HCA Healthcare, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Welcome to the HCA Healthcare First Quarter 2024 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir.
Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we'll take questions.
All right. Frank, thank you. Good morning to everybody, and thank you for joining the call. The positive fundamentals we saw in our business this past year continued into the first quarter of 2024. This momentum generated strong financial results that were driven by broad-based volume growth, improved payer mix and solid operating margins. As we look to the rest of the year, we remain encouraged by our performance, the overall backdrop of growing demand for our services and our enhanced stability across our networks to serve our communities.
Great. Good morning, everyone. And thank you, Sam, appreciate that. We believe our first quarter performance represents a strong start to the year, and we continue to combine solid operational performance with a disciplined and balanced allocation of capital to generate value over time.
Thank you, Bill. [Operator Instructions] Operator, you may now give instructions for those who'd like to ask a question.
[Operator Instructions] And your first question comes from the line of A.J. Rice from [ Credit Suisse ].
Obviously, the inpatient side of the business was quite strong. I wondered if there were service areas that were particularly strong. Or was there anything else that you can highlight? I know at one point, as you talked about laying out the year, you thought maybe the first half comparisons would be stronger than the back half. I don't know if that's still your view. Any comment along those lines would be interesting as well.
A.J., it's Sam. As I mentioned, we had broad-based volume growth across the company. Every division had growth in inpatient admissions. Actually, we had the best portfolio performance, I think, I've seen in my experience in the company with 56 of our hospitals growing greater than 10%. So almost 1/3 of our portfolio grew by greater than 10%. We had another 1/4 of our portfolio grow greater than 5%, so really strong volume across the company broadly.
Your next question comes from the line of Ann Hynes from Mizuho.
So I know, I think, in your prepared remarks, you talked about how Medicaid redeterminations was having a negative impact on volumes. Can you just quantify what you think the impact was? And then secondly, do you think you had a revenue benefit from the two-midnight rule in the quarter?
Yes. Ann, this is Bill. It's hard to quantify. Regarding Medicaid redeterminations, we are doing our best to track that. We're seeing, just as we saw towards the end of last year, a large percentage of those people maintaining coverage, which I think is positive. Perhaps 20% of those we previously saw are not. And we're seeing a large portion of those end up in either HICS or employer-sponsored coverage. So we believe there is a small positive benefit here. And we're going to continue to monitor that over time on Medicaid redeterminations.
Your next question comes from the line of Pito Chickering from Deutsche Bank.
Can you talk about the OpEx pressure that you're seeing? Is there any else besides business expenses sort of going in there? And how should we think about OpEx as a percent of revenues using the first quarter as a launchpad? Does that continue to see pressure in 2Q? Does it level off at the back half of the year? And then any quantification of how Valesco is tracking better than expectations?
Yes, Pito, this is Bill. Let me start. So I think there's two primary factors that are influencing the year-over-year comparisons in other operating costs. I'll emphasize it's been very consistent over the past 3 quarters though. And I think, first, as you know and recall from others that we began to see the pro fee pressures mostly in the second quarter of last year. So we're still looking at some year-over-year effect of that. We're pleased that we're at least seeing the sequential growth in pro fees begin to moderate as we have for the past several quarters.
Your next question comes from the line of Whit Mayo from Leerink Partners.
It looks like there's about almost $500 million of revenue that's not in the same-store segment this quarter. You did modest M&A this quarter, less than $100 million, you spent. I mean, is the entirety of the almost $500 million the campuses that you acquired last quarter? Anything I'm missing? I'm just trying to figure out maybe the impact on margins. Because if those don't really have any earnings, that could be maybe like a 60, 70 basis point drag. So if you could help me out there, Bill, that would be helpful.
Yes. Well, I think there's probably two. One, the Valesco operations would be in the non-same-store. And then we did acquire the Wise Health System in the last year. And that would be probably the other entity that's the difference between same-store and consolidated.
Your next question comes from the line of Brian Tanquilut from Jefferies.
Bill, thanks for all the help over the years, and congrats on the retirement again. Just my question on labor, you touched on Valesco a little bit. Any quantification you can share with us or expectation for further improvement both in Valesco and nurse staffing on temp labor?
Let me start with Valesco. So as we've said in our year-end call, we anticipate the Valesco operations to kind of generate the same amount that we had in '23. But in '23, we had them for 3 quarters. Obviously, we'll have them for 4 quarters in '24. So again, I think that's resulting in some sequential improvement. But I think that's still good guidance for us is to basically be flagged on a full year basis.
