The provider has raised its full-year 2023 guidance estimates.
HCA Healthcare posted its financial results for the first quarter of 2023, with figures coming in higher than analysts expected thanks to an increase in same-facility admissions, emergency room visits, and surgeries.
Revenues in the first quarter of 2023 increased to $15.6 billion, compared to $14.9 billion in the first quarter of 2022. Net income attributable to HCA Healthcare totaled $1.4 billion, or $4.85 per diluted share, compared to $1.3 billion, or $4.14 per diluted share, in the first quarter of 2022. FactSet analysts were expecting earnings per share of $3.91 and $15.3 billion in revenue for the 2023 first quarter, according to MarketWatch.
"Once again, this quarter, our colleagues demonstrated a remarkable ability to adapt and deliver value across all of our stakeholder groups. Their efforts produced solid results that reflected strong demand for our services," Sam Hazen, Chief Executive Officer of HCA Healthcare, said in the earnings report. "Additionally, the investments we continued to make in our colleagues through various programs contributed to further improvements in key metrics. I want to thank them for their dedication, their hard work, and their overall effectiveness in providing high-quality care in the communities we serve."
HCA has revised its guidance for the 2023 full year. Revenues are expected to range between $62.5 billion and $64.5 billion, compared to previous guidance between $61.5 billion and $63.5 billion. Net income attributable to HCA Healthcare for the year is estimated to be between $4.8 billion and $5.2 billion, versus the previously estimated range of $4.5 billion and $4.9 billion.
The positive earnings results caused a spike in HCA Healthcare’s stock price.
From keeping employees happy to acquisitions and mergers, McMahon has a lot on his plate.
The challenges that go along with maintaining the financial stability of a healthcare provider are vast and ever-evolving. As the leaders of an organization's finance unit CFOs must wear many hats—negotiator, advocate, and accountant.
John McMahon, CFO for Elara Caring, a Dallas-based in-home healthcare provider for patients around the country, recently connected with HealthLeaders to discuss what makes an effective CFO and what the future has in store for Elara Caring.
HealthLeaders: What's keeping healthcare CFOs awake at night?
John McMahon: The challenge that we have here every day and it's the same challenge that all our competitors have is just the rising cost of wages. It's attrition, its turnover, and folks are in short supply. It's a supply and demand thing, folks are able to go next door and work for another company for more money. And so, we have an important job to be a sophisticated place to work. We need quick admissions processes; we need to be easy to do business with and provide great outcomes. We have competent and plentiful caregivers, and we want our caregivers to enjoy working in our culture. So, we try to remove all the friction that we possibly can so that caregivers can work at the top of their license and do what's important to them, which is to take care of patients.
The executive team—on a monthly basis—will go to a branch location and we'll have a town hall, and we'll sit down with the leaders, caregivers, and folks on the frontlines at that particular location. We want to learn what they need and the things that we hear from them aren't always about money. It's not well, you know, we need to make more money. It’s more about wanting to be out in the field as much as possible. So, they ask us to please take away the things that keep us from taking care of patients.
HL: What might some of those hindrances be?
McMahon: A lot of it has to do with paperwork. Caregivers will ask us 'Can you automate this? How much can we automate? Can we automate all the first visits, so we don’t have to spend two hours at the start of care documenting all the things that the patient needs?’ Automation can help caregivers be more productive, so they see more patients in a day.
Caregivers want to spend quality time with patients, they don’t want to spend a lot of time filling out documentation. Automation keeps caregivers happy and keeps them from leaving us for a more attractive job. Again, it’s not just about money, there might be another company out there that makes it easier for them to do their work. Competitors might have less friction in their system than we do at Elara. So, we automate everything. We're constantly working on automation.
HealthLeaders: What are Elara’s growth strategies for the rest of 2023 and beyond?
McMahon: Our lender group came forward and proposed an extension of our credit and extended the maturity out several years and we ended up with some growth capital, some of it for operating and some of it for mergers and acquisition. So, we have a specific amount of cash that we just raised that’s earmarked for M&A. So aside from growing organically through geographic expansions, we’re also looking at small agencies where we can expand our strength in a given market and expand our strength in a given service line.
