HCA beats Wall Street expectations in Q4 with revenue up 6% despite low volume

Dive Brief:

  • HCA Healthcare beat Wall Street expectations on both earnings and revenue in the fourth quarter of 2020, as high-acuity patients and cost controls made up for a slow recovery in volume during the strongest surge in COVID-19 patients to date.
  • Revenue of $14.3 billion was up almost 6% year over year, while net income of $1.4 billion was up 33% year over year for the for-profit system, according to financial results released Tuesday.
  • HCA released full-year guidance for 2021, and expects to bring in revenue between $53.5 billion and $55.5 billion this year, and adjusted earnings per share of $12.10 to $13.10. HCA stock was up slightly in early morning trading following the release.

Dive Insight:

Wall Street expectations for hospitals in the fourth quarter were low, as the COVID-19 pandemic continues to drive significant headwinds. The continuing surge of COVID-19 starting in the closing months of 2020 is likely to keep volumes depressed through the first half of this year, complicating hospital operations as many face staff shortages, burnout and filling ICUs, along with the threat of more contagious coronavirus variants.

Larger health systems with access to more capital, however, have weathered the pandemic’s financial effects much better than their smaller, more regional peers. And a recovery in volume is likely to come later this year, as more Americans are vaccinated and feel comfortable re-entering the healthcare system. That return in pent-up volume could drive a significant uptick in earnings for for-profit operators like HCA, Tenet and Community Health Systems, according to Jefferies analyst Brian Tanquilut. 

And, despite worries of COVID-19 decimating hospital finances and ongoing lobbying from trade groups like the American Hospital Association for more relief funds, HCA still reported full-year growth in 2020.

HCA’s financial results in the quarter were driven by highly acute inpatient volumes, along with ongoing cost management efforts, despite unseasonably weak volume, according to HCA CEO Sam Hazen. Key markets for HCA, such as Texas and Florida, which represent about half its beds, have been struggling to contain massive COVID-19 outbreaks, resulting in depressed volume overall but a larger share of sicker, more lucrative patients.

The Nashville-based system, which operates 185 hospitals and about 2,000 sites of care in 20 states and the United Kingdom, saw same-facility admissions and same-facility equivalent admissions decline 3.4% and 7.5% respectively in the fourth quarter compared to the same time last year.

Inpatient surgery cases and outpatient surgery cases dropped 7.2% and 5.1%, respectively, while emergency room visits plummeted 21%.

However, same-facility revenue per equivalent admission jumped more than 14% year over year in the fourth quarter, due to more high-acuity patients and a more favorable payer mix.

HCA treated 56,000 COVID-19 inpatients in the fourth quarter, a 30% jump over the third. Since March, the operator has treated 220,000 inpatients with the virus, representing 8% of total admissions, Hazen said on a Tuesday morning call with investors.

HCA spent the first two months of the fourth quarter ramping up its COVID-19 response, as cases rose from October through November and reached a peak in December, which made up almost half of the system’s coronavirus activity in the quarter overall.

However, the level of patients with COVID-19 has begun to decline over the past few weeks. As a result, HCA expects revenue per patient to be flat or down slightly this year from 2020, CFO Bill Rutherford said on the call. The system does expect volume to recover from last year, but remain below 2019’s levels.

In the quarter, HCA used almost $3.6 billion in cash for operating activities, including the return of more than $6 billion in congressional relief funds from the Coronavirus Aid, Relief, and Economic Security Act and early repayment of Medicare loans. That’s compared to cash flows provided by operating activities of $2.5 billion same time last year.

HCA announced in October it planned to return all federal COVID-19 relief it received since the beginning of the pandemic, since it was in a relatively stable position following the third quarter. HCA hasn’t had to lay off any employees and operated conservatively throughout the pandemic, allowing it to return the funds, Hazen said.

In the year, HCA brought in $51.5 billion in revenue, compared to $51.3 billion in revenue in 2019. Net income totaled $3.7 billion, compared to $3.5 billion in 2019.

As of the end of 2020, HCA held cash and cash equivalents of $1.8 billion, total debt of $31 billion and total assets of $47.5 billion.