HCA HEALTHCARE, INC. Forward-Looking Statements This quarterly report on Form
10-Q
includes certain disclosures which contain "forward-looking statements" within
the meaning of the federal securities laws, which involve risks and
uncertainties. Forward-looking statements include statements regarding expected
share-based compensation expense, expected capital expenditures and expected net
claim payments and all other statements that do not relate solely to historical
or current facts, and can be identified by the use of words like "may,"
"believe," "will," "expect," "project," "estimate," "anticipate," "plan,"
"initiative" or "continue." These forward-looking statements are based on our
current plans and expectations and are subject to a number of known and unknown
uncertainties and risks, many of which are beyond our control, which could
significantly affect current plans and expectations and our future financial
position and results of operations. These factors include, but are not limited
to, (1) developments related to
COVID-19,
including, without limitation, related to the length and severity of the
pandemic; the volume of canceled or rescheduled procedures and the volume of
COVID-19
patients cared for across our health systems; measures we are taking to respond
to the
COVID-19
pandemic; the impact of government and administrative regulation and stimulus
(including the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and
other enacted legislation); changes in revenues due to declining patient
volumes, changes in payor mix and deteriorating macroeconomic conditions
(including increases in uninsured and underinsured patients); potential
increased expenses related to labor, supply chain or other expenditures;
workforce disruptions and supply shortages and disruptions, (2) the impact of
our substantial indebtedness and the ability to refinance such indebtedness on
acceptable terms, as well as risks associated with disruptions in the financial
markets and the business of financial institutions as the result of the
COVID-19
pandemic which could impact us from a financial perspective, (3) the impact of
the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act of 2010 (collectively, the "Affordable Care
Act"), including the effects of court challenges to, any repeal of, or changes
to, the Affordable Care Act or additional changes to its implementation, the
possible enactment of additional federal or state health care reforms and
possible changes to other federal, state or local laws or regulations affecting
the health care industry, including single-payer proposals (often referred to as
"Medicare for All"), and also including any such laws or governmental
regulations which are adopted in response to the
COVID-19
pandemic, (4) the effects related to the continued implementation of the
sequestration spending reductions required under the Budget Control Act of 2011,
and related legislation extending these reductions, and the potential for future
deficit reduction legislation that may alter these spending reductions, which
include cuts to Medicare payments, or create additional spending reductions,
(5) increases in the amount and risk of collectability of uninsured accounts and
deductibles and copayment amounts for insured accounts, (6) the ability to
achieve operating and financial targets, and attain expected levels of patient
volumes and control the costs of providing services, (7) possible changes in
Medicare, Medicaid and other state programs, including Medicaid supplemental
payment programs or Medicaid waiver programs, that may impact reimbursements to
health care providers and insurers and the size of the uninsured or underinsured
population, (8) the highly competitive nature of the health care business,
(9) changes in service mix, revenue mix and surgical volumes, including
potential declines in the population covered under third-party payer agreements,
the ability to enter into and renew third-party payer provider agreements on
acceptable terms and the impact of consumer-driven health plans and physician
utilization trends and practices, (10) the efforts of health insurers, health
care providers, large employer groups and others to contain health care costs,
(11) the outcome of our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures, (12) increases in wages
and the ability to attract and retain qualified management and personnel,
including affiliated physicians, nurses and medical and technical support
personnel, (13) the availability and terms of capital to fund the expansion of
our business and improvements to our existing facilities, (14) changes in
accounting practices, (15) changes in general economic conditions nationally and
regionally in our markets, including economic and business conditions resulting
from the
COVID-19
pandemic, (16) the emergence of and effects related to other pandemics,
epidemics and infectious diseases, (17) future divestitures which may result in
charges and possible impairments of long-lived assets, (18) changes in business
strategy or development plans,
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Forward-Looking Statements (continued)
(19) delays in receiving payments for services provided, (20) the outcome of
pending and any future tax audits, disputes and litigation associated with our
tax positions, (21) potential adverse impact of known and unknown government
investigations, litigation and other claims that may be made against us,
(22) the impact of potential cybersecurity incidents or security breaches,
(23) our ongoing ability to demonstrate meaningful use of certified electronic
health record ("EHR") technology and the impact of interoperability
requirements, (24) the impact of natural disasters, such as hurricanes and
floods, or similar events beyond our control, (25) changes in the U.S. federal,
state, or foreign tax laws including interpretive guidance that may be issued by
taxing authorities or other standard setting bodies, and (26) other risk factors
described in our annual report on Form
10-K
for the year endedDecember 31, 2019 and our other filings with theSecurities and Exchange Commission . As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management's views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. COVID-19 Pandemic OnMarch 11, 2020 , theWorld Health Organization designated COVID-19 as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted in the last two weeks of the first quarter of 2020 as various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic that have caused many people to remain at home and forced the closure of certain businesses, as well as suspended elective surgical procedures by health care facilities. We expect consolidated patient volumes and revenues to be negatively impacted until the effects of the pandemic begin to subside and the economy begins to stabilize. Our response plan has multiple facets and continues to evolve as the pandemic unfolds. As a precautionary measure, we have taken steps to enhance our operational and financial flexibility, and react to the risks the COVID-19 pandemic presents to our business, including the following: • Implemented certain cost reduction initiatives; • Suspended our authorized share repurchase program; • Suspended our quarterly dividend program; • Reduced certain planned projects and capital expenditures; • Executed a new$2 billion 364-day
term loan facility (which was undrawn at
existing credit facilities; and
• Subsequent to
provided for in the CARES Act.
