How HCA defies industry trends with 19 straight quarters of admission gains
HCA has been a Wall Street favorite for a while, bucking industry trends with admissions and revenue growth.
The Nashville-based chain boasted 19 consecutive quarters of rising admissions in its most recent earnings report, a feat given the volatility some of its competitors have experienced. By contrast, Community Health Systems and Tenet both reported slumps in patient volume in the most recent quarter. UHS also has seen volume growth but has a much smaller footprint of acute care hospitals.
The streak comes as hospital operators face headwinds leaning on patient volumes, including a shift to lower-cost care settings, payer pressures and relative shifts from commercial to government patients. A few key strategies have boosted HCA's continued admissions growth — from picking the right markets to successfully riding the trend to care outside hospital walls, analysts say.
Presence in growing cities, investment in ancillary services and physician recruitment are among the drivers of admissions growth, Brian Tanquilut, an analyst with Jefferies, told Healthcare Dive.
For example, HCA has a large footprint in Nashville, Houston and Dallas — all regions that have captured significant population growth in recent years. Big and growing suburbs are also lucrative markets.
These markets have been key as the company focused on treating higher-acuity patients, those needing more complex and potentially more lucrative care. Over the past few years, HCA has invested in more complex service lines, CEO Sam Hazen said during a recent earnings call with investors.
For example, HCA's six bone marrow transplant programs grew volume by 17% last year, Hazen told investors, and trauma volume increased by 7%. He said there's still room to add or expand service lines, citing electrophysiology and cardiac.
The chain's robust network of outpatient facilities helps capture market share and ultimately push those higher-acuity patients to the area's HCA hospitals, Megan Neuburger, managing director at Fitch Ratings, told Healthcare Dive.
"Relative to their peers, they were earlier in the trends that they needed to build out a continuum of care within their communities," Neuburger said.
HCA has upward of 130 urgent care facilities, more than Tenet and CHS. HCA also outpaces those competitors on free-standing ERs, with 84 of its own, according to year-end numbers the companies recently shared. These ancillary services can drive revenue, particularly free-standing ERs, which tend to be extremely costly compared to a traditional physician office visit.
It's an area HCA continues to invest in, Hazen said. "Those are small dollar capital items and they don't consume a huge amount of our budget. So they are very efficient from that standpoint," Hazen said of investment in outpatient facilities such as urgent care centers, surgery centers and free-standing ERs.
It doesn't hurt that one of HCA's biggest rivals, Community Health Systems, has stumbled in recent years following the $7.6 billion acquisition of Naples, Florida-based HMA in 2014. HMA was found guilty of false billing and physician kickbacks, which CHS admitting to knowing before acquiring the company in 2014
But CHS has changed its strategy to improve performance and margins, investing in more populated areas.
"We are no longer a non-urban, or a rural hospital company," CHS chairman and CEO Wayne Smith said during J.P. Morgan's annual healthcare conference in January.
CHS has focused on moving into areas with a population greater than 50,000. By the end of the year, 95% of its facilities will be located in areas with populations greater than 50,000 — areas that also have improved unemployment rates, Smith said. "Our markets are looking a lot more like HCA and Universal and Tenet than they did in the past," he said.
Another big for-profit chain, Tenet, has been struggling with declining patient volumes as it tries to trim its debt load. On the company's most recent earnings call, CEO Ron Rittenmeyer said Tenet is entering 2019 with a renewed sense of urgency around volume growth. That was after he said during the previous quarter that the company's volume growth, or lack of, was "not acceptable" and that its hospitals "did not meet our expectations and we are focusing on specific areas to address those gaps."
As Tenet's patient volumes have faced continued pressure, the Dallas-based operator has remained committed to its strategy of exiting markets if it's not the No. 1 or No. 2 player in terms of market share. It has also undergone a restructuring effort that eliminated layers of management and other overhead costs.
Nothing lasts forever, and HCA is not totally immune to big market trends, Fitch said in a recent note.
"Secular trends, including a shift to lower-cost care driven by health insurer scrutiny, increasing healthcare consumerism, and growth in Medicare patient volumes outpacing growth of patients with commercial health insurance, will be headwinds to organic growth and profitability," the ratings agency said.
Fitch did warn that any changes to the ACA that results in more uninsured or underinsured patients could "result in a weaker payor mix for acute care hospitals, which would pressure margins."
While repeal and replace legislation seems unlikely, given the split powers in Congress, a federal judge in Texas deemed the ACA unconstitutional in December. While many experts think the ruling will be overturned, it will take time to play out through the court system. The case is now in front of the U.S. Court of Appeals for the 5th Circuit after Democratic state attorneys general appealed the ruling out of Texas.