HCA Healthcare's stock jumped Tuesday morning as the hospital chain reported better-than-expected performance in the second quarter and boosted its 2024 guidance.
The 188-hospital for-profit reported second-quarter net income of $1.46 billion ($5.53 per diluted share), up from $1.19 billion, or $4.29 per share, a year earlier. HCA brought in $17.5 billion in revenues in the quarter, up 10.3% from $15.86 billion in the second quarter of 2023.
Those results are squarely ahead of consensus estimates of $4.93 earnings per share and revenue of $17.05 billion.
HCA upped its full-year guidance and is now projecting revenue between $69.75 billion and $71.75 billion, up from its previous guidance of $67.75 billion to $70.25 billion. The company's stock soared more than 7% in premarket trading Tuesday.
The company forecasts 2024 EPS guidance of $21.60 to $22.80 per share, up from the prior guidance of $19.70 to $21.20 per share and the consensus of $20.98.
"The company's results for the second quarter were positive across the board and reflected strong demand for our services. In addition, our teams continue to execute our strategic plan effectively, and produce positive outcomes for our patients, while also enhancing efficiencies in our facilities, including better throughput and case management," HCA Healthcare CEO Sam Hazen said during the second-quarter earnings call.
"Consistent was the first quarter; we saw broad-based volume growth across our markets and service lines on a same-facility basis in the second quarter," Hazen told investors.
In the second quarter, HCA saw same-store inpatient admissions growth of about 5.8%, and the hospital operator reported same-store equivalent admissions growth of 5.2% from last year. Same facility emergency room visits increased 5.5% in the second quarter of 2024 compared to the prior-year period.
Same facility inpatient surgeries were up 2.6%, and same facility outpatient surgeries declined 2.1% in the second quarter of 2024 compared to the same period of 2023.
"Like the first quarter, the declines were mostly explained by lower volumes and Medicaid and self-pay categories," Hazen said. "Similar to the past few quarters, other volume categories including cardiac procedures and inpatient rehab services experienced strong growth."
Same-facility revenue per equivalent admission increased 4.4% in the second quarter.
Payer mix improved year over year with commercial volumes representing 36.2% of equivalent admissions, Hazen said. The acuity of HCA's inpatient services, as reflected in its case mix index, increased slightly as compared to last year, he noted. "These factors helped generate same facility revenue growth of 10%," Hazen said.
Adjusted EBITDA totaled $3.5 billion, up 16% over the second quarter of 2023, and included a modest benefit from Medicaid supplemental payments, executives said.
Investors on the call questioned HCA Healthcare executives about the upcoming national election and potential disruptions to Affordable Care Act plans, particularly if enhanced income-based subsidies were allowed to expire. The Inflation Reduction Act extended the subsidies through the end of 2025.
"There's a lot to play out here politically between now and the end of the year. It's a little premature for us to forecast what's going to happen politically with respect to the exchanges. It's no secret that they are scheduled to expire at the end of 2025," Hazen told investors, noting that health system leaders are "starting to study that."
"We're hopeful that in 2025, we'll have some sense of the policies that might be put forth and a better sense of the economics around the exposure if the subsidies go away," he noted.
Chief Financial Officer Mike Marks said labor costs as a percent of HCA’s revenue improved by 200 basis points over the prior year’s second quarter. Contract labor was 4.8% of the system’s total labor costs, a 25.7 % improvement year over year, he said.
Declining expenses as a percentage of revenue tied to salaries and benefits, as well as supplies, translated to adjusted EBITDA margin improving 100 basis points year over year to 20.3%.
Hospital M&A activity has continued at a fast pace in 2024. Hazne said HCA is "selective" around acquisitions to ensure any deals "fit the model and can produce the returns" that leadership expect from acquisitions.
In response to a question from an analyst about the potential for HCA Healthcare to move into a larger market or national expansion, Hazen said, "We are built to be bigger, we know that and we have the balance sheet to support that."
In 2023, the health system purchased 41 urgent care centers from FastMed to bolster its existing Texas markets.
"Will we enter new markets? Hopefully, yes. But those opportunities haven't necessarily presented themselves. I don't know that will deviate from our model. Our model is more centered on making our system, our local system, work better for the community, work better for our patients, and work better for other stakeholders that are connected to it," Hazen said.
In a July report, Kaufman Hall reported that hospitals and health systems are emphasizing "strategy over scale” in Q2 dealmaking.
"Many of these M&A transactions enable hospitals to sustain and enhance access to care, launch new services, or strengthen and stabilize systems, which allows for future growth," Kaufman Hall wrote.
As of June 30, 2024, HCA Healthcare's balance sheet reflected cash and cash equivalents of $831 million, total debt of $40.9 billion and total assets of $57.4 billion.
During the second quarter of 2024, capital expenditures totaled $1.28 billion, excluding acquisitions. Cash flows from operating activities totaled $1.97 billion in the second quarter.
HCA's board of directors also declared a quarterly cash dividend of $0.66 per share on the company’s common stock.
"As we transition to the last half of 2024, we are encouraged by the company's results. We believe the increased investments we are making in our people and facilities, along with our disciplined approach to operations will continue to produce positive outcomes for our stakeholders," Hazen said.
HCA's second-quarter performance follows strong results in the first quarter as HCA reported inpatient volume growth across its entire hospital portfolio and other steady gains on payer mix, length of stay and operating expenses.
"As we move into the back half the year, we believe most of these trends should continue," Hazen told investors. "We anticipate volume growth to be in the 4% to 6% range for the year."
HCA anticipates an approximately $100 million to $200 million tailwind in 2024 from Medicaid supplemental payment programs, much of which occurred in the first half of 2004, he noted.
Capital expenditures for 2024, excluding acquisitions, are estimated to be in the range of $5.1 billion to $5.3 billion.
The health system is making major investments to build out its network, enhance its staffing and advance clinical technology, Hazen said. "We're finding ways to use our capital to make our services better and produce better outcomes for our patients. This year, we'll invest somewhere around $5.2 billion, which is significantly over the last couple of years. W continue to see opportunities inside of our organization to invest capital."
Last year, HCA Healthcare launched a pilot program that equipped 75 emergency room physicians at four hospitals with Google’s AI technology, utilizing an ongoing partnership with Google Cloud and Augmedix, a tech company specializing in ambient medical documentation. In November, the health system said it was exploring opportunities to incorporate the tech giant’s generative AI tools in more hospitals.