HCA Healthcare – Payer Mix & Labour Costs

HCA’s same-facility admissions increased 0.6% YoY. Same-facility equivalent admissions were up 4.1% YoY, so that’s a fairly solid showing, given that some of its competitors were pointing to the Omicron surge as negatively impacting their overall volumes. How has the company positioned itself relative to competitors in its markets to capture this consistent and healthy volume?

During the pandemic, many highly profitable elective surgeries were simply deferred. Do you believe there is a bolus of procedures that will be realised throughout 2022 tied to the pandemic deferrals, perhaps pushing up revenue and profitability above current expectations? Alternatively, has most of that already been factored in given that’s a known environment we just went through? Do you think investors have factored in that potential upside relative to HCA’s guidance?

CMS [Centers for Medicare and Medicaid Services] has been very staunch in terms of its reimbursement policies to drive the migration of a meaningful number of procedures from the inpatient setting to lower-acuity outpatient setting. Given HCA’s meaningful base of ambulatory sites – I mentioned over 2,000 – the company has a great outpatient footprint. Do you believe HCA is well-positioned to succeed given this expected migration? What is the company’s ambulatory positioning and how might it evolve over the next few years?

There was a discussion of possible cannibalisation in a previous Forum Interview [see Tenet Healthcare – US Healthcare Facilities Market Outlook & SurgCenter Development Acquisition – Part 2 – 24 November 2021] regarding ASCs [ambulatory surgery centres]. The question is if HCA wants to put more standalone ASCs in markets where it already has a hospital. One sentiment is, “We don’t want to contribute to the cannibalisation of our profitable inpatient procedures by having them migrate to our standalone ASC,” but at the same time, there’s this discussion of continuum of care, referral channels and appropriate settings. Could you share your thoughts on that dynamic? Then there’s a third thought around playing offence, where you’re going into other hospital systems’ key markets where the competitor is the dominant player, and inserting your ASC in that area of operations to cannibalise their inpatient procedure.

I’m hearing there’s been some significant pushback via lobbying efforts with respect to CMS’ drive to migrate all of these procedures from inpatient to outpatient. I think companies are bringing up very plausible concerns that, in various markets, there could be the potential for diminished service availability. Do you believe there could actually be disruption of services if this migration continues? For the weaker providers such as non-profits struggling with their CAPEX budgets, volumes and referral channels, do you think there could be an industry washout if CMS continues in this direction? If so, would that benefit the larger players such as HCA, Community, Tenet and Universal Health Services?

I think most of us believe that CMS’ policy to drive highly profitable procedures from the inpatient to the outpatient is all about cost savings, but you had mentioned maybe there’s some principle and policy ramifications beyond just cost savings. Do you believe that there is maybe a more nefarious motive at play in terms of wanting a shake-out, so that CMS is dealing with fewer players in terms of creating scale and dominance among just a few large players? Is there any thought process regarding CMS wanting consolidation, scale and a shake-out in the industry or is that just a theory?

HCA’s same-facility inpatient surgery cases were down 1.2% YoY, and same-facility outpatient surgery cases were up 5.2% YoY in Q4 2021. For 2021, same-facility inpatient surgery cases were basically flat at up 0.4% over 2020, and not negative like we saw in Q4. Same-facility outpatient surgery cases were up a very healthy 14.1% in 2021, but that’s off perhaps an easy comp in 2020. What’s your view on the continuation of these inpatient and outpatient trends as we work our way through 2022, especially considering we’ll have more difficult comps?

There has been increasing friction developing for many years now between payers and providers. Managed care organisations are becoming increasingly frustrated with seemingly exorbitant rate increases demanded by providers. Providers, in their defence, rightfully claim that they have no choice, given that they are arguably being paid below their cost of services by CMS in terms of the Medicare and Medicaid reimbursement rates. In essence, providers are going back to managed care and then saying, “I have to do this to you. I have to force you to subsidise the procedures that I’m doing for the government.” Do you think there is a positive outcome with this dynamic? Is there any room for the government to realise that it’s creating this untenable relationship between providers and payers? Do you see this resolving or ending badly?

HCA’s Q4 2021 revenue per equivalent admission was up 3.3% YoY, and inpatient revenue per admission was up 1.9% YoY. Over full-year 2021, the company’s revenue per equivalent admission was up a very healthy 6.8% YoY, which appears fairly robust. Inpatient revenue per admission was up 7.9% YoY, which might be related to deferred surgeries coming back that have higher acuity and higher profitability. When I looked at Q4, I didn’t really see anything that would cause a pause. When I looked at full-year 2021, I thought, “I don’t think that this level of reimbursement is going to hold.” What are your thoughts on reimbursement rates for the company in 2022?

What’s your view of HCA’s reliance on premium labour? Do you believe that we might have seen a peak in Q4 2021, given the Omicron surge in December 2021? Do you think we could see premium labour stabilise or even reverse, or do you believe that, with all the inflationary pressures in the US across the board, this will continue as a problem that could potentially pressure profitability below current expectations?

Q4 2021 salaries and benefits for HCA totalled 46.5% of revenue, compared to 44.3% in Q4 2020, so 220 bps of increase. Overall 2021 salary and benefits totalled 45.6% of revenue vs 46.3% in 2020, down about 70 bps. A specialist in a recent Forum Interview [see Tenet Healthcare – ASC Strategy & Financial Health – 24 March 2022] said to watch out for savvy executive management teams who have had such a strong eye on cost-containment measures, because it could come back to haunt them. I think what she was intimating was, yes, they’ve expanded profitability or maintained margins, but done so in a way that could lead to unhappy folks down the line and result in blowback. Any thoughts on that for HCA?