We believe the extent of the
COVID-19
pandemic's adverse impact on our operating results and financial condition will
be driven by many factors, most of which are beyond our control and ability to
forecast. Such factors include, but are not limited to, the scope and duration
of
stay-at-home
policies and business closures, continued decreases in patient volumes for an
indeterminable length of time, increases in the number of uninsured and
underinsured patients as a result of accelerated rates of unemployment,
incremental expenses required for supplies and personal protective equipment,
and changes in professional and general
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)COVID-19
Pandemic (continued) liability exposure. Because of these and other uncertainties, we cannot estimate the length or severity of the impact of the pandemic on our business. Decreases in cash flows and results of operations may have an impact on the inputs and assumptions used in significant accounting estimates, including estimated implicit price concessions related to uninsured patient accounts, professional and general liability reserves, and potential impairments of goodwill and long-lived assets. First Quarter 2020 Operations Summary Revenues increased to$12.861 billion in the first quarter of 2020 from$12.517 billion in the first quarter of 2019. Net income attributable toHCA Healthcare, Inc. totaled$581 million , or$1.69 per diluted share, for the quarter endedMarch 31, 2020 , compared to$1.039 billion , or$2.97 per diluted share, for the quarter endedMarch 31, 2019 . First quarter results for 2020 include losses on retirement of debt of$295 million , or$0.66 per diluted share, and gains on sales of facilities of$7 million , or$0.02 per diluted share. Our revenues for the quarters endedMarch 31, 2020 and 2019, respectively, include$55 million , or$0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods and$86 million , or$0.19 per diluted share, related to the resolution of transaction price differences regarding certain out-of-network services performed in prior periods. Our provisions for income taxes for the first quarters of 2020 and 2019 included tax benefits of$53 million , or$0.15 per diluted share, and$49 million , or$0.14 per diluted share, respectively, related to employee equity award settlements. All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 344.096 million shares for the quarter endedMarch 31, 2020 and 350.316 million shares for the quarter endedMarch 31, 2019 . During 2019 and the first quarter of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively. Due to the COVID-19 pandemic, patient volumes and the related revenues for most of our services, particularly elective surgical procedures, were significantly impacted in the last two weeks of the quarter as various COVID-19 stay-at-home and business closure policies were implemented by federal, state and local governments. Revenues increased 2.7% on a consolidated basis and increased 1.2% on a same facility basis for the quarter endedMarch 31, 2020 , compared to the quarter endedMarch 31, 2019 . The increase in consolidated revenues can be primarily attributed to the net impact of a 2.9% increase in revenue per equivalent admission and a 0.1% decline in equivalent admissions. The same facility revenues increase resulted from the net impact of a 1.6% increase in same facility revenue per equivalent admission and a 0.4% decline in same facility equivalent admissions. During the quarter endedMarch 31, 2020 , consolidated admissions and same facility admissions increased 1.0% and 0.6%, respectively, compared to the quarter endedMarch 31, 2019 . Surgeries declined 4.4% on both a consolidated basis and on a same facility basis during the quarter endedMarch 31, 2020 , compared to the quarter endedMarch 31, 2019 . Emergency department visits declined 1.0% on both a consolidated basis and on a same facility basis during the quarter endedMarch 31, 2020 , compared to the quarter endedMarch 31, 2019 . Consolidated and same facility uninsured admissions increased 6.9% and 7.1%, respectively, for the quarter endedMarch 31, 2020 , compared to the quarter endedMarch 31, 2019 . Cash flows from operating activities increased$401 million , from$974 million for the first quarter of 2019 to$1.375 billion for the first quarter of 2020. The increase in cash provided by operating activities was primarily related to the net effect of positive changes in working capital of$678 million , primarily from the collection of patient accounts receivable, partially offset by a decline in net income, excluding losses on retirement of debt, of$188 million . 22
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
Revenue/Volume Trends
Our revenues generally relate to contracts with patients in which our
performance obligations are to provide health care services to the patients.
