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, the length and severity of the pandemic and the
spread of virus strains with new epidemiological characteristics; 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 and terms of government and administrative regulation and
stimulus (including the Families First Coronavirus Response Act, the Coronavirus
Aid, Relief and Economic Security ("CARES") Act, the Paycheck Protection Program
and Health Care Enhancement Act, the Consolidated Appropriations Act, 2021, the
American Rescue Plan Act of 2021 and other enacted and potential future
legislation); changes in revenues due to declining patient volumes, changes in
payer 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; supply
shortages and disruptions; and the timing, availability and adoption of
effective medical treatments and vaccines, (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 proposals to expand coverage of
federally-funded insurance programs as an alternative to private insurance or
establish a single-payer system (such reforms 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 implementation of sequestration
spending reductions required under the Budget Control Act of 2011, related
legislation extending these reductions, and those required under the
Pay-As-You-Go Act of 2010 ("PAYGO Act") as a result of the federal budget
deficit impact of the American Rescue Plan Act of 2021, 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Forward-Looking Statements (continued)
facilities, (14) changes in accounting practices, (15) changes in general
economic conditions nationally and regionally in our markets, including economic
and business conditions (and the impact thereof on the economy, financial
markets and banking industry) 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, (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 ended December 31, 2020 and our other filings with the Securities
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
On March 11, 2020 , the World Health Organization designated
COVID-19
as a global pandemic. Patient volumes and the related revenues for most of our
services were significantly impacted during the latter portion of the first
quarter and the first half of the second quarter of 2020 and have continued to
be impacted as various policies were implemented by federal, state and local
governments in response to the
COVID-19
pandemic, and the public remains wary of real or perceived opportunities for
exposure to the virus. We believe the extent of the
COVID-19
pandemic's impact on our operating results and financial condition has been and
will continue to be driven by many factors, most of which are beyond our control
and ability to forecast. Because of these uncertainties, we cannot estimate how
long or to what extent the pandemic will impact our operations.
First Quarter 2021 Operations Summary
Revenues increased to $13.977 billion in the first quarter of 2021 from
$12.861 billion in the first quarter of 2020. Net income attributable to HCA
Healthcare, Inc. totaled $1.423 billion , or $4.14 per diluted share, for the
quarter ended March 31, 2021 , compared to $581 million , or $1.69 per diluted
share, for the quarter ended March 31, 2020 . 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 quarter ended March 31, 2020 include $55 million , or
$0.12 per diluted share, related to the settlement of Medicare outlier
calculations for prior periods. Our provisions for income taxes for the first
quarters of 2021 and 2020 included tax benefits of $74 million , or $0.22 per
diluted share, and $53 million , or $0.15 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.
Revenues increased 8.7% on a consolidated basis and 9.0% on a same facility
basis for the quarter ended March 31, 2021 , compared to the quarter ended
March 31, 2020 . The increase in consolidated revenues can be primarily
attributed to the net impact of a 16.1% increase in revenue per equivalent
admission offset by a 6.4% decline in equivalent admissions. The same facility
revenues increase primarily resulted from the net impact of a
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)First Quarter 2021 Operations Summary (continued)
16.6% increase in same facility revenue per equivalent admission offset by a 6.5% decline in same facility equivalent admissions. During the quarter endedMarch 31, 2021 , consolidated admissions and same facility admissions declined 4.1% and 4.2%, respectively, compared to the quarter endedMarch 31, 2020 . Surgeries declined 0.7% on a consolidated basis and declined 0.6% on a same facility basis during the quarter endedMarch 31, 2021 , compared to the quarter endedMarch 31, 2020 . Emergency department visits declined 18.7% and 18.4% on a consolidated basis and on a same facility basis, respectively, during the quarter endedMarch 31, 2021 , compared to the quarter endedMarch 31, 2020 . Consolidated and same facility uninsured admissions declined 15.8% and 15.7%, respectively, for the quarter endedMarch 31, 2021 , compared to the quarter endedMarch 31, 2020 . Cash flows from operating activities increased$613 million , from$1.375 billion for the first quarter of 2020 to$1.988 billion for the first quarter of 2021. The increase in cash provided by operating activities was primarily related to the net effect of an increase in net income, excluding gains on sales of facilities and losses on retirement of debt, of$659 million and an increase related to income taxes of$218 million , offset by negative changes in working capital of$311 million , primarily related to an increase in accounts receivable. 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 8.7% from$12.861 billion in the first quarter of 2020 to$13.977 billion in the first quarter of 2021. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments 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 patientswho 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. 20
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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)
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, 2021 and 2020 are summarized in the following table (dollars in
millions):
2021 Ratio 2020 Ratio
Medicare $ 2,559 18.3 % $ 2,743 21.3 %
Managed Medicare 2,053 14.7 1,826 14.2
Medicaid 527 3.8 414 3.2
Managed Medicaid 725 5.2 666 5.2
Managed care and insurers 6,885 49.1 6,645 51.6
International (managed care and insurers) 333 2.4 292 2.3
Other 895 6.5 275 2.2
Revenues $ 13,977 100.0 % $ 12,861 100.0 %
Consolidated and same facility revenue per equivalent admission increased 16.1%
and 16.6%, respectively, in the first quarter of 2021, compared to the first
quarter of 2020. Consolidated and same facility equivalent admissions declined
6.4% and 6.5%, respectively, in the first quarter of 2021, compared to the first
quarter of 2020. Consolidated and same facility outpatient surgeries increased
2.2% and 2.3%, respectively, in the first quarter of 2021, compared to the first
quarter of 2020. Consolidated and same facility inpatient surgeries declined
5.6% and 5.4%, respectively, in the first quarter of 2021, compared to the first
quarter of 2020. Consolidated and same facility emergency department visits
declined 18.7% and 18.4%, respectively, in the first quarter of 2021, compared
to the first quarter of 2020. Our revenues increased, although our patient
volumes declined, during the first quarter of 2021 compared to the first quarter
of 2020 due to favorable changes in payer mix and higher acuity levels for
patients treated during the first quarter of 2021, which resulted in an increase
in revenue per equivalent admission. We believe these trends have been impacted
by the effect of the pandemic on our operations, including the patients
diagnosed with COVID-19.