If we have strong operators in a particular area, we want to try to reinvest some capital in that area by buying a small tuck-in agency that can help us expand our footprint and tap into a referral source that we haven't had particular success with because we just don't have the scale of caregivers in a particular area that a hospital system wants us to be in. And so, by acquiring somebody and getting that critical mass of caregivers, we'll be able to exploit that relationship with that referral partner.
HL: In early April, Elara announced plans to acquire the Rhode Island-based skilled home healthcare provider Assisted Daily Living. What are the organization’s goals with this acquisition?
McMahon: So that acquisition is pending regulatory approval by the state of Rhode Island. So, there'll be no deal if that license transition is not approved. But that's a good example of how we're taking advantage of that referral partner relationship. It is a new state for us, but we have caregivers just to the west of there on the Rhode Island border. A lot of caregivers are already crossing the border and doing work there. So, along with it being a new referral, and helping us with new referral partners, it's also a place where we have considerable scale in terms of caregivers.
HealthLeaders: What are your thoughts about large retailers acquiring providers?
McMahon: It's kind of a double-edged sword. There's a lot of consolidation in the market and in home health. And the folks like CVS and Walgreens and others, that's not their skill, right? I mean, they're not home health players. For us, it's an opportunity and I feel like only the sophisticated players are going to win long-term. So, if we can be part of some of that consolidation and play alongside folks like CVS and Walgreens, and some of the other retailers, then we are going to be much more sophisticated than some of the smaller players out there.
Patients who earn less than the federal poverty level are eligible to have their medical debt wiped away.
Trinity Health of New England is partnering with the national non-profit RIP Medical Debt to eliminate $32.76 million of non-Medicare/Medicaid medical debt belonging to 22,300 patients who were previously served by the healthcare provider.
RIP Medical Debt acquires and then erases medical debt belonging to individuals who are under significant financial strain and earning less than the federal poverty level. Starting this week, patients who qualify for this debt relief will be notified by letter in an envelope from RIP Medical Debt. The full roll-out of letters may take a couple of months due to the volume of accounts being processed.
"Our Mission and Core Values call on us to care for the whole person – body, mind, and spirit," Montez Carter, PharmD, FACHE, President and CEO, Trinity Health of New England, said in a release announcing the debt elimination program. "High levels of medical debt challenge our past patients on all three levels. Partnering with RIP Medical Debt allows us to relieve those patients of their medical debt to Trinity Health of New England while recovering a portion of that debt to help us continue providing the care our patients and communities need in a responsible and sustainable manner."
RIP Medical Debt has previously collaborated with other hospitals and healthcare systems, including Ballad Health, Vituity, and Children’s Hospital of Alabama.
"Working directly with providers like Trinity Health of New England is an amazing win-win-win scenario," RIP Medical Debt President and CEO Allison Sesso said in the release. "Our valued hospital partner is compensated for some of the care it provided (without having to sell accounts to a debt collector), patients are relieved of the financial and emotional burden of debt they can’t pay, and communities are uplifted as a result."
Sutter Health, a not-for-profit integrated health delivery system headquartered in Sacramento, California, with 24 acute care hospitals and over $14 billion in total revenue, has announced that chief financial officer Brian Dean will be leaving the organization in July of this year.
Dean has been serving as CFO since July 2020 and is leaving Sutter to become CFO of an aviation company in Houston. Sutter Health also announced that Di Benedetto, senior vice president, and general counsel, is also leaving the organization.
Earlier this year, Sutter Health announced that Mark Sevco had been appointed as chief operating officer. Sevco was brought in to enhance the organization’s clinical operations, and patient access, and create stronger physician relationships.
"I look forward to working with the entire Sutter Health team to help deliver an exceptional and connected patient, physician, and caregiver experience," Sevco said in a release announcing his appointment. "Sutter has an impressive reputation for providing high-quality care, and I am eager to collaborate across the organization to further improve access and inspire patients to live healthy lives and build stronger communities. By operating with greater agility and collective purpose as a unified Sutter Health, we will also ensure we remain financially strong, elevate the voices of our physicians, and make Sutter the place people want to work and build lifelong careers."
