Happy Thursday, Hospitalogists. |
Who better to kick off the Hospitalogy one-page executive summaries than HCA Healthcare, the 186-hospital operator generating $65B in annual revenue? But first - have you registered for my upcoming virtual event? I'll be discussing trends in risk, population health, and practical ways to manage behavioral health & serious mental ill populations alongside a panel of experts. Register here! |
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THE $65B HOSPITAL BEHEMOTH |
8 Key Takeaways From HCA's 2023 |
- Higher acuity, better payor mix = better payor leverage, increased $$$ per admission
- Strong same-store volumes - Q4 was its strongest quarter operationally
- Increased capital spend with several OP projects coming online in '24; long-term focus on tech infrastructure
- No insight / view into rising Medicare utilization but they're getting a ton of Medicare-related admission volume regardless
- Labor market normalized - 2-3% wage inflation expected moving forward
- Lower pro fees costs from Valesco, but industry wide pressures in this area
- Two-Midnight Rule emerges as a potential tailwind for HCA, headwind for payors
- Headwinds from state supplemental Medicaid dollars (100M-200M)
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HCA continues to buck the trend as a unicorn in the acute care space. Here are the big takeaways from their full year earnings call (and if you missed my very deep breakdown into their investor day, you can find that linked here). Payor mix and acuity is up and to the right for HCA. HCA's ability to negotiate ever higher rates, coupled with investments into high acuity service lines, drive outsized net revenue per admission growth. Adding to these dynamics, HCA should see some decent benefit from Exchange members rolling off Medicaid and into higher reimbursing commercial plans given the growth in both Florida and Texas in the marketplace (30-35% of Medicaid members are rolling into ACA plans) |
Same-store volumes are through the roof. Overall HCA self described its 4th quarter as its strongest of 2023 (makes sense given healthcare volume seasonality as well of course). You can see below that same-facility growth over 2023 was well above that of 2022 as HCA continues to grab admissions market share from other players in its markets: |
HCA is ramping up capital expenditures. What are they investing in? A balanced portfolio of inpatient utilization (service line expansion, ER capacity), outpatient (physician alignment, ASC development, urgent care facilities etc.) and IT (RCM, clinical workflow management, ambient documentation, intra-company hospital benchmarking, staffing, etc.) More broadly speaking, on the health IT front, what are overall health systems strategic capital priorities? From a recent Bain survey, revenue cycle management, clinical workflow, patient engagement, and digital front door capabilities top the list: |
Medicare utilization trends for HCA are murky. As the broader conversation around utilization and Medicare Advantage takes shape, analysts asked quite a bit about these dynamics. HCA's Sam Hazen gave a pretty hilarious (in my opinion) response around the perceived uptick in utilization, essentially saying because HCA does so well from strong market demographic growth and market share capture, it's hard for the hospital operator to parse through those factors to determine whether they're seeing an overall trend forming. - For instance, HCA's Medicare composite (both traditional and MA) adjusted admissions have grown 3.7% → 5.3% → 4.7% → 5.7 over the past 4 years excluding 2020.
- Medicare Advantage admissions in the quarter for HCA were up 10%!!
HCA's labor market is stabilized. The travel nursing craze is largely over for HCA. Contract labor as a percentage of overall salaries declined another 20% and hit 5.3% in 2023 - way, way down from post-pandemic peaks. Adding to this, moving forward, overall wage inflation will revert back to 2.5-3% annual escalators. This normalization is a reprieve from the previous norm of fast-paced market wage adjustments (at least nurses got a bit of their bag back!) Professional fee losses are present, but alleviating. After acquiring outright its hospitalist staffing joint venture with Envision, Valesco (which sounds way too similar to Valero, by the way), HCA has been working to cut losses here after biting the physician subsidy bullet. HCA noted losses amounted to around $40M - $50M per quarter during 9 months of ownership in 2023, and as they restructure costs, things should improve on the losses front in 2024. You can see the growth in HCA's other operating expenses, which includes professional services, on a per unit adjusted patient day basis below - 12.6% in 2022 and 13.2% growth in 2023, well above revenue growth: |
Lots of chatter around the Two-Midnight Rule. Every day I learn about a new healthcare reimbursement rule or policy I'd never heard of before. Alas, the industry we're all apart of. Anyway, it felt like much of HCA's call revolved around investors and analysts trying to understand how the Medicare Advantage market is evolving rather than HCA, since there's so much change happening in MA right now. One of the regulations analysts spend an inordinate amount of time on were recent changes to the Two-Midnight Rule. Executives are watching the regulatory change here closely, since in theory you could see a modest spike in inpatient utilization (as a step-up from outpatient/observation stays at hospitals). What's next for HCA in 2024? Whether they can parse out the utilization tailwinds or not in their operations, HCA will benefit this year from rising volumes, rising acuity, leverage over payors, and capacity unlocks from an improved labor market. As I've mentioned, HCA continues to be unicorn operator in the acute care space, but they aren't without challenges headed into 2024 - namely, significant controversy stemming from its perceived handling of the Mission Health fiasco (where concessions are likely), and the growth in professional fees that even HCA can't wish away. HCA also needs to keep thinking about how it innovates from a technology and infrastructure standpoint given the continued outpatient migration shift and long-term competitive pressures that are sure to stay in that space over time. Finally, expect greater physician alignment initiatives from HCA in the short term. HCA set up a surgical subsidiary called Surgery Ventures back in October 2023, and I would not be surprised to see some population health initiatives emerge in the near future for the organization to flip its massive PCP presence from (at the unit perspective) a cost center into one that might breakeven or profit. |
Hey Hospitalogists, Blake and Adonis here! We're teaming up to get the scoop from healthcare orgs about their 2024 financial and strategy game plans. We've got a survey ready, and it's super quick – just 5 minutes and you're done. Your answers will fuel the stuff we create to keep you in the loop with what's buzzing in healthcare this year. Don't worry, it's all anonymous. We'd really appreciate your two cents. Hit the link below to jump in: Take the Survey |
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Here are some jobs that I'm curating for the healthcare industry. You can see the full list of jobs I've curated here. If you're looking to hire, use the promo code HOSPITALOGY to get your first job listing free on my curated job board. |
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- Good news on the Madden front, as I know you're all on the edge of your seat - baby Madden is sleeping better (fingers crossed) but next round of shots is tomorrow...there's always something!
- I am BACK on the golf links on Sunday. Stay tuned for a post-round recap on Tuesday.
- Anyone else seeing the wind gusts at Pebble this week? I can't wait to see some debilitatingly high scores.
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Thanks for the read! Let me know what you thought by replying back to this email. Read the online version for a full list of key quotes from the earnings call. — Blake |
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