TL;DR: The hospital operating environment overall is stable. HCA will focus on 'organic system development' in 2025 (bed additions, de novos, etc). Strong inpatient growth. Exchange volume growth is decelerating. Contract labor is pretty much mitigated. Some supplemental payment headwinds compared to '24. Professional fees continue to be a major cost driver. Some defense against site-neutral payment reform. Challenging policy outlook with the new Administration.
Volume + Utilization:
Strong inpatient growth in Q4 with hurricane impacts. Specific inpatient service line callouts include neuro, ortho, general surgery, and vascular. Other strong service lines included rehab, obstetrics, and cardiac.
Decline in OP surgeries was a theme throughout 2024 and was driven by Medicaid disenrollments (-10%) while commercial volumes grew 1%.
Exchange growth is decelerating. In 2024 HCA saw 30% enrollment growth in its markets leading to 45% growth in its admissions. In 2025 enrollment has tapered down to ~15%, which should have a similar direct cascading effect on volumes in its markets.
Revenue + Payor Mix:
Exchange volume totaled 7.5% of adjusted admissions and 9% of revenue in 2024. 2-Midnight Rule accounted for 50 bps of admissions growth in 2024.
ASC revenues grew 5%-6%. Strong case mix and payor mix offset a 1% decline in case volume. HCA's ASC footprint includes ~125 facilities and 20-25 GI suites.
HCA is 80% contracted for 2025 and 60% contracted for 2026. Mid-single digit escalators are typical for renewals. Denials were not material to HCA's business in 2024.
Supplemental programs will be a $0 to -$250M headwind for HCA in 2025 vs. a $400M tailwind in 2024
Expenses + Margin:
Contract labor sits at a low, decreasing 8% sequentially and 4.5% of total SWB due to HCA retention and workforce development efforts. Professional fees, a big point of emphasis for health systems nationwide, were 24% of other operating expenses. Fees are trending above cost inflation for HCA.
On the medical supplies side, HCA noted the Trump Admin tariffs could materially impact its supply chain and procurement. To that end the firm has been working to de-risk and diversify the supply chain within its GPO. On the labor front, HCA noted it doesn't hire undocumented immigrants but, interestingly, that it could have an impact on supply of labor within its markets. Pretty notable comment considering much of healthcare relies on the back of low-wage employees.
Capital Allocation + CAPEX:
HCA generated $10.5B in cash flow from operations (11% increase) and expects ~$11B in 2025. CAPEX for 2024 totaled $4.9B. HCA repurchased $6B in shares and distributed $690M in dividends. It lowered its targeted leverage ratio to 2.75x–3.75x from 3x-4x.
Guidance & Looking Forward:
For 2025, they're targeting $74.3B in revenue, $14.7B in adjusted EBITDA, and $6.1B in net income - that works out to a healthy 19.8% EBITDA margin. They're expecting 3-4% growth in adjusted admissions and 2-3% growth in revenue per admission. When it comes to the hot topic of site-neutral payments, they're not too worried about it impacting their growth plans, though they maintain that hospital-based services have higher structural costs and infrastructure needs that justify current payment differences.
The Big Picture:
Looking ahead, HCA is focusing on growing organically rather than making big acquisitions. They'll likely do some smaller deals here and there, but their main focus is on adding beds and building new facilities from the ground up. It's a strategy that combines strengthening their core hospital business while steadily expanding their outpatient presence.
Still, the new administration is a net-negative for hospitals, health systems, and provider organizations as they'll grapple with some meddling in Medicaid, continue to experience an uptick in general mistrust of healthcare institutions, and face the potential for lost ACA enhanced subsidies in 2026.
Finally, keep in mind HCA Healthcare is not the same as most health systems - the company is an outlier, and a unicorn, and can operate much more efficiently (especially with its ability to enter/exit markets). With that in mind, it's a great exercise to understand what HCA is doing in their markets, and where even THEY face challenges.
Across the country, the same issues facing hospitals & health systems are still heavily present today: staffing and contract labor, unsustainability of the physician employment subsidy model, denials, more competition with more outpatient migration, and a rise in chronic disease forcing a focus on population health management.
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