Your next question is from the line of Ben Hendrix from RBC Capital Markets.
Congratulations, Bill. Wanted to follow up on some of the mix commentary. You said you had some really strong commercial mix. I wanted to see kind of more detail on how exchange volume fits into that. I know you've talked about redetermination in Medicaid losses being offset, one pickup on exchange could offset three Medicaid losses. So just wondering kind of where we are on that recapture. And are we still on a lull? Or are we seeing enough exchange volume to kind of offset that?
Yes, Bill. Let me start with that one. We are very pleased with the mix. We're seeing our overall managed care increase in the 12%, 13% range. That is fueled by health insurance exchanges. Our exchange volume was up close to 50% in the first quarter.
Your next question is from the line of Gary Taylor from TD Cowen.
Bill, you'll be missed, so congrats. My two -- there were two numbers that really jumped out at me, so I just want to get your comment on those. The first is, I think, the occupancy number is all-time high you've reported or at least in the last decade. And I just want to think through, I mean, does that mean, I mean, we're peaking in terms of operating leverage on labor and other operating expense outside of professional fees? Could there still be more room on leverage?
Gary, it's Sam. I think we're actually pretty pleased with the occupancy levels. When you look at our operating agenda, our operating agenda is making sure, number one, that we have the staffing supply necessary in order to accommodate what we believe to be again a positive demand backdrop. And we've made solid improvements over the last 18 months in recruitment, retention, enhanced care models that really create a better environment for our patients.
Your next question comes from the line of Justin Lake from Wolfe Research.
Let me add my congrats to Bill on his retirement, really appreciate all your help over the years, bud. So my question was trying to get an update on your expectations for Medicaid, DPP and DSH. You reported the benefit here at $3.9 billion in 2023. I shouldn't say benefit, that's a gross number, I believe.
Yes. Justin, let me try. And I think we'll have to get back to you on the '19, I don't have that upfront. But if I reflect back to our year-end discussion, that's still our belief today. First, just level set, these DPP programs are really fundamentally part of our Medicaid reimbursement. There's a lot of them. We have 18 or 19 states have these programs. But a lot of them have some complexity with a lot of variables associated. So use that as a backdrop.
[Operator Instructions] Your next question comes from the line of Andrew Mok from Barclays.
I just wanted to echo congratulations to Bill. I just wanted to follow up on the comments you made on other OpEx. I think the year-over-year comparisons all make sense, given the timing of Valesco. But I'm still confused on the sequential progression from Q4. Because it sounds like Valesco performed better, physician fees moderated.
No. I'd say we did have growth in our state supplemental payment expense quarter-by-quarter. As I said in Justin's response, there are certain variables that come on the timing of those. So sequentially, that was up. And the pro fees were up sequentially, it just was up small on there.
Your next question comes from the line of Kevin Fischbeck, Bank of America.
So maybe two questions. I guess, one question, I guess, just about the guidance, I guess, there's been a lot of talk about how you guys are thinking about providing guidance. And you reaffirmed guidance in the quarter. I wasn't sure if that was trying to move away from providing an update every Q1 or whether that was -- you're actually reaffirming guidance because everything is exactly in line, so you're changing your communication around that without giving an update on that.
Kevin, this is Bill. Let me start and I'll ask Sam to add in. On the guidance, we typically would not adjust guidance in Q1 in normal years. But as we talked in our year-end call and as we've tried to set the guidance ranges, I believe the ranges are wide enough to accommodate a range of outcomes. And so we want to get out of the trend, if you will, of trying to reset guidance every quarter-by-quarter.
Nothing else to add. Thank you.
Your next question comes from the line of Stephen Baxter, Wells Fargo.
Just to hopefully put a bow on the Medicaid state-directed payment question, can you just remind us, are we at the point now that you're accruing these evenly each quarter in 2024? Is there any lumpiness to kind of keep in mind about the first quarter or the rest of the year?
Yes, let me. There is some variability in the timing of when we recognize these. For the most part, programs we've had under a while were on an accrual basis. With new programs, we would typically wait until we get some established history and actually funds starting to flow. So it's a little bit of a mix. But there is some variability that we see as we go year-by-year. Remind people, previous to this year, we were recognizing Florida on an annual lump sum basis. We started accruing. We started a little bit, but we tried to accrue those as much as we can as we got some historical practices.
