With a tough year in the rearview, many major health systems are releasing forecasts for 2023 that predict healthy demand for services, reduced expense escalation and the resumption of seasonal volume trends following COVID-19 disruptions.
HCA Healthcare is no different. Executives from the 180-plus hospital juggernaut have regularly described 2022 as “a tale of two halves,” the latter period of which was characterized by a slow and steady return to normal operations. At a broad level, they've said the company expects the momentum to continue through the coming year.
Still, 2023 projections released last month were somewhat conservative, coming in a hair below the market’s estimates. Total revenues are estimated to land between $61.5 billion and $63.5 billion, versus 2022's $60.2 billion, while net income attributable to the company between $4.53 billion and $4.9 billion, versus 2022's $5.6 billion.
Speaking at TD Cowen’s Annual Health Care Conference Wednesday morning, Chief Financial Officer Bill Rutherford outlined the two swing factors that will have the biggest impact on whether HCA meets, exceeds or falls below those projections: the healthcare labor market and the economywide inflationary environment.
“Our focus continues to be to ensure we’ve got the labor to be able to serve that ongoing demand—that’s probably the No. 1 thing,” Rutherford said. “To achieve that better than our expectations, there should be some positive trends to that because there’s demand in the market that we were unable to serve historically in the last half of the year because of that labor market. As that begins to settle, that should be a positive dynamic for us.”
HCA’s contract labor spending during the first half of 2022 was about 9% of its total salaries, wages and benefits expenses, and then dipped to about 7% during the year’s second half as COVID-driven utilization fell, Rutherford said.
“I don’t know if we’ll get to pre-COVID levels in ’23, but I think we can continue the trend lines that we are on right now,” he said.
HCA also adjusted its wages paid to employees during the past year, though the executive noted that doing so again will be less painful for the company’s bottom line as contract labor spending falls. In fact, the funds freed up by less contract labor spending can be repurposed toward softening its other labor expenses.
“There’s a lot of inputs into your labor cost—your wage rates, your productivity, your utilization, skill mix—to keep our total labor cost in line with our revenue growths, and in the backdrop of today’s environment I think that [would be] a really solid result for us,” he said. “And so as contract labor continues to decline, we can reuse some of that to reinvest. That’ll help reduce turnover and increase hiring, and that allows us to achieve that goal.”
The other swing factor that could upend HCA’s projections is inflation, or more specifically how long the ongoing period of inflation will run.
Rutherford said he believes that the economy has already “seen the high watermark of inflation” and now it’s a matter of whether it will “persist longer than we want.” HCA has so far managed inflation’s pressure on labor and seen “really positive” trends lately in terms of supply costs, he said, and can continue to pull levers should inflation extend well into 2023’s later months.
"Whether it be resiliency programs we've talked about before, consolidation, some benchmarking, reducing some variation, our capacity management around length of stay has a response to some of that. We’ve got multiple initiatives to try to respond if we stay in a high-inflationary environment," he said.
Rutherford also reiterated comments he’s shared during previous conference appearances that HCA would feel less of an impact from a recession than companies in other industries. Specifically, he pointed to health insurance exchange subsidies that would keep many patients covered in the event of unemployment.
Outside of the swing factors, Rutherford acknowledged that acuity has generally dipped since COVID’s heyday, when many low-acuity patients were avoiding inpatient care. The health system expects to see more low-acuity services return to hospitals, but “that’s OK as long as it doesn’t squeeze out the higher acuity services for us. … Again, lots of inputs and takes on that, but if we can maintain … around the level we’re producing right now, I think that’s a good outcome for us too.”
On the merger and acquisition front, the executive said HCA has “the ability and capacity” to continue its in-market acquisitions, though “there are some markets we are restricted [from] doing a hospital acquisition, just given share and the activity of the regulatory oversight on it.”
New markets, however, do not appear to have the same prohibitive regulatory oversight, “and so we’ll have to see how that plays out. We are willing to look [at] moving into new strategic markets. We have the balance sheet to be able to do that," Rutherford said.