Revenues are recorded during the period our obligations to provide health care
services are satisfied. Our performance obligations for inpatient services are
generally satisfied over periods that average approximately five days, and
revenues are recognized based on charges incurred in relation to total expected
charges. Our performance obligations for outpatient services are generally
satisfied over a period of less than one day. The contractual relationships with
patients, in most cases, also involve a third-party payer (Medicare, Medicaid,
managed care health plans and commercial insurance companies, including plans
offered through the health insurance exchanges) and the transaction prices for
the services provided are dependent upon the terms provided by (Medicare and
Medicaid) or negotiated with (managed care health plans and commercial insurance
companies) the third-party payers. The payment arrangements with third-party
payers for the services we provide to the related patients typically specify
payments at amounts less than our standard charges. Medicare generally pays for
inpatient and outpatient services at prospectively determined rates based on
clinical, diagnostic and other factors. Services provided to patients having
Medicaid coverage are generally paid at prospectively determined rates per
discharge, per identified service or per covered member. Agreements with
commercial insurance carriers, managed care and preferred provider organizations
generally provide for payments based upon predetermined rates per diagnosis, per
diem rates or discounted
fee-for-service
rates. Management continually reviews the contractual estimation process to
consider and incorporate updates to laws and regulations and the frequent
changes in managed care contractual terms resulting from contract renegotiations
and renewals.
Revenues increased 2.7% from $12.517 billion in the first quarter of 2019 to
$12.861 billion in the first quarter of 2020. Our revenues are based upon the
estimated amounts we expect to be entitled to receive from patients and
third-party payers. Estimates of contractual allowances under managed care and
commercial insurance plans are based upon the payment terms specified in the
related contractual agreements. Revenues related to uninsured patients and
uninsured copayment and deductible amounts for patients who have health care
coverage may have discounts applied (uninsured discounts and contractual
discounts). We also record estimated implicit price concessions (based primarily
on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Patients treated at our
hospitals for non-elective care, who have income at or below 400% of the federal
poverty level, are eligible for charity care. Because we do not pursue
collection of amounts determined to qualify as charity care, they are not
reported in revenues. Our revenues by primary third-party payer classification
and other (including uninsured patients) for the quarters ended March 31, 2020
and 2019 are summarized in the following table (dollars in millions):
2020 Ratio 2019 Ratio
Medicare $ 2,743 21.3 % $ 2,770 22.1 %
Managed Medicare 1,826 14.2 1,589 12.7
Medicaid 414 3.2 347 2.8
Managed Medicaid 666 5.2 613 4.9
Managed care and insurers 6,645 51.6 6,426 51.4
International (managed care and insurers) 292 2.3 297 2.4
Other 275 2.2 475 3.7
Revenues $ 12,861 100.0 % $ 12,517 100.0 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Consolidated and same facility revenue per equivalent admission increased 2.9%
and 1.6%, respectively, in the first quarter of 2020, compared to the first
quarter of 2019. Consolidated and same facility equivalent admissions declined
0.1% and 0.4%, respectively, in the first quarter of 2020, compared to the first
quarter of 2019. Consolidated and same facility outpatient surgeries declined
6.0% and 5.9%, respectively, in the first quarter of 2020, compared to the first
quarter of 2019. Consolidated and same facility inpatient surgeries declined
1.6% and 1.8%, respectively, in the first quarter of 2020, compared to the first
quarter of 2019. Consolidated and same facility emergency department visits both
declined 1.0% in the first quarter of 2020, compared to the first quarter of
2019.
To quantify the total impact of the trends related to uninsured patient
accounts, we believe it is beneficial to view total uncompensated care, which is
comprised of charity care, uninsured discounts and implicit price concessions. A
summary of the estimated cost of total uncompensated care for the quarters ended
March 31, 2020 and 2019 follows (dollars in millions):
2020 2019
Patient care costs (salaries and benefits, supplies, other
operating expenses and depreciation and amortization)
$ 10,606 Cost-to-charges ratio (patient care costs as percentage of gross patient charges) 11.9 % 11.8 % Total uncompensated care$ 7,873 $ 7,085 Multiply by the cost-to-charges ratio 11.9 % 11.8 % Estimated cost of total uncompensated care$ 937
Same facility uninsured admissions increased by 2,708 admissions, or 7.1%, in the first quarter of 2020 compared to the first quarter of 2019. Same facility uninsured admissions in 2019, compared to 2018, increased 6.8% in the fourth quarter, increased 2.1% in the third quarter, increased 5.1% in the second quarter, and were flat in the first quarter. The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters endedMarch 31, 2020 and 2019 are set forth in the following table. 2020 2019 Medicare 27 % 30 % Managed Medicare 20 19 Medicaid 5 5 Managed Medicaid 12 12 Managed care and insurers 28 27 Uninsured 8 7 % 100 100 % 24
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our inpatient revenues related to Medicare,
managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the
quarters ended March 31, 2020 and 2019 are set forth in the following table.
2020 2019
Medicare 29 % 29 %
Managed Medicare 16 15
Medicaid 4 4
Managed Medicaid 5 5
Managed care and insurers 46 47
100 % 100 %
At March 31, 2020 , we had 91 hospitals in the states of Texas and Florida .
