HCA Healthcare is the second investor-owned hospital chain to bump up its 2021 financial outlook in part because of Congress' decision to postpone Medicare payment cuts to hospitals.
The Nashville-based company said Thursday that holding off on the 2% Medicare sequestration until the end of the year is worth between $40 million and $50 million per quarter, money that had not been factored into its original guidance.
HCA's full-year earnings guidance is now $500 million higher at the midpoint. Chief Financial Officer Bill Rutherford said on an investor call Thursday that at least $350 million of the boost is because of the company's strong first-quarter performance, which beat Wall Street analysts' estimates on both earnings and revenue. The rest is the government extension.
"We expected the first half of year to be stronger than the second half, but it still outpaced our expectations," Rutherford said. The 186-hospital chain's stock price jumped on the results Thursday.
Similarly, Tenet Healthcare on Wednesday raised its full-year earnings guidance by $100 million at the midpoint, citing the sequestration change and its hospitals' first-quarter performance. Tenet said enacting the Medicare cuts as planned would have been a $46 million headwind.
HCA's revenue grew 8.7% year-over-year to $14 billion, even as expenses were flat at $12 billion. Earnings—reported on a non-GAAP basis as adjusted earnings before interest, taxes, depreciation and amortization—totaled nearly $3.1 billion, up from $2.2 billion in the prior-year period. Net income grew to $1.4 billion in the quarter, compared with $581 million in the prior-year period.
Admissions were down 4.1% from the first quarter of 2020, which includes the initial few weeks of the COVID-19 pandemic. Emergency room visits—an area that may never fully recover—dropped nearly 19% year-over-year. Outpatient surgeries, by contrast, were up 2.2% as patients continue to gravitate to outpatient settings during the pandemic.
HCA continues to benefit from admitting higher acuity patients and a strong ratio of commercially insured patients, factors that also boosted hospital margins in the back half of 2020. HCA's revenue per equivalent admission was up 16.1% in the quarter year-over-year.
"Margins are clearly helped by acuity and payer mix," Rutherford said.
Rutherford said on the call that HCA continues to look for as much efficiency as it can to keep expenses in check. Those efforts have landed the company in hot water with workers and unions during the pandemic, who claim HCA has short-changed staff and patients on safety measures during the pandemic. One union alleged HCA's $3.8 billion 2020 profit came from staff shortages and inadequate personal protective equipment.