HCA Healthcare, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone Q4 filing. HCA operated 184 hospitals and 123 freestanding surgery centers in 21 states and England.
Financial performance and operating metrics
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Revenue | $51.336 billion | $46.677 billion | Up 10.0% consolidated; same-facility revenue rose 5.9%. |
| Net income attributable to HCA | $3.505 billion | $3.787 billion | Down 7.4%; diluted EPS was $10.07 versus $10.66. |
| Net income | $4.145 billion | $4.389 billion | Consolidated amount before noncontrolling interests. |
| Adjusted segment EBITDA | $9.857 billion | $8.949 billion | Up 10.1%; approximately 19.2% of revenue in both years. Non-GAAP measure. |
| Operating cash flow | $7.602 billion | $6.761 billion | Up $841 million. |
| Capital expenditures | $4.158 billion | $3.573 billion | Operating cash flow less capital expenditures was approximately $3.444 billion, versus $3.188 billion. |
| Debt, including amounts due within one year | $33.722 billion | $32.821 billion | Interest expense rose to $1.824 billion from $1.755 billion. |
| Cash and working capital | $621 million; $3.439 billion | $502 million; $2.644 billion | Working capital increased $795 million. |
- Consolidated equivalent admissions increased 6.6%; revenue per equivalent admission increased 3.2%. Same-facility equivalent admissions rose 3.5% and revenue per equivalent admission rose 2.3%.
- Admissions rose 5.2% consolidated and 2.8% same facility. Outpatient surgeries rose 4.0% consolidated and 1.6% same facility; emergency-room visits increased 4.5% and 2.8%, respectively.
- Salary and benefit costs were 45.9% of revenue, supplies 16.5%, and other operating expenses 18.5%. Depreciation and amortization was 5.0% of revenue, up from 4.9%.
- Medicare and Medicaid together accounted for 41.5% of revenue. Domestic managed care and other insurers contributed 51.6% of revenue, down from 52.4%.
- Q4 revenue was $13.523 billion versus $12.274 billion. Q4 net income attributable to HCA was $1.071 billion versus $1.064 billion; diluted EPS was $3.09 versus $3.01.
Material changes versus the prior year
- Revenue growth reflected both higher volume and higher revenue per equivalent admission. Acquisitions contributed to consolidated growth: HCA acquired a seven-hospital North Carolina system and other health care entities in 2019.
- HCA repurchased 7.949 million shares in 2019, compared with 14.070 million in 2018. Cash dividends declared rose to $1.60 per share from $1.40.
- Net income attributable to HCA declined despite revenue and EBITDA growth. 2018 included $428 million of gains on facility sales, principally the sale of two Oklahoma hospitals; 2019 included $18 million of facility-sale gains and $211 million of pretax losses on debt retirement. 2019 also included $86 million of revenue from resolving prior-period out-of-network transaction-price differences.
- Uncompensated-care estimated cost increased to $3.733 billion from $3.318 billion. Estimated implicit price concessions recorded against revenue and receivables increased to $6.953 billion from $6.280 billion.
- HCA issued $6.5 billion of debt in 2019, including $5.0 billion of secured notes, and redeemed $4.95 billion of notes. Debt increased by $901 million year over year.
Liquidity, outlook, risks and unusual items
- Management expected cash from operations, available credit facilities and access to debt markets to cover expected liquidity needs for the next 12 months. Credit-facility availability was reported as $3.237 billion at year-end. The filing characterizes HCA as highly leveraged and describes debt covenants and collateral pledges.
- Planned 2020 capital expenditures were approximately $4.0–$4.2 billion; construction projects had an estimated further $3.0 billion to complete and equip over five years. No specific revenue or earnings guidance is provided.
- Interest-rate exposure includes variable-rate debt; HCA reported $2.5 billion of interest-rate swaps and identified LIBOR’s planned phaseout as a transition risk. A hypothetical 1% rate increase was estimated to reduce annual pretax earnings by about $37 million.
- Key operating and policy risks include Medicare and Medicaid reimbursement changes, potential reductions or restructuring of supplemental payments, payer bargaining power, increased patient cost-sharing, rising labor costs, competition from outpatient providers, and uncertainty around health reform. HCA noted that 91 hospitals were in Florida and Texas, which together generated approximately 48% of consolidated revenue.
- Other notable exposures include cybersecurity and information-system disruption, professional-liability claims, natural disasters, and regulatory investigations. Estimated total professional-liability reserves were $1.827 billion at year-end.
- A Texas qui tam lawsuit alleges FCA and state Medicaid-law violations concerning the Harris County Medicaid waiver program. Federal and state governments declined to intervene; HCA said it was vigorously defending the case and could not predict its effect.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls. Revenue recognition and professional-liability reserves were identified as critical audit matters. HCA adopted lease accounting Topic 842 in 2019.
Important facts for investors to verify
- Reconcile reported earnings with the effects of 2018 facility-sale gains, 2019 debt-retirement losses, and other identified unusual items.
- Assess the sustainability of volume and rate growth against higher uncompensated care, collection uncertainty, and changing payer mix.
- Review debt maturities, covenant headroom, floating-rate exposure, and the availability and conditions of credit facilities.
- Track planned capital spending, acquisition returns, and the balance among investment, dividends, and share repurchases.
- Monitor Medicaid supplemental-payment programs, including Texas, and the status and potential financial impact of the Harris County lawsuit.