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HCA Posts Strong, Tenet 'Solid' 3Q Earnings

 |  By John Commins  
   November 06, 2013

Its ability to improve inpatient admissions has helped for-profit Hospital Corporation of America post healthy earnings. Tenet, despite an 8.4% increase in net operating revenues, experienced a "volume decline on the inpatient side and flat-ish volume for outpatient," says one analyst.

For-profit hospital giant Hospital Corporation of America (HCA) continues to post strong earnings even as the industry contends with the complex, myriad, and expensive mandates around healthcare reform, lower inpatient admissions, and reduced Medicare reimbursements.

For the third quarter of 2013, the Nashville-based company reported:

  • Total revenues of $8.4 billion, an increase of 4.9% over the third quarter of 2012;
  • Same facility equivalent admissions increased 1.1%
  • Same facility admissions increased 0.7%,
  • Same facility revenue per equivalent admission increased 3.4%;
  • Cash flows from operations increased $245 million, up $900 million from $655 million

Not surprisingly, HCA Chairman/CEO Richard M. Bracken said in prepared remarks that he was "pleased with the results of the third quarter." He credited the company's "many clinical and operating initiatives continue to position our facilities to effectively compete in this changing healthcare environment."

HCA reported that revenue per equivalent admission increased 3.9% in the third quarter of 2013—a 3.4% increase on a same hospital basis, reflecting increasing acuity and changes in payer mix. Same facility inpatient surgeries increased 2.9% while same facility outpatient surgeries increased 0.4% compared to 3Q 2012.

Operating expense per equivalent admission increased 3.1% from 3Q 2012, with a 1.9% increase on a same hospital basis. During the third quarter of 2013, salaries and benefits, supplies and other operating expenses totaled $6.9 billion, 82% of revenues, compared to $6.6 billion, or 82.7% of revenues, in 3Q 2012, HCA reported.

HCA is the largest investor-owned hospital corporation in the nation and owns and operates 162 hospitals and approximately 114 freestanding surgery centers in 20 states. It also has operations in the U.K.

Sheryl R. Skolnick, managing director and co-head of research at CRT Capital, says HCA's results were "very strong" and demonstrate that the corporation has found the right formula to improve inpatient admissions in an industry that has largely seen fewer heads in the beds.

"HCA positions itself to be dominant in certain service lines that are growing and necessary, like stroke—not elective—and they are dominant in markets where the population is growing. It's the 'where' and the 'what,'" Skolnick says.

"They continue to have volume increases when everybody else doesn't or their volume increases are better than others. A lot of that has to do with the strength of their networks, the positioning in faster growing markets and the work that they've done to be very important for certain types of care in their communities."

Tenet Earnings
Also this week, Dallas-based Tenet Healthcare Corp . [PDF] reported an 8.4% increase in net operating revenues for the third quarter 2013, fueled in part by a 3.5% increase in outpatient visits, and a 3.1% growth in emergency department visits, that helped offset a 0.5% decrease in admissions.

Total net patient revenue per adjusted admission was $11,928, an increase of 3%. Tenet reported adjusted EBITDA of $288 million, an increase of $19 million, or 7.1%, as compared to $269 million in 3Q 2012.

"We achieved another solid earnings increase in the third quarter as we continued to control costs and drive significant revenue growth," Tenet CEO/President Trevor Fetter said in prepared remarks. "We delivered strong growth in outpatient visits, emergency department volumes, and total surgeries in the quarter, all of which are areas of strategic focus."

Fetter noted that Tenet's Conifer Health Services consultant arm reported a 50% increase in EBITDA compared to 3Q 2012. Conifer recorded revenues of $225 million, an increase of 84%.

"On Oct. 1 we completed our acquisition of Vanguard Health Systems, which further strengthens our competitive position for future growth. The integration of Vanguard's operations is proceeding smoothly and we are excited about the additional strengths this acquisition brings to our Company," Fetter said.

Skolnick said Tenet's results for the third quarter "were OK. They certainly weren't as impressive as HCA's."

"They did have volume decline on the inpatient side and flat-ish volume for outpatient," she says.

"The story there is that they have been growing their outpatient surgery center capacity and that has been helping them an awful lot. It has been the application, their capital spending discipline to get growth in markets that offset the natural attrition of patients and population changes as well."

Challenging Markets
Skolnick says other investor-owned hospital chains such as Community Health Systems and LifePoint Hospitals are also experiencing problems with operations in challenging markets. "They both suffered from markets where their populations are declining. Admission volumes grow in lockstep with population, so if you are in a declining market you really don't have a choice but to show these kinds of results," she says.

Skolnick says investor-owned hospital corporations such as HCA and Tenet are surviving if not thriving in a tough healthcare economy because "cost discipline remains a laser focus of every single publically traded company with the possible of exception of (Naples, FL-based Health Management Associates, Inc.) because they are in somewhat disarray right now."

"For Tenet and HCA it has certainly helped them in the quarter. I'd argue that for HCA, it probably helps them a little bit more and you see a little bit more because they have more heads in the beds."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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