The stranglehold COVID-19 put on HCA Healthcare's volumes starting March 15 has only worsened in April, with outpatient surgeries down 70% year-over-year so far.
Leaders with the Nashville-based hospital chain said on an earnings call Tuesday they view the first quarter, which ended March 31, in two distinct phases: pre- and post-COVID-19. All key volume indicators were on the upswing from January 1 through March 15. After that, all bets were off.
"Everything was tracking great—they were absolutely killing it—and then all of a sudden this thing hits," said Frank Morgan, an analyst with RBC Capital Markets. "They were on pace to have probably another record quarter until this hit."
HCA announced it is pulling its 2020 guidance, a move its peers Tenet Healthcare and Community Health Systems already announced, and suspended its quarterly dividend and share repurchase programs. Several analysts have lowered their 2020 performance forecasts for investor-owned hospital chains.
HCA is now focused on a reboot plan that the company's CEO, Sam Hazen, said will be fully operational at the end of June. Leaders are looking ahead to restore capacity as governors in states like Texas and Tennessee, where HCA does a lot of business, announce plans to reopen economies.
"We believe the reboot phase will be accomplished across most of the company by the end of the second quarter," Hazen said on Tuesday's call. In many of HCA's markets, he said initial forecasts were "sobering," but the actual impact hasn't been nearly as dire.
HCA may regain its ability to perform the same level of surgeries it could before COVID-19, but whether demand will be there is another question, said Brian Tanquilut, an analyst with Jefferies.
"But it's encouraging to hear that as we get out of the second quarter, we would be closer to the recovery phase of this whole situation," he said.
The real damage from COVID-19 is expected to hit companies in the second quarter, which began April 1 and ends June 30. So far in April, HCA's admissions are down about 30% year-over-year, and emergency department visits are down 50%, Bill Rutherford, HCA's chief financial officer, said on the call.
"Generally speaking, almost all volume statistics were adversely affected," he said.
Net income attributable to HCA plummeted by 44% in the first quarter year-over-year, to $581 million. Revenue inched up 2.7% to $12.9 billion in the quarter, but that growth was walloped by a 9% rise in expenses, to $12 billion. Adjusted earnings before interest, taxes, depreciation and amortization were down 13.4% in the quarter to $2.2 billion.
Analysts said HCA tends to be more resilient than its peers in the for-profit hospital industry. Hazen said the company has a "storied history" of responding well to disasters, including floods, hurricanes and the concert shooting in Las Vegas.
HCA is into the second phase of a cost-cutting plan, although Hazen declined to share the specific savings goal. The company hasn't tapped into a third phase.
The company has already received most of an expected $4 billion in accelerated Medicare payments under the Coronavirus Aid, Relief, and Economic Security Act, which the company will begin repaying in August, Rutherford said. The company received another roughly $700 million from the Public Health and Social Services Emergency Fund, which does not need to be repaid.
HCA has cared for about 5,500 COVID-19 patients across its facilities, and Hazen said exposure to employees has been limited. To date, the company hasn't laid off or furloughed any employees, but about 80,000 have had hours cut because of the reduced volumes. Some administrators, including Hazen, have taken voluntary pay cuts, he said.
HCA acts as landlord to a number of large medical office buildings, and Hazen said many of its third-party developers have implemented rent deferral for the next few months. The same is true for physician partners in HCA's ambulatory surgery centers, he said.
It's hard to predict how the recovery will look, because it's unclear how many patients will wind up uninsured, on Medicaid or other forms of coverage, Hazen said. Getting elective surgeries rebooted will involve coordination with governors. HCA will need to reassure patients it's safe to return to medical facilities, which involves having enough personal protective equipment and tests, he said.
HCA's doctors are split on readiness to return, with some eager to address their backlogs and others concerned about safety for themselves and their patients, Hazen said.
The stock market will largely view 2020 as a throwaway year, Morgan said. The question then becomes whether companies have the financial wherewithal to ride out the rough patch. In his mind, HCA has the capital structure and liquidity to do so.
"I believe this is a remarkable company that will rebound from this period and will thrive and do well in the longterm," Morgan said.
Tanquilut said it's also noteworthy that HCA hasn't laid off or furloughed employees, which should allow it to bounce back faster than its peers. Tenet, for example, announced it furloughed about 500 full-time positions in early April.
"We've seen layoffs and furloughs across the board," he said. "HCA has said, 'We will take pay cuts but no one is getting laid off.'"