The Stark Law violations allegedly took place between 2008 and 2011.
Sibley Hospital and its parent company, Johns Hopkins Health System, will pay a $5 million settlement over allegations the organizations violated the Stark Law, which prohibits hospitals from billing Medicare for certain services referred by physicians with whom the hospital has a financial relationship unless that relationship satisfies one of the law’s statutory or regulatory exceptions.
It is alleged that from 2008 through 2011 Sibley Hospital violated the Stark Law by billing Medicare for services that were referred by 10 cardiologists to whom Sibley was paying compensation that exceeded the market value of the provided services, according to a Department of Justice statement. Sibley and Johns Hopkins disclosed the issue to the Justice Department themselves.
"Improper financial arrangements between hospitals and physicians can influence the type and amount of healthcare that is provided," Principal Deputy Assistant Attorney General Brian Boynton, head of the Justice Department’s Civil Division, said in the statement. "The department is committed to holding accountable those who violate prohibitions designed to protect the integrity of physician decision-making."
The Stark Law is designed to ensure that medical decisions are not made under the influence of improper financial incentives.
"Patients have the right to medical care that is strictly about their health and not about the financial benefit or obligation that a physician might receive or owe," U.S. Attorney Graves for the District of Columbia, said in the statement. "We welcome conversations with anyone who might have credible information that medical care is being undermined by outside influences. This office works in concert with many partners to protect the public, including the Fraud Section of the Department of Justice and the Office of Inspector General for the U.S. Department of Health, to ensure the rules are followed."
Funds changed their investment focus for last year to find "pockets of opportunity" to invest within the healthcare space.
An influx of investments at the start of the year resulted in 2022 becoming the second-best year on record for healthcare dealmaking, according to new research from Bain & Company. While macroeconomic and geopolitical factors caused a dip in dealmaking for the second half of the year, investors see AI investment and the move to value-based care as key reasons to keep an eye out for potential deals.
Deals reached almost $90 billion in 2022, a decline from $151 billion in 2021, according to Bain & Company, however, it is still $10 billion more than the next closest year.
"Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns," Kara Murphy, co-lead of Healthcare Private Equity at Bain & Company, said in a press release. "While the space is resilient, investors will face continued challenges ahead as interest rates and labor costs continue to climb, and credit continues to be tight. As our clients invest to deliver better healthcare, they will need to differentially focus on value creation planning in diligence and post-close."
Looking at the rest of 2023, Bain & Company says funds are finding new sources of capital, looking at carve-outs, public-to-private deals, and watching sectors that may perform well in a challenging market environment.
Bain & Company says there are opportunities to expand around value-based care as "sustained macro-trends continue to drive VBC adoption." The bulk of investment activity is focused on primary care, but Bain & Company says there is a need for traditionally fee-for-service providers to get involved in risk-based arrangements. Bain & Company also found that 2022 was a "monumental year for generative artificial intelligence," noting that stakeholders are closely monitoring the adoption of AI and are getting ready to make moves when the time is right.
"Change is coming as 2023 unfolds," Nirad Jain, co-lead of Healthcare Private Equity at Bain & Company, said in the release. "Investors who have previously weathered down cycles have specialized playbooks for these times, to which they will adapt their usual approach. This includes playing to long-term trends and getting creative to close deals amid capital and inflationary restraints."
Nicholas Barcellona will begin his tenure leading the organization’s financial unit in July.
Nicholas Barcellona—who currently serves as the chief financial officer for Temple Health—will take over as the CFO for West Virginia University Health System, a $4 billion healthcare provider, this summer.
Barcellona succeeds previous CFO Douglas Coffman, who announced his retirement in 2022, following a 30-year career with the organization.
"I am very excited that Nick will be joining us to provide financial leadership across our network of hospitals and clinics," Albert Wright, CEO of the West Virginia University Health System said in the release announcing Barcellona’s appointment. "I am also grateful to Doug for his outstanding leadership and fully confident that Nick will build on Doug’s legacy of financial excellence and success for our Health System and its hospitals."
Before joining Temple in 2020, Barcellona served in several senior financial and operational leadership roles at UPMC in Pittsburgh.