Your next question comes from the line of Jason Cassorla from Citi.
I just want to follow up on labor. I know you're benefiting from reduced contract labor spend and the like. When we think about the first quarter SWB per just a patient day of about 3%, can you give us a sense of how wage growth trended in the quarter and then offsets on the productivity front that you're seeing and if there's anything within the first quarter that gives you confidence on your labor agenda kind of for the balance of the year?
Yes, I mean, obviously, as we've talked about over the past year, we've got a lot of initiatives on labor and our teams are executing very well from turnover reductions to recruitment and retention efforts on there. And our core labor trends are in line with our expectations. We said we anticipate wage inflation in that 2.5% to 3% level. And we're starting to -- and we are seeing that. And that's helping to offset, and we continue to be pleased with the contract labor trends. So I would say the core labor trends that we are seeing this year are right in line with our expectations. And the initiatives that we have continue to be underway.
Your next question comes from the line of Lance Wilkes, Bernstein.
One follow-up on the labor question. And that's just if you could give any comment on hiring pipeline and if there are any categories where you're seeing either more appetite out there or any sort of constraints. And then my real question was on your comment on folks getting shifted over due to redeterminations and maybe that impacting outpatient surgeries. I was wondering if you're seeing any impacts of that sort of stuff on bad debt or any other things where perhaps the overall backdrop is impacting consumers here.
Yes, let me attempt on that. Relative to the pipeline of labor, I don't know if there's any specific things I'd call out. I mean, obviously, we have diversity of geography, diversity of different employer cohorts. And labor teams are doing a great job. Our nurse hiring is up. And so I don't think there's anything unique I would call on that. And Sam or others can add in on that.
Your next question is from the line of Joshua Raskin from Nephron Research.
Bill, I'll also add my congrats, and thanks for all the help. My question is just on CapEx. Could you speak to the CapEx and sort of the deployment in the quarter. It was down a tiny bit, so let's call it flattish year-over-year, but generally been trending higher in recent years. I guess, maybe there's obviously a lot of timing. And then any new capacity specifically to call out in the next 12 months? I know you've got a bunch of projects over the next sort of 2 to 2.5 years as well.
This is Sam. The amount for the quarter is flattish, to your point. And it is timing. We haven't slowed anything down. Some of our construction projects move at different paces than we anticipate at some level. But we expect for the year to be somewhere close to the number that we guided to last quarter, which is somewhere around $5.2 billion or so. So we're investing more in the business than we've ever invested because of the capacity that we need in the network development that we want. And so those efforts continue as we go through the course of this year.
Your next question is from the line of Sarah James, Cantor Fitzgerald.
I was wondering if you could give us what the commercial outpatient surgeries were. Just with the moving pieces, I think we're all just trying to understand if that piece was where you expected it to be. I know it's coming off of a tough comp last year. But was it still positive like it was the last few quarters?
This is Sam. On the commercial side of outpatient surgery, I would say it's generally flat, so it performed better than the aggregate as a whole. Again, the calendar effects affected outpatient surgery in general. Specifically, it had a more dramatic effect on Medicaid, as we mentioned. But we aren't anticipating or seeing anything that's structural with our outpatient surgery business. And as I just mentioned, our capital spending has investments in our outpatient surgery platform as well.
Your next question is from the line of Cal Sternick from JPMorgan.
We've heard commentary from some others that January and February were strong from a volume perspective with some softening of demand in March. Can you talk about what you saw in the quarter? And then if you're seeing the expected rebound volumes into April?
This is Bill, I'll answer the last one. No, we don't have specific visibility. There's always timing differences of certain aspects, but no specific visibility, no.
As far as the volumes, every quarter has calendar effects. And again, as I mentioned previously, we judge the business over a longer period of time to really understand what's working and what's not working. March was a difficult calendar for purposes of elective outpatient business and elective inpatient business simply because we had less working days, business days, and we had the Easter holidays during that time period. So it was clearly softer.
And this concludes our Q&A session for today. And I would like to turn the call back over to Frank Morgan for closing remarks.
Wally, thank you for your help today, and thanks, everyone, for joining our call. We hope you have a nice weekend. I'm around this afternoon if you have additional questions. Give us a call. Have a good day.
This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.