During the first quarter of 2020, 56% of our admissions and 48% of our revenues
were generated by these hospitals. Uninsured admissions in Texas and Florida
represented 72% of our uninsured admissions during the first quarter of 2020.
We receive a significant portion of our revenues from government health
programs, principally Medicare and Medicaid, which are highly regulated and
subject to frequent and substantial changes. In December 2017 , the Centers for
Medicare & Medicaid Services ("CMS") announced that it will phase out federal
matching funds for Designated State Health Programs under waivers granted under
Section 1115 of the Social Security Act. Texas currently operates its Healthcare
Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In
December 2017 , CMS approved an extension of this waiver through September 30,
2022 , but indicated that it will phase out some of the federal funding. Our
Texas Medicaid revenues included Medicaid supplemental payments of $115 million
and $108 million during the first quarters of 2020 and 2019, respectively.
In addition, we receive supplemental payments in several other states. We are
aware these supplemental payment programs are currently being reviewed by
certain state agencies and some states have made requests to CMS to replace
their existing supplemental payment programs. It is possible these reviews and
requests will result in the restructuring of such supplemental payment programs
and could result in the payment programs being reduced or eliminated. Because
deliberations about these programs are ongoing, we are unable to estimate the
financial impact the program structure modifications, if any, may have on our
results of operations.
Key Performance Indicators
We present certain metrics and statistical information that management uses when
assessing our results of operations. We believe this information is useful to
investors as it provides insight to how management evaluates operational
performance and trends between reporting periods. Information on how these
metrics and statistical information are defined is provided in the following
tables summarizing operating results and statistical data.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
ended March 31, 2020 and 2019 (dollars in millions):
2020 2019
Amount Ratio Amount Ratio
Revenues $ 12,861 100.0 $ 12,517 100.0
Salaries and benefits 6,118 47.6 5,647 45.1
Supplies 2,123 16.5 2,041 16.3
Other operating expenses 2,427 18.9 2,299 18.4
Equity in earnings of affiliates (7 ) (0.1 ) (11 ) (0.1 )
Depreciation and amortization 674 5.3 619 4.9
Interest expense 428 3.3 461 3.7
Losses (gains) on sales of facilities (7 ) (0.1 ) 1 -
Losses on retirement of debt 295 2.3 - -
12,051 93.7 11,057 88.3
Income before income taxes 810 6.3 1,460 11.7
Provision for income taxes 112 0.9 279 2.3
Net income 698 5.4 1,181 9.4
Net income attributable to noncontrolling interests 117 0.9 142 1.1
Net income attributable to
$ 1,039 8.3 % changes from prior year: Revenues 2.7 % 9.6 % Income before income taxes (44.5 ) (5.2 ) Net income attributable to HCA Healthcare, Inc. (44.1 ) (9.2 ) Admissions(a) 1.0 3.0 Equivalent admissions(b) (0.1 ) 4.8 Revenue per equivalent admission 2.9
4.6
Same facility % changes from prior year(c): Revenues 1.2 6.3 Admissions(a) 0.6 0.9 Equivalent admissions(b) (0.4 ) 1.8 Revenue per equivalent admission 1.6 4.4
(a) Represents the total number of patients admitted to our hospitals and is used
by management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The equivalent
admissions computation "equates" outpatient revenues to the volume measure
(admissions) used to measure inpatient volume, resulting in a general measure
of combined inpatient and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their
related facilities which were either acquired or divested during the current
and prior period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended March 31, 2020 and 2019
Revenues increased to $12.861 billion in the first quarter of 2020 from
$12.517 billion in the first quarter of 2019. Net income attributable to HCA
Healthcare, Inc. totaled $581 million , or $1.69 per diluted share, for the
quarter ended March 31, 2020 , compared to $1.039 billion , or $2.97 per diluted
share, for the quarter ended March 31, 2019 . First quarter results for 2020
include losses on retirement of debt of $295 million , or $0.66 per diluted
share, and gains on sales of facilities of $7 million , or $0.02 per diluted
share. Our revenues for the quarters ended March 31, 2020 and 2019,
respectively, include $55 million , or $0.12 per diluted share, related to the
settlement of Medicare outlier calculations for prior periods and $86 million ,
or $0.19 per diluted share, related to the resolution of transaction price
differences regarding certain
out-of-network
services performed in prior periods. Our provisions for income taxes for the
first quarters of 2020 and 2019 included tax benefits of $53 million , or $0.15
per diluted share, and $49 million , or $0.14 per diluted share, respectively,
related to employee equity award settlements. All "per diluted share"
disclosures are based upon amounts net of the applicable income taxes. Shares
used for diluted earnings per share were 344.096 million shares for the quarter
ended March 31, 2020 and 350.316 million shares for the quarter ended March 31,
2019 . During 2019 and the first quarter of 2020, we repurchased 7.949 million
shares and 3.287 million shares of our common stock, respectively.