"I am deeply honored to have the opportunity to join the WVU Medicine team as it continues its journey of building a truly exceptional health system for the people of West Virginia and beyond," Barcellona said in the release.
The organization expects margins to remain weak in 2023.
Providence St. Joseph Health, a Renton, Washington-based non-profit-Catholic healthcare provider that is part of the Providence Health and Services healthcare system, received a rating downgrade on its revenue bond debt to A2 from A1 by Moody’s Investor Service.
Moody’s has also revised its outlook on Providence St. Joseph Health to negative from stable.
"The downgrade to A2 is driven by our expectation that margins will remain weak in 2023 with the majority of cash flow going to fund capital expenditures and that PSJH will not be able to materially reduce debt or increase liquidity over the near term," Moody’s said in its analysis. " Operating results were very weak in 2022 (FYE 12/31), with PSJH producing negative cash flow. Additionally, debt measures weakened materially due to a 30% increase in debt over the year (excluding debt associated with Hoag Hospital, which disaffiliated with PSJH in January 2022), and liquidity balances declined though to a lesser extent as the debt was primarily used to preserve unrestricted balance sheet liquidity."
In March both S&P Global and Fitch Ratings downgraded their ratings on Providence St. Joseph Health for reasons similar to Moody’s.
"The negative outlook reflects the magnitude of PSJH's current operating challenges, and our expectation that while margins will improve in 2024, absolute cash flow will remain low and be only sufficient to cover capital expenditures," Moody’s said in its report. "We also expect debt and liquidity metrics to not decline below current levels."
Some of the most expensive states for healthcare include New York, Connecticut, and Rhode Island.
As the cost of living continues to rise many people find themselves in the difficult position of forgoing healthcare in order to make ends meet, and while healthcare across the country is a growing expense, there are some states where the price tag is less burdensome than others.
Around 6.3% of U.S. adults age 18 and over say they haven’t received medical care because of the cost, according to research by William Russel, an international health insurance provider. The data also found that around 11% of U.S. citizens currently do not have health insurance coverage.
While some of the most expensive states for healthcare include New York, Connecticut, and Rhode Island, patients in some areas aren’t dealing with such a hefty price tag. William Russel put together a comprehensive list detailing the cost of healthcare and analyzing which states are paying the most or least for these services.
These are the three least expensive states for healthcare according to that report:
Georgia: expenses per patient day average $2,100. Residents pay close to $6,587 for healthcare and $99.43 for prescriptions.
Kansas: expenses per patient day average $2,191. Residents pay close to $7,658 for healthcare and $79.38 for prescriptions.
Arizona: expenses per patient day average $3,131. Residents pay close to $6,452 for healthcare and $64.51 for prescriptions.
Comparatively, patients in Alaska pay $11,064 per person, patients in Massachusetts pay $10,559 per person, and in Delaware, patients pay $10,254 per person.
The SVP of data and analytics discusses the new normal for hospital finances.
Kaufman Hall has, for the last several years, been publishing a monthly report that provides insights on the state of hospital finances in the U.S. The data offers an understanding of the economics of hospitals’ day-to-day operations and can also hold clues to what the future may hold.
The most recent Kaufman Hall data showed that hospital margins were -1.1% in February 2023, down slightly compared to the -0.8% in January. Flat margins are likely to continue in the near term, Kaufman Hall says, because of "external economic factors" such as expenses, inflation, and labor issues. Non-labor expenses grew by 6% year-over-year, highlighting a shift in the primary driver of financial pressures from staffing issues to things like the cost of goods and services. Additionally, patients continued to seek more of their care away from inpatient settings, with February 2023 outpatient revenue up 14% compared to February 2022.
"As we look at 2023, we find that the operating performance is still well below pre-pandemic levels. However, it is not quite as bad as it was in 2022 when the Omicron surge happened," Erik Swanson, senior vice president of data and analytics says.
"As we look at this data, particularly from a bottom-line perspective of operating margin, the amount of variation both month to month in how that operating margin moves, as well as across systems nationwide, has begun to narrow somewhat. This would seem to indicate that we are starting to move into a phase of understanding what this new normal may look like," he said.
