HCA Healthcare, Inc. — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023; unaudited results compared with Q1 2022. HCA operates hospitals and related health care businesses. At quarter-end, its affiliates operated 180 hospitals, 126 freestanding surgery centers and 22 freestanding endoscopy centers in 20 U.S. states and England.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $15.591 billion | $14.945 billion | +4.3% |
| Income before taxes | $1.922 billion | $1.814 billion | +5.9% |
| Net income attributable to HCA | $1.363 billion | $1.273 billion | +7.1% |
| Diluted EPS | $4.85 | $4.14 | +17.1% |
| Adjusted segment EBITDA | $3.172 billion | $2.944 billion | +7.7% |
| Cash from operating activities | $1.803 billion | $1.345 billion | +$458 million |
- Net income attributable to HCA was 8.7% of revenue, versus 8.5% in Q1 2022. Salaries and benefits were 45.4% of revenue, down from 46.4%; supplies were 15.5% in both periods; other operating expenses rose to 18.7% from 18.5%.
- Interest expense increased to $479 million from $408 million. The average effective debt interest rate was 5.0%, compared with 4.6%.
- Revenue growth reflected higher volumes: equivalent admissions rose 6.7% consolidated and 7.5% same-facility. Revenue per equivalent admission declined 2.2% and 2.3%, respectively. Admissions increased 3.6%; emergency department visits increased 9.5%.
- HCA repurchased 3.34 million shares for $846 million during the quarter. Weighted-average diluted shares fell to 281.0 million from 307.4 million.
Financial position and liquidity
- At March 31, 2023, cash and cash equivalents were $842 million; current assets were $13.541 billion and current liabilities $11.028 billion. Working capital was $2.513 billion, down from $3.741 billion at year-end, primarily because more debt was due within one year.
- Total debt was $38.856 billion, including $2.378 billion due within one year. Debt carried an average rate of 5.1% and had an average life of 9.3 years. Approximately $5.509 billion was variable-rate debt and $33.347 billion fixed-rate.
- Available capacity under senior secured credit facilities was $3.795 billion at March 31 and $3.745 billion at April 24. Management said operating cash flow, credit facilities and expected debt-market access should meet foreseeable liquidity needs.
- Operating cash flow increased year over year, with management attributing the increase principally to a $277 million combined working-capital impact and higher net income. Investing cash outflow was $1.151 billion, including $1.197 billion of property and equipment purchases. Financing cash outflow was $725 million.
Material changes and unusual items
- Q1 2023 revenue included $145 million from resolving disputed claims with a commercial payer relating to prior years. Q1 2022 included $244 million of Texas directed-payment-program revenue and $90 million of related provider-tax expense for September–December 2021.
- Facility sale results shifted from a $10 million gain in Q1 2022 to a $15 million loss in Q1 2023. Q1 2023 included proceeds from selling two Louisiana hospitals.
- HCA reorganized operations into National, American and Atlantic geographic groups effective January 1, 2023; prior-period segment information was restated.
Outlook, risks and contingencies
- Planned 2023 capital expenditures are approximately $4.6 billion. Projects under construction are estimated to require another $5.0 billion over five years to complete and equip.
- Management cited continuing inflationary pressure on operating expenses and uncertainty around labor costs and staffing. Contract, overtime and other premium labor costs had declined from the prior-year period, but further declines depend on labor-market conditions.
- HCA cannot estimate the future effect of COVID-19. Other stated risks include patient volume and payer-mix changes, uninsured-account collectability, government reimbursement and possible changes to Medicaid supplemental-payment programs, substantial indebtedness and refinancing, regulation, litigation, cybersecurity and natural disasters.
- HCA disclosed a False Claims Act and Texas Medicaid Fraud Prevention Act qui tam lawsuit concerning a Texas Medicaid program in Harris County. The governments declined to intervene; HCA is defending the action and cannot predict its effect. The filing also describes routine litigation, regulatory inquiries and tax examinations.
- Net reserves for self-insured professional-liability risks were $1.889 billion. Expected net claim payments over the next 12 months were approximately $510 million, including an estimated $469 million related to claims subject to the self-insured retention.
- No material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of revenue and earnings growth is sustainable after accounting for the $145 million prior-year claims resolution and the unusual Texas program items in the comparison period.
- Whether volume growth continues to offset lower revenue per equivalent admission, and how payer mix and reimbursement rates evolve.
- Whether labor and other inflation-related costs remain controlled while staffing and service volumes change.
- Debt maturities, variable-rate exposure, interest expense and available credit capacity, alongside the planned $4.6 billion of 2023 capital spending and ongoing repurchases.
- Developments in Medicaid supplemental-payment programs, the Texas qui tam case, tax examinations and professional-liability claims.