Due to the
COVID-19
pandemic, patient volumes and the related revenues for most of our services,
particularly elective surgical procedures, were significantly impacted in the
last two weeks of the quarter as various
COVID-19
stay-at-home and business closure policies were implemented by federal, state
and local governments. Revenues increased 2.7%, primarily due to the net impact
of revenue per equivalent admission growth of 2.9% and a 0.1% decline in
equivalent admissions for the first quarter of 2020 compared to the first
quarter of 2019. Same facility revenues increased 1.2% due to the net impact of
a 1.6% increase in same facility revenue per equivalent admission and a 0.4%
decline in same facility equivalent admissions for the first quarter of 2020
compared to the first quarter of 2019.
Salaries and benefits, as a percentage of revenues, were 47.6% in the first
quarter of 2020 and 45.1% in the first quarter of 2019. Salaries and benefits
per equivalent admission increased 8.4% in the first quarter of 2020 compared to
the first quarter of 2019. Same facility labor rate increases averaged 2.8% for
the first quarter of 2020 compared to the first quarter of 2019.
Supplies, as a percentage of revenues, were 16.5% in the first quarter of 2020
and 16.3% in the first quarter of 2019. Supply costs per equivalent admission
increased 4.1% in the first quarter of 2020 compared to the first quarter of
2019. Supply costs per equivalent admission increased 3.9% for medical devices
and 6.1% for general medical and surgical items and remained flat for pharmacy
supplies in the first quarter of 2020 compared to the first quarter of 2019.
Other operating expenses, as a percentage of revenues, were 18.9% in the first
quarter of 2020 and 18.4% in the first quarter of 2019. Other operating expenses
is primarily comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including professional
liability insurance) and nonincome taxes. Provisions for losses related to
professional liability risks were $140 million and $136 million for the first
quarters of 2020 and 2019, respectively.
Equity in earnings of affiliates was $7 million and $11 million in the first
quarters of 2020 and 2019, respectively.
Depreciation and amortization increased $55 million , from $619 million in the
first quarter of 2019 to $674 million in the first quarter of 2020. The increase
in depreciation relates to both acquired facilities and increased capital
expenditures at our existing facilities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended March 31, 2020 and 2019 (continued)
Interest expense was $428 million in the first quarter of 2020 and $461 million
in the first quarter of 2019. Our average debt balance was $34.136 billion for
the first quarter of 2020 compared to $34.036 billion for the first quarter of
2019. The average effective interest rate for our long-term debt declined to
5.1% for the quarter ended March 31, 2020 from 5.5% for the quarter ended
March 31, 2019 .
During the first quarters of 2020 and 2019, we recorded gains on sales of
facilities of $7 million and losses on sales of facilities of $1 million ,
respectively.
During February 2020 , we issued $2.700 billion aggregate principal amount of
3.50% senior unsecured notes due 2030. During March 2020 , we used the net
proceeds for the redemption of all $1.000 billion outstanding aggregate
principal amount of HCA Healthcare, Inc.'s 6.25% senior notes due 2021 and,
together with available funds, for the redemption of all $2.000 billion
outstanding aggregate principal amount of HCA Inc.'s 7.50% senior notes due
2022. The pretax loss on retirement of debt was $295 million .
The effective tax rates were 16.2% and 21.2% for the first quarters of 2020 and
2019, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships. Our provisions for income taxes for the first quarters of 2020 and
2019 included tax benefits of $53 million and $49 million , respectively, related
to employee equity award settlements. Excluding the effect of these adjustments,
the effective tax rate for the first quarters of 2020 and 2019 would have been
23.8% and 24.8%, respectively.
Net income attributable to noncontrolling interests declined from $142 million
for the first quarter of 2019 to $117 million for the first quarter of 2020. The
decline in net income attributable to noncontrolling interests related primarily
to the operations of a joint venture in one of our Texas markets and our surgery
center partnerships.
Liquidity and Capital Resources
Cash provided by operating activities totaled $1.375 billion in the first
quarter of 2020 compared to $974 million in the first quarter of 2019. The $401
million increase in cash provided by operating activities in the first quarter
of 2020 compared to the first quarter of 2019, related primarily to the net
effect of positive changes in working capital of $678 million , primarily from
the collection of patient accounts receivable, partially offset by a decline in
net income, excluding losses on retirement of debt, of $188 million . The net
combination of interest payments and net tax refunds in the first quarter of
2020 was $459 million , and the combined interest payments and net tax payments
in the first quarter of 2019 was $590 million . Working capital totaled $3.997
billion at March 31, 2020 and $3.439 billion at December 31, 2019 .
