Strong demand, higher per-patient revenues propel HCA Healthcare in Q4 2023

Nashville, Tennessee-based HCA Healthcare closed out 2023 “better than expected” with billions in quarter and annual revenue gains, higher demand and steady progress toward addressing cost pressures such as physician fees, executives told investors Tuesday.

The for-profit giant reported Tuesday fourth-quarter revenues of $17.3 billion, up from last year’s $15.5 billion.

Net income for the quarter landed at $1.6 billion ($5.93 per diluted share), down from the almost $2.1 billion ($7.28 per diluted share) last year—though the prior period had included $1.3 billion in gains on sales of facilities. Excluding gains on sales, fourth-quarter earnings per share grew 27% year over year.

The performance topped Wall Street’s expectations and has the for-profit's stock trading about 4.5% higher as of mid-Tuesday.

HCA also released guidance for the coming year assuming continued growth in demand (3%-4% growth in equivalent admissions) and per-patient revenues (2%-3% growth in revenue per equivalent admission), as well as execution of the health system’s longer term network expansion and expense management initiatives.

“We are encouraged by these results and believe the operational momentum we’ve created should position us well for 2024,” CEO Sam Hazen said during Tuesday morning’s investor call.

HCA operates 186 hospitals and about 2,400 other ambulatory sites of care.

Across the full year, HCA recorded a total of $65 billion in revenues, up from $60.2 billion in 2022. Net income was $5.2 billion ($18.97 per share) compared to 2022’s $5.6 billion ($19.15 per share), the latter of which was, again, bolstered by the $1.3 billion gains on facility sales.

Backstopping HCA’s performance across 2023 was a near-universal rise in patient volumes. Full-year same-facility admissions grew 3.3%, equivalent emissions grew 4.8%, ER visits grew 4.7% and total surgical cases rose 2.3%, retiring Chief Financial Officer Bill Rutherford told investors.

The company coupled this with “strong” acuity trends and improvements among case mix index and payer mix, Rutherford said while highlighting a 6% annual rise in managed care and other admissions. It all helped HCA achieve a 7.6% year-over-year increase in same-facility revenue (7.9% on a consolidated basis).

Responding to investor questions on the volume and demand trends, Hazen said that “most categories of our business” appear to have returned to normal seasonality. He said the company doesn’t believe—but can’t precisely measure—any new policies or pent-up demand for care had a material impact on the volumes.

Going forward, however, Rutherford noted that the company could see “some moderate positive results” in 2024’s Medicare Advantage volumes as a result of the two-midnight rule that went into effect this year.

Of note, HCA is the first of the major for-profit health systems to report fourth-quarter performance. The questions on utilization and demand trends follow dicey earnings reports from major payers like UnitedHealthGroup and Humana.

On the expense side, executives painted a picture of steady improvement and “solid margins … in line with our range of expectations” after weathering pressures like wage inflation and last quarter’s warnings physician staffing woes.

2023’s salaries, wages and benefits as a percentage of revenue improved 60 basis points on a consolidated basis year over year, Rutherford said, and, in the fourth quarter, contract labor declined by 20% to reflect 5.3% of salaries, wages and benefits.

Hazen noted that HCA expects to make further progress on its “significant investments in workforce development and training, which includes expansions in both Galen College of Nursing and our centers for clinical advancement.” HCA ended the year with a roughly 90% referral acceptance rate, though those rates generally improved over time, and the company believes it “will continue to get better in 2024” with staffing and support initiatives, the CEO said.

As for Valesco Physician Services, the physician staffing joint venture it began assimilating in the second quarter, executives said the company’s plan to incrementally whittle away the $50 million per quarter loss disclosed in October is progressing as expected.

“As we continue to work on multiple improvement initiatives, including further integrating [Valesco] into HCA, we expect to see continued improvement going forward,” Rutherford said in response to a question from an investor. “Next year Valesco, for the full year, we equate with the same amount [of operating losses] we reported this year—but we had nine months this year versus 12 months in 2024. So we do believe over time there will be continued improvements, and we’re working diligently toward those.”

The executives said HCA has $2 billion of new capital projects scheduled to come online in 2024 that will increase capacity. The company continues to pursue its broader capital expenditure strategy and has seen solid returns from its spending to date, they said.

HCA also announced that its board has authorized an additional share repurchase program for up to $6 billion of its outstanding common stock in addition to the $775 million that remained under its existing repurchase authorization as of the end of 2023. The board also declared a quarterly cash dividend of $0.66 per share.

HCA’s guidance range for the coming year is as follows:

  • Net income attributable to HCA Healthcare: $67.75 to $70.25 billion
  • Net income attributable to HCA Healthcare: $5.20 to $5.60 billion
  • Adjusted EBITDA: $12.85 to $13.55 billion
  • Diluted earnings per share: $19.70 to $21.20 per diluted share
  • HCA operates 186 hospitals and about 2,400 other ambulatory sites of care