HCA Holdings, Inc. (now HCA Healthcare): FY2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
HCA operated 165 hospitals and 115 freestanding surgery centers across 20 U.S. states and England. Its business includes acute-care, psychiatric and rehabilitation hospitals, surgery centers and other outpatient services. The company identified growth in existing markets, quality and physician recruitment, scale efficiencies, and selective development and acquisitions as strategic priorities.
Financial and operating performance
| Metric | FY2013 | FY2012 | Change or context |
|---|---|---|---|
| Revenue, after provision for doubtful accounts | $34,182 | $33,013 | Up 3.5% |
| Revenue before provision for doubtful accounts | $38,040 | $36,783 | Provision was $3,858 versus $3,770 |
| Income before income taxes | $2,946 | $2,894 | Up 1.8% |
| Net income attributable to HCA | $1,556 | $1,605 | Down 3.1%; diluted EPS was $3.37 versus $3.49 |
| Adjusted segment EBITDA | $6,574 | $6,531 | Up 0.7%; approximately 19.2% of revenue in 2013 |
| Cash from operating activities | $3,680 | $4,175 | Down $495, primarily due to $521 of net negative working-capital changes |
| Capital expenditures | $1,943 | $1,862 | Approximate operating cash flow less capex was $1,737 |
| Total debt at year-end | $28,376 | $28,930 | Down $554 |
| Cash and cash equivalents at year-end | $414 | $705 | Working capital was $2,342 versus $1,591 |
Net income attributable to HCA was approximately 4.6% of revenue in 2013, compared with 4.9% in 2012. Interest expense increased to $1,848 from $1,798; the average debt balance rose, while the average long-term debt interest rate declined to 6.5% from 6.6%. At year-end, $3,540 of debt was variable-rate and $24,836 fixed-rate. The company reported $1,942 available under its senior secured revolving facility and $60 under its asset-based facility, after applicable limitations.
Revenue growth reflected a 3.1% increase in revenue per equivalent admission and a 0.4% increase in equivalent admissions. Same-facility revenue rose 3.1%, while same-facility admissions rose 0.1%. Consolidated admissions increased 0.2%; same-facility outpatient surgeries declined 0.5%. Medicare and Medicaid accounted for 42% of 2013 revenue. Florida and Texas together generated approximately 46% of revenue.
Fourth-quarter 2013 revenue was $8,836, net income attributable to HCA was $424, and diluted EPS was $0.92; fourth-quarter 2012 figures were $8,434, $314, and $0.68, respectively.
Material changes and unusual items
- Uninsured discounts, charity care and doubtful-account provisions totaled $15,565, up from $13,841 in 2012. These items equaled 31.3% of the related revenue-and-deduction measure, compared with 29.5%. Same-facility uninsured admissions rose 7.6%.
- Salaries and benefits increased to $15,646 and 45.8% of revenue from $15,089 and 45.7%. Supplies increased to $5,970 and 17.5% of revenue from $5,717 and 17.3%.
- HCA recognized $216 of electronic health record incentive income, down from $336, and incurred $113 of related operating expenses.
- FY2013 included a $17 pretax debt-retirement loss and $10 net losses on facility sales. FY2012 included $175 of legal claim costs related to the Health Midwest litigation and $15 of net gains on facility sales.
- HCA repurchased 10.7 million shares for $500 in November 2013. No stockholder distributions were declared in 2013; a $6.50-per-share distribution totaling $3,142 was made in 2012.
Outlook, risks and contingencies
- Management expected 2014 capital expenditures of approximately $2.2 billion; projects under construction had an estimated $1.8 billion of remaining costs over five years. Management stated that operating cash flow, credit-facility availability and expected debt-market access should meet liquidity needs over the next 12 months.
- For 2014, HCA estimated EHR incentive income and related operating expenses each at $110–$130 million. These estimates depend on continued meaningful-use qualification and funding availability. No broader revenue or earnings guidance is stated in the provided filing text.
- Major policy exposures include Medicare sequestration cuts, payment updates and quality/readmission adjustments; reductions in Medicare and Medicaid disproportionate-share payments; and uncertain effects of the Affordable Care Act, Medicaid expansion and insurance exchanges. Management emphasized that coverage gains could be offset by reimbursement cuts, payer mix and lower payment rates.
- Collection risk is significant: the allowance for doubtful accounts represented approximately 93% of the $5,927 patient-due receivables balance. Management expected continued collection challenges. The filing also identifies labor-cost pressure, competition, physician recruitment, payer contracting, cyber and system risks, and concentration in Florida and Texas.
- HCA reported $28.376 billion of debt and substantial contractual obligations. Covenants restrict certain transactions, and variable-rate borrowing creates exposure to interest-rate increases. A hypothetical 1% increase in rates was estimated to reduce annual pretax earnings by approximately $35 million.
- In the Health Midwest case, a court awarded at least $162 million and indicated approximately $12 million in attorneys’ fees; HCA recorded $175 million of legal claim costs in 2012. A court-supervised accounting remained ongoing and could increase the award; HCA planned to appeal after final judgment.
- HCA was cooperating with DOJ reviews concerning implantable cardio-defibrillator billing at 95 hospitals and interventional cardiology medical-necessity reviews at eight hospitals. The filing said the potential impact could not be predicted. A shareholder class action was proceeding to discovery on remaining claims.
Most important facts for investors to verify
- Whether rising uninsured discounts, charity care and bad-debt provisions continue to outpace revenue growth, and how effectively receivables are collected.
- Whether operating cash flow recovers from the 2013 decline and can fund planned capital spending, debt service and other cash needs.
- Debt maturities, revolving-facility availability, covenant headroom and sensitivity to interest rates.
- The realized effects of health-care reform, Medicare and Medicaid reimbursement changes, DSH cuts, quality penalties and state Medicaid decisions.
- Final outcomes and potential exposure from the Health Midwest accounting and appeal, DOJ reviews, and securities litigation.
- Whether 2014 EHR income and expense estimates, capital-spending plans and meaningful-use requirements are achieved.