Cash used in investing activities was $1.145 billion in the first quarter of
2020 compared to $2.165 billion in the first quarter of 2019. Acquisitions of
hospitals and health care entities declined from $1.474 billion in the first
quarter of 2019 to $328 million in the first quarter of 2020, primarily related
to the acquisition of a seven-hospital health system in North Carolina in 2019.
Excluding acquisitions, capital expenditures were $853 million in the first
quarter of 2020 and $781 million in the first quarter of 2019. At March 31,
2020 , there were projects under construction which had estimated additional
costs to complete and equip over the next five years of approximately
$3.4 billion . We expect to finance capital expenditures with internally
generated and borrowed funds.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Cash used in financing activities totaled $109 million in the first quarter of
2020 compared to cash provided by financing activities of $1.216 billion in the
first quarter of 2019. During the first quarter of 2020, net cash flows used in
financing activities included a net increase of $813 million from net borrowings
on our revolving bank credit facilities and refinancing activity, payments of
dividends of $152 million , repurchases of common stock of $441 million ,
distributions to noncontrolling interests of $154 million and payments of debt
issuance costs of $34 million . During the first quarter of 2019, net cash flows
provided by financing activities included a net increase of $1.911 billion in
our indebtedness, payment of dividends of $141 million , repurchases of common
stock of $278 million and distributions to noncontrolling interests of
$136 million .
In response to the risks the
COVID-19
pandemic presents to our business, we have suspended our share repurchase and
quarterly dividend programs and reduced certain planned projects and capital
expenditures. We expect to evaluate resumption of these programs at a future
date.
We are a highly leveraged company with significant debt service requirements.
Our debt totaled $34.861 billion at March 31, 2020 . Our interest expense was
$428 million for the first quarter of 2020 and $461 million for the first
quarter of 2019.
In addition to cash flows from operations, available sources of capital include
amounts available under our senior secured credit facilities ($3.798 billion and
$7.718 billion available as of March 31, 2020 and April 30, 2020 , respectively)
and anticipated access to public and private debt markets. The increase in the
amount available under our senior secured credit facilities is due to repayment
of the outstanding borrowings on these facilities using cash received in April
as provided for in the CARES Act.
During February 2020 , we issued $2.700 billion aggregate principal amount of
3.50% senior notes due 2030. During March 2020 , we used the net proceeds for the
redemption of all $1.000 billion outstanding aggregate principal amount of HCA
Healthcare, Inc.'s 6.25% senior notes due 2021 and, together with available
funds, for the redemption of all $2.000 billion outstanding aggregate principal
amount of HCA Inc.'s 7.50% senior notes due 2022.
In response to the risks the
COVID-19
pandemic presents to our business, during March 2020 , we also entered into a
credit agreement that provides for a
364-day
secured term loan facility for an aggregate principal amount of up to$2.000 billion . The facility will mature inMarch 2021 . If drawn, amounts outstanding under the credit agreement will bear interest at either (i) the LIBOR rate plus 2.50% or (ii) an alternate base rate as defined in the credit agreement. As ofMarch 31, 2020 andApril 30, 2020 , there were no amounts outstanding nor draw notices pending under the facility. Subsequent toMarch 31, 2020 , the Company requested accelerated Medicare payments as provided for in the CARES Act, which allows for eligible health care facilities to request up to six months of advance Medicare payments for acute care hospitals or up to three months of advance Medicare payments for other health care providers. After 120 days past receipt of the advance payment, claims for services provided to Medicare beneficiaries will be applied against the advance payment balance. Any unapplied advance payment amounts must be paid in full within one year from receipt of the advance payments for acute care hospitals and within 210 days for other health care providers. DuringApril 2020 , the Company received approximately$4.3 billion from these accelerated Medicare payment requests. InApril 2020 the Company received approximately$900 million based on the expected allocation methodology of the first$50 billion distributed from theCARES Act Provider Relief Fund . Further allocation of the funds provided for in the CARES Act may be received in future periods. However, we are not able to estimate the amount of additional funds we may receive. These government payments are currently expected to 29
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
be recognized in our operations during the second quarter of 2020 and will not
be subject to repayment, provided the Company is able to attest to and comply
with the terms and conditions of the funding.
Further legislation enacted on April 24, 2020 provides for an additional $75
billion in emergency appropriations to eligible providers for their COVID-19
response. Recipients will not be required to repay the government for funds
received, provided they comply with terms and conditions, which have not yet
been finalized.
Investments of our insurance subsidiaries, held to maintain statutory equity
levels and to provide liquidity to pay claims, totaled $438 million and
$462 million at March 31, 2020 and December 31, 2019 , respectively. An insurance
subsidiary maintained net reserves for professional liability risks of
$178 million and $175 million at March 31, 2020 and December 31, 2019 ,
respectively. Our facilities are insured by a 100% owned insurance subsidiary
for losses up to $50 million per occurrence; however, this coverage is generally
subject, in most cases, to a $15 million per occurrence self-insured retention.