Swanson recently connected with HealthLeaders to discuss the latest Kaufman Hall analysis and offer an understanding as to what hospitals’ financials might look like in 2023.
HealthLeaders: What is driving hospitals’ financial challenges?
Erik Swanson: At the highest level, the bottom-line issue is that expenses have outpaced revenue growth—that is ultimately what is driving the depressed margins. Recently, the growth in non-labor expenses has outpaced the growth in labor expenses—but it’s important to note that labor expenses are still up double-digit percentages from pre-pandemic levels. But, what we are seeing now is that some of those labor pressures have abated slightly and that is due to the reduced reliance on contract labor.
However, on the non-labor side, what we’re seeing this year is inflationary challenges are driving up expenses on the non-labor side. Those goods and consumables commodity-type items have become more expensive from a supply chain or materials perspective. Additionally, as overall wage rates across all industries have taken hold, organizations are passing many of those costs on through some of those goods and services, as well.
It's also important to note from a commodities perspective as patients are coming into the hospital, they're a bit sicker and they're staying longer. And so, as such, they often require more supplies, and the utilization of supplies is greater. So, it's not only as is the cost going up of those supplies, but the amount of supplies that hospitals have to use for each patient has also increased. And finally, what I'll say here is, as with the overall inflationary pressures, particularly for purchase services, and services that hospitals are outsourcing to other firms, they have also increased their rates and the cost of those services. So those have also been heavy pressure here in the last month or two on hospitals. So while we're seeing a little bit of easing of challenge on the labor side, we're unfortunately now seeing more pressure coming on that non-labor side due to many of those issues that I just noted.
HealthLeaders: In the report, you noted that healthcare leaders are facing an "existential crisis," can you elaborate on that?
Swanson: As we think about the new normal, one thing to note here is that over the last eight months, if you will, while we've seen that variation in operating margin decline, it is true that on a month-by-month basis, margins have generally been in the red. Hospitals and healthcare systems are beginning to contemplate what that future looks like and what it means. In some cases, that may mean shifting away from what may have traditionally been a very large inpatient delivery model of services to this hybrid-type approach and more outpatient. They are getting a better understanding of what that physical footprint and infrastructure look like. There are a lot of questions here, given these challenges, the high cost of delivering this inpatient care, and what it may mean. If I take this even a step further, what we also know has been happening really over the last year is that the days cash on hand, the liquidity that these healthcare systems hold has also been declining.
When we talk about this existential conversation, that's what it's about. It's a reevaluation of the type of care and services being delivered, what the patient demand may be, and it may be under a very different model than they had traditionally operated under.
HealthLeaders: What strategies are hospitals utilizing to maintain their financial stability?
Swanson: There is no single strategy, it is highly multifaceted, and all levers must be pulled. When we talk about labor expenses and managing the workforce, a lot of organizations are looking at how they can think about workforce optimization by employing data and analytics in a more useful way to understand the appropriate complement of staff and workforce that they’d need to deliver care in the appropriate ways and in the most economical fashion. Reducing the reliance on contract labor is another lever to pull. Some organizations are re-examining their float pool size or perhaps even creating their own internal staffing agency for some of those large systems. Some are considering recruitment retainment and those pipelines for ensuring that talent is coming in. Some organizations are partnering closely with local nursing schools, in some cases offering tuition assistance or even full tuition assistance to build a pool of candidates to address some of the labor shortages. That strategy will take a few years, but it’s useful. It's also critical to create an environment where everyone works to the top of their license and top of their ability across the organization.
What we’re seeing on the non-labor side is around more effective supply chain management by building scale and leveraging that to get preferred rates with vendors and in many cases, reducing the amount of variation in suppliers.
Finally, I'll say on the revenue side negotiating with payers as those opportunities arise and negotiating in a way such that those dollars are focused on where the patient populations will be, versus where they have historically been, is important. Some organizations are exploring where to move on as they move more towards a value-based care model. Organizations that had greater value-based care models tended to outperform those that did not during the pandemic. There are a lot of strategies here. And then the very last thing I’ll say is to think strategically about what care looks like. What does care delivery in the future look like? And making sure that they are positioning themselves for the future, while managing their day-to-day, but not losing sight of what that future may hold.
