, compared with $7.35 billion to $7.65 billion.
Hospital operators' continued growth will depend somewhat on how successfully they expand outpatient services, which typically have higher profits, though generate less revenue, Neuburger said. Many strategies already underway likely contributed to recent growth, but to what degree is unclear.
Some strategies come with risks as hospital operators diversify through acquisitions. HCA acquired Texas urgent care operator Carenow last year. Tenet Healthcare Corp., meanwhile, announced plans last month to acquire a majority stake in United Surgical Partners International. Neuburger said hospital operators cannot afford to be shy about taking on such risks as U.S. insurers seek to increase payments tied to results and reduce payments tied to volume, known as fee-for-service.
“It's all driven by the same set of incentives or the same understanding that we're going to evolve and move away from the world of fee-for-service,” she said.
HCA plans to announce its final first-quarter results May 5.