Net reserves for the self-insured professional liability risks retained were
$1.683 billion and $1.606 billion at March 31, 2020 and December 31, 2019 ,
respectively. Claims payments, net of reinsurance recoveries, during the next
12 months are expected to approximate $465 million . We estimate that
approximately $413 million of the expected net claim payments during the next
12 months will relate to claims subject to the self-insured retention.
Considering the actions discussed above to respond to the uncertainty arising
from the COVID-19 pandemic and provide additional financial flexibility,
management believes that cash flows from operations, amounts available under our
senior secured credit facilities and our anticipated access to public and
private debt markets will be sufficient to meet expected liquidity needs during
the next 12 months.
Summarized Financial Information
During March 2020 , HCA Healthcare, Inc. redeemed all $1.000 billion outstanding
aggregate principal amount of its 6.250% senior unsecured notes due 2021. These
notes were our only registered debt securities for which HCA Healthcare, Inc.
was the issuer. HCA Inc. , a direct wholly-owned subsidiary of HCA Healthcare,
Inc. , is the obligor under a substantial portion of our indebtedness, including
our senior secured credit facilities, senior secured notes and senior unsecured
notes. The senior secured notes and senior unsecured notes issued by HCA Inc.
are fully and unconditionally guaranteed by HCA Healthcare, Inc. The senior
secured credit facilities and senior secured notes are fully and unconditionally
guaranteed, subject to customary release provisions, by substantially all
existing and future, direct and indirect, 100% owned material domestic
subsidiaries that are "Unrestricted Subsidiaries" under our Indenture dated
December 16, 1993 (except for certain special purpose subsidiaries that only
guarantee and pledge their assets under our senior secured asset-based revolving
credit facility). For further information regarding such guarantees, refer to
the applicable indentures that are filed as exhibits to our annual report on
Form 10-K for the year ended December 31, 2019 .
Summarized financial information is presented on a combined basis and
transactions between the combining entities have been eliminated. Financial
information for nonguarantor entities has been excluded. The summarized
operating results information for the quarter ended March 31, 2020 and year
ended December 31, 2019 and the summarized balance sheet information at March
31, 2020 and December 31, 2019 , for HCA Healthcare, Inc. , HCA Inc. and the
subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors)
follow (dollars in millions):
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
Quarter Ended March 31, 2020 and Year Ended December 31, 2019 :
Quarter Year
March 31, 2020 December 31, 2019
Revenues $ 7,750 $ 29,220
Income before income taxes 627 3,912
Net income 535 2,993
Net income attributable to Parent,
Subsidiary Issuer and Subsidiary Guarantors 516 2,902
At
March 31, December 31,
2020 2019
Current assets $ 6,623 $ 6,090
Property and equipment, net 14,859 13,418
Goodwill and other intangible assets 5,819 5,743
Total noncurrent assets 21,543 19,977
Total assets 28,166 26,067
Current liabilities 4,148 4,504
Long-term debt, net 34,364 33,227
Intercompany balances 1,342 (53 )
Income taxes and other liabilities 885 879
Total noncurrent liabilities 37,004 34,398
Stockholders' deficit attributable to
Parent, Subsidiary Issuer and Subsidiary
Guarantors (13,092 ) (12,941 )
Noncontrolling interests 106 106
Market Risk
We are exposed to market risk related to changes in market values of securities.
The investments in our 100% owned insurance subsidiaries were $438 million at
March 31, 2020 . These investments are carried at fair value, with changes in
unrealized gains and losses that are not credit-related being recorded as
adjustments to other comprehensive income. At March 31, 2020 , we had a net
unrealized gain of $13 million on the insurance subsidiaries' investments.
We are exposed to market risk related to market illiquidity. Investments in debt
and equity securities of our 100% owned insurance subsidiaries could be impaired
by the inability to access the capital markets. Should the 100% owned insurance
subsidiaries require significant amounts of cash in excess of normal cash
requirements to pay claims and other expenses on short notice, we may have
difficulty selling these investments in a timely manner or be forced to sell
them at a price less than what we might otherwise have been able to in a normal
market environment. We may be required to recognize credit-related impairments
on our investment securities in future periods should issuers default on
interest payments or should the fair market valuations of the securities
deteriorate due to ratings downgrades or other issue-specific factors.
We are also exposed to market risk related to changes in interest rates, and we
periodically enter into interest rate swap agreements to manage our exposure to
these fluctuations. Our interest rate swap agreements involve the exchange of
fixed and variable rate interest payments between two parties, based on common
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
notional principal amounts and maturity dates. The notional amounts of the swap
agreements represent balances used to calculate the exchange of cash flows and
are not our assets or liabilities. Our credit risk related to these agreements
is considered low because the swap agreements are with creditworthy financial
institutions. The interest payments under these agreements are settled on a net
basis. These derivatives have been recognized in the financial statements at
their respective fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other comprehensive
income.
