Why HCA Missed The Mark: 7 Key Takeaways from Its Q3 Earnings

HCA CEO Sam Hazen told investors that compensation associated with its staffing firm pressured its 2023 third-quarter earnings.

The for-profit healthcare system just released its 2023 third-quarter earnings, and while it’s reporting financial growth, it seems its joint venture with physician staffing firm Valesco impacted the bottom line.

Here are seven key takeaways of HCA’s third-quarter report and why it may be the first ripple we see from CFOs scaling back on contract labor:

1. Financial performance: HCA Healthcare reported robust financial performance for the third quarter of 2023, but its newest joint venture is “unfavorably” tipping the scales. HCA reported $1.63 billion in third-quarter operating income on revenues of $16.21 billion, but the company's results were negatively impacted by its physician staffing joint venture, Hazen said.
2. Earnings and net income: Despite strong revenue growth, the net income attributable to HCA Healthcare was $1.079 billion for the quarter.
3. Adjusted EBITDA: The company reported an adjusted EBITDA of $2.880 billion for the quarter. HCA’s joint venture had a negative impact of about $100 million on HCA's adjusted EBITDA in the quarter as well on a year-to-date basis, CFO Bill Rutherford said on the investors call. 
4. Operational metrics: Key operational metrics, such as same facility admissions, same facility equivalent admissions, and emergency room visits, all increased in the third quarter.
5. Balance sheet and debt: As of September 30, 2023, HCA Healthcare had total debt of $39.346 billion.
6. Cash flow: The report shows a decrease in cash flows provided by operating activities compared to the previous year.
7. Dividend and share repurchase: HCA Healthcare declared a quarterly cash dividend and repurchased common stock during the third quarter.

What does this mean for the rest of the industry?

HCA's business in the third quarter was positive overall, which translated into strong revenue growth, but it seems the financial tipping point for HCA was its joint venture with Valesco as it “performed below our expectations," Hazen said.

Why did the staffing firm perform below expectations? HCA missed Wall Street profit estimates in the third quarter largely due to Valesco's increased staffing costs and lower-than-expected sales, Rutherford said.

While Hazen stands by the long-term strategic value of acquiring Valesco, which absorbed thousands of physicians across hundreds of locations, HCA’s impacted earnings report comes amid financial volatility for staffing firms across the industry.

At a time when CFOs are trying to scale back their use of staffing firms and focus on bringing staff in-house, more staffing firms are filing for bankruptcy and reporting major losses.

HCA’s earning report may be the first ripple we see from CFOs scaling back on contract labor and underscores the importance of careful vendor selection and risk management for hospitals CFOs.