The day after a prominent trade group warned half of U.S. hospitals could lose money this year without more taxpayer help, for-profit HCA Healthcare revealed its profit spiked 38% to $1.1 billion in the second quarter, even as elective procedures were largely shut down at the front end.
Nashville, Tenn.-based HCA, the country's largest for-profit hospital operator, landed well above analysts' expectations for the second quarter, which is widely expected to be a dud for hospitals given elective procedures were largely shut off throughout April and into May. HCA's higher profit was partly from government stimulus money combined with 16.6% lower expenses—a decline that would be striking even in normal times. HCA's supply costs fell 17.5% year-over-year in the second quarter, and labor costs fell almost 9% in that time.
Meanwhile, revenue beat some Wall Street analysts' expectations by almost $1 billion, even though it declined 12.2% to $11.1 billion in the quarter. Adjusted earnings before interest, taxes, depreciation and amortization, a non-GAAP measure, jumped 16.3% to $2.7 billion, also well ahead of expectations. HCA's share price spiked 12% on Wednesday on the better than expected results.
Sam Hazen, HCA's CEO, called it "possibly the most remarkable" quarter he's experienced in his 37 years with HCA. Unlike many health systems, he said HCA didn't furlough or lay off any employees during the pandemic.
Hazen didn't divulge specifics on how 186-hospital HCA cut its costs so dramatically, saying only that the company pulled back on discretionary spending and variable costs.
"We feel for the most part we can hold much of the expense adjustments we made during the quarter," he told analysts and investors on a Wednesday earnings call.
Meanwhile, a group of HCA nurses and other caregivers in Florida represented by SEIU are demanding more personal protective equipment and staffing for the company's 50 hospitals across the state. Toni Baldie, an intensive care nurse at HCA's Northwest Medical Center in Margate, Fla., gets an N95 mask for each shift, but said that's not the case for her colleagues in other departments. She added some facilities limit the number of gowns staffers can use per shift.
"This is America," Baldie said. "This is not a third-world country where I would expect to have shortages of equipment."
Deborah Tedder, Northwest Medical Center's chief nursing officer, said in a statement the hospital has enough PPE to safely care for patients in accordance with CDC guidelines, including around the reuse of PPE to ensure it has enough supplies as the crisis evolves. Tedder said the hospital has also brought in additional staff to help with the recent surge in coronavirus cases.
The lower costs could also be from not having to buy implants and other expensive supplies for surgeries that weren't taking place, said A.J. Rice, a managing director with Credit Suisse. On the labor side, HCA also likely flexed down the hours of its part-time workers in areas where volumes were lower, he said. And the company probably used fewer consultants and temporary workers.
Even so, Rice said he was surprised to see the expense reduction.
"We thought there'd be some of that with the decline in volumes, but we didn't think it would be on the order of magnitude they were able to achieve," he said.
HCA has received $1.4 billion in provider relief grants under the CARES Act—$590 million of which was recognized in the second quarter on an after-tax basis—and $4.4 billion in accelerated Medicare payments as of June 30. Of that, the company said $5 billion remained deferred at the quarter's end.
The company had $4.6 billion in cash and $7.7 billion in capacity under its credit facilities as of June 30.
That level of liquidity is in contrast to anecdotes from the American Hospital Association and the Federation of American Hospitals in their attempts to convince lawmakers to forgive or extend repayment on the Medicare loans and approve more grant money. The CEO of Grady Health System in Atlanta, for example, said on an AHA press call yesterday that he expects a -3% operating margin through July without additional federal relief.
American healthcare has always been a story about haves and have-nots, which makes both scenarios true.
"Whether HCA can pay the money back or not I don't think is a question," Rice said. "I think there may be a question for some less well capitalized hospitals."
Judging the hospital market by looking at HCA, the top performer, would be like judging the insurer market by focusing on UnitedHealthcare, Paul Hughes-Cromwick, co-director of sustainable health spending strategies at Altarum, wrote in an email. HCA's size and dominant market share help it negotiate higher prices from insurers. It's also possible HCA operates in areas that were doing well before June but will be hard hit by COVID-19 cases July and beyond during a resurgence, Hughes-Cromwick said.
Some of the difference between the haves and have-nots depends on the proportion of patients covered under Medicaid and Medicare versus more lucrative commercial plans.
HCA said 28% of its admissions were commercially insured patients in the second quarter, up from 26% in the prior-year period. That combined with higher acuity helped HCA pull in 10% higher revenue per equivalent admission in the quarter.
While HCA's admissions were down 13% year-over-year in the second quarter, volumes recovered quickly from their low points in April once HCA started procedures that had been suspended. Same-facility inpatient surgeries, for example, were down 38% year-over-year in April, down 12% in May and up 3% from the prior year in June. Surgeries in HCA's ambulatory facilities were down 85% year-over-year in April, down 32% in May and up 1% in June.
Hazen said HCA has restricted elective procedures in parts of Texas and Florida while COVID-19 cases surge to preserve capacity and PPE.