With respect to our interest-bearing liabilities, approximately $5.132 billion
of long-term debt at March 31, 2020 was subject to variable rates of interest,
while the remaining balance in long-term debt of $29.729 billion at March 31,
2020 was subject to fixed rates of interest. Both the general level of interest
rates and, for the senior secured credit facilities, our leverage affect our
variable interest rates. Our variable debt is comprised primarily of amounts
outstanding under the senior secured credit facilities. Borrowings under the
senior secured credit facilities bear interest at a rate equal to an applicable
margin plus, at our option, either (a) a base rate determined by reference to
the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of
Bank of America or (b) a LIBOR rate for the currency of such borrowing for the
relevant interest period. The applicable margin for borrowings under the senior
secured credit facilities may fluctuate according to a leverage ratio. The
average effective interest rate for our long-term debt was 5.1% and 5.5% for the
quarters ended March 31, 2020 and 2019, respectively.
The estimated fair value of our total long-term debt was $35.548 billion at
March 31, 2020 . The estimates of fair value are based upon the quoted market
prices for the same or similar issues of long-term debt with the same
maturities. Based on a hypothetical 1% increase in interest rates, the potential
annualized reduction to future pretax earnings would be approximately
$51 million . To mitigate the impact of fluctuations in interest rates, we
generally target a portion of our debt portfolio to be maintained at fixed
rates.
We are exposed to currency translation risk related to our foreign operations.
We currently do not consider the market risk related to foreign currency
translation to be material to our consolidated financial statements or our
liquidity.
Tax Examinations
The Internal Revenue Service was conducting an examination of the Company's
2016, 2017 and 2018 federal income tax returns at March 31, 2020 . We are also
subject to examination by state and foreign taxing authorities. Management
believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates
properly reported taxable income and paid taxes in accordance with applicable
laws and agreements established with IRS , state and foreign taxing authorities
and final resolution of any disputes will not have a material, adverse effect on
our results of operations or financial position. However, if payments due upon
final resolution of any issues exceed our recorded estimates, such resolutions
could have a material, adverse effect on our results of operations or financial
position.
Operating Data
2020 2019
Number of hospitals in operation at:
March 31 186 185
June 30 184
September 30 184
December 31 184
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
2020 2019
Number of freestanding outpatient surgical centers in
operation at:
March 31 123 124
June 30 125
September 30 125
December 31 123
Licensed hospital beds at(a):
March 31 49,357 48,455
June 30 48,483
September 30 48,588
December 31 49,035
Weighted average licensed beds(b):
Quarter:
First 49,160 48,036
Second 48,429
Third 48,535
Fourth 48,911
Year 48,480
Average daily census(c):
Quarter:
First 28,822 28,966
Second 27,808
Third 27,502
Fourth 28,274
Year 28,134
Admissions(d):
Quarter:
First 528,244 523,196
Second 518,253
Third 527,284
Fourth 540,194
Year 2,108,927
Equivalent admissions(e):
Quarter:
First 889,035 889,956
Second 903,419
Third 918,964
Fourth 933,996
Year 3,646,335
Average length of stay (days)(f):
Quarter:
First 5.0 5.0
Second 4.9
Third 4.8
Fourth 4.8
Year 4.9
Emergency room visits(g):
Quarter:
First 2,264,707 2,287,440
Second 2,253,337
Third 2,269,364
Fourth 2,350,988
Year 9,161,129
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
2020 2019
Outpatient surgeries(h):
Quarter:
First 226,319 240,846
Second 253,441
Third 249,177
Fourth 266,483
Year 1,009,947
Inpatient surgeries(i):
Quarter:
First 135,145 137,363
Second 140,473
Third 143,215
Fourth 145,584
Year 566,635
Days revenues in accounts receivable(j):
Quarter:
First 49 53
Second 52
Third 52
Fourth 50
Outpatient revenues as a % of patient revenues(k):
Quarter:
First 37 % 38 %
Second 39 %
Third 39 %
Fourth 39 %
Year 39 %
(a) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(b) Represents the average number of licensed beds, weighted based on periods
owned.
(c) Represents the average number of patients in our hospital beds each day.
(d) Represents the total number of patients admitted to our hospitals and is used
by management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The equivalent
admissions computation "equates" outpatient revenues to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in our
hospitals.
(g) Represents the number of patients treated in our emergency rooms.
(h) Represents the number of surgeries performed on patients who were not
admitted to our hospitals. Pain management and endoscopy procedures are not
included in outpatient surgeries.
(i) Represents the number of surgeries performed on patients who have been
admitted to our hospitals. Pain management and endoscopy procedures are not
included in inpatient surgeries.
(j) Revenues per day is calculated by dividing revenues for the quarter by the
days in the quarter. Days revenues in accounts receivable is then calculated
as accounts receivable at the end of the quarter divided by revenues per day.
(k) Represents the percentage of patient revenues related to patients who are not
admitted to our hospitals.
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