HCA Healthcare executives said Tuesday the company's strong volume growth in the third quarter of 2019 shows initiatives the Nashville-based hospital chain has undertaken for years are finally paying off.
"We had the broadest-based volume performance as far as positive metrics that I've seen in almost three years," the company's CEO, Sam Hazen, said on an earnings call Tuesday morning.
HCA's admissions grew nearly 6% in the third quarter of 2019 compared with the prior-year period, while equivalent admissions grew 7.5%. HCA's dominant stakes in growing markets typically puts the company ahead of its peers in key metrics, including volumes. But this quarter, executives and analysts said HCA got an extra boost from other factors.
Hazen said HCA's capital spending plan has focused on increasing capacity, adding clinical technology for physicians and building its ambulatory network.
When all is said and done, Hazen said HCA will have more than 100 freestanding emergency rooms, 145 ambulatory surgery centers, almost 150 urgent care clinics and roughly 1,300 physician clinics. This year, the company has added more beds than in 2018, and that will continue in 2020, he said. HCA operates 184 hospitals.
HCA is also investing in physician hiring. Currently, 45,000 physicians practice at HCA facilities, and the company employs about 7,000 of them. Hazen said HCA is growing its employed physician ranks by 8% to 12% annually.
Physician recruitment is important for volumes, as physicians tend to bring their established patients with them, said Brian Tanquilut, a healthcare equity analyst with Jefferies.
Since 2015, HCA has far outspent its peers on capital projects, Tanquilut said. The company is investing in new machines, buildings, increased capacity and recruitment, he said.
"All that stuff is finally paying off," he said. "At the end of the day, that's what it is."
HCA's patient days grew 5.8% in the third quarter year-over-year, and its emergency room visits grew 6.1% in that time. Outpatient surgery cases climbed 5.2%, compared with a 4.4% increase in inpatient surgery cases.
A major factor behind HCA's strong performance quarter after quarter is simply that it's located in large markets that are fast growing and economically vibrant, said Frank Morgan, an analyst with RBC Capital Markets. There are more patients in those areas and more of them have commercially insurance, he said. Compare that with rural markets, where populations are shrinking and the biggest payer is Medicare, Morgan said.
HCA's strong volume growth runs contrary to the healthcare industry's broader shift away from hospitals and into less expensive, outpatient care settings. That trend was highlighted in a recent Kaufman Hall report, which found discharges across 715 hospitals of all ownership types declined 1.5% in August year-over-year, contributing to profitability declines.
Not-for-profit hospital giant CommonSpirit Health recently reported its adjusted admissions declined 0.1% in its fiscal 2019 year-over-year, which ended June 30, while same-store outpatient visits grew 1.5%.
Morgan said he thinks HCA's continued strong volume performance is not only because of where its hospitals are located, but its investments in high-acuity services lines, like cardiovascular, neurology and orthopedics.
"From our perspective, we think if you're already in the acute care hospital business, you better be in the highest-acuity service lines, because that's the business that can't go anywhere else," he said. "That patient is not going outpatient."
HCA's revenue grew 11% year-over-year in the third quarter to $12.7 billion. Expenses increased 13% to $11.7 billion in that time, contributing to a 19% decline in net income year-over-year. Net income attributable to HCA was $612 million in the quarter, compared with $759 million in the prior-year period.
HCA's for-profit hospital competitor, Universal Health Services, also reported strong volumes in the third quarter. The King of Prussia, Pa.-based company's acute-care admissions grew 6.6% year-over-year. Patient days grew 6.2% in that time.
Steve Filton, UHS' chief financial officer, said on an earnings call Friday the company is struggling with a higher rate of denials from payers, which contributed to more volatile pricing despite the strong volumes.
HCA is seeing the same trend, the company's Chief Financial Officer, Bill Rutherford, said on Tuesday's earnings call.
"Denials is a challenge for the industry that we spend a considerable amount of time and effort appealing," he said. "We have seen that activity increase."
Investor-owned hospital chains Tenet Health and Community Health Systems reported strong volumes in the second quarter. CHS reports its third-quarter earnings after market close on Tuesday and Tenet reports on Nov. 4.
Tanquilut questioned whether the strong volumes are part of a broader trend.
"I can't really call that out yet," he said. "But we're definitely seeing some better numbers, better performance out of the whole industry."