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, 2021 and 2020 follows (dollars in millions):
2021 2020
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)
$ 11,643
Cost-to-charges
ratio (patient care costs as percentage of gross patient charges) 11.4 % 11.9 % Total uncompensated care$ 6,821 $ 7,873 Multiply by the cost-to-charges ratio 11.4 % 11.9 % Estimated cost of total uncompensated care$ 778
Same facility uninsured admissions declined by 6,564 admissions, or 15.7%, in
the first quarter of 2021 compared to the first quarter of 2020. Same facility
uninsured admissions in 2020, compared to 2019, declined 9.1% in the fourth
quarter, declined 14.2% in the third quarter, declined 10.0% in the second
quarter, and increased 7.1% in the first quarter. The declines in the first
quarter of 2021, compared to the first quarter of 2020, and the last three
quarters of 2020, compared to the last three quarters of 2019, were primarily
due to the reimbursement received, as
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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)
provided for under the Families First Coronavirus Response Act and subsequent
legislation, for uninsured patients diagnosed with
COVID-19
and the resulting classification of those patients as an insured admission, as
well as general declines in patient volumes resulting from the pandemic's impact
on our operations.
The approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the quarters ended March 31, 2021 and 2020 are set forth in the
following table.
2021 2020
Medicare 24 % 27 %
Managed Medicare 22 20
Medicaid 5 5
Managed Medicaid 12 12
Managed care and insurers 30 28
Uninsured 7 8
100 % 100 %
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, 2021 and 2020 are set forth in the following table.
2021 2020
Medicare 24 % 29 %
Managed Medicare 17 16
Medicaid 5 4
Managed Medicaid 6 5
Managed care and insurers 48 46
100 % 100 %
At March 31, 2021 , we had 92 hospitals in the states of Texas and Florida .
During the quarter ended March 31, 2021 , 56% of our admissions and 49% of our
revenues were generated by these hospitals. Uninsured admissions in Texas and
Florida represented 73% of our uninsured admissions during the quarter ended
March 31, 2021 .
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 $138 million
and $115 million during the first quarters of 2021 and 2020, 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
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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)
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 operating data.
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
ended March 31, 2021 and 2020 (dollars in millions):
2021 2020
Amount Ratio Amount Ratio
Revenues $ 13,977 100.0 $ 12,861 100.0
Salaries and benefits 6,301 45.1 6,118 47.6
Supplies 2,224 15.9 2,123 16.5
Other operating expenses 2,421 17.4 2,427 18.9
Equity in earnings of affiliates (21 ) (0.2 ) (7 ) (0.1 )
Depreciation and amortization 697 5.0 674 5.3
Interest expense 384 2.7 428 3.3
Gains on sales of facilities (2 ) - (7 ) (0.1 )
Losses on retirement of debt - - 295 2.3
12,004 85.9 12,051 93.7
Income before income taxes 1,973 14.1 810 6.3
Provision for income taxes 393 2.8 112 0.9
Net income 1,580 11.3 698 5.4
Net income attributable to noncontrolling interests 157 1.1 117 0.9
Net income attributable to
$ 581 4.5 % changes from prior year: Revenues 8.7 % 2.7 % Income before income taxes 143.6 (44.5 ) Net income attributable to HCA Healthcare, Inc. 145.0 (44.1 ) Admissions(a) (4.1 ) 1.0 Equivalent admissions(b) (6.4 ) (0.1 ) Revenue per equivalent admission 16.1
2.9
Same facility % changes from prior year(c): Revenues 9.0 1.2 Admissions(a) (4.2 ) 0.6 Equivalent admissions(b) (6.5 ) (0.4 ) Revenue per equivalent admission 16.6
1.6
(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.
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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 (continued)
(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.
Quarters EndedMarch 31, 2021 and 2020 Revenues increased to$13.977 billion in the first quarter of 2021 from$12.861 billion in the first quarter of 2020. Net income attributable toHCA Healthcare, Inc. totaled$1.423 billion , or$4.14 per diluted share, for the quarter endedMarch 31, 2021 , compared to$581 million , or$1.69 per diluted share, for the quarter endedMarch 31, 2020 . 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 quarter endedMarch 31, 2020 include$55 million , or$0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods. Our provisions for income taxes for the first quarters of 2021 and 2020 included tax benefits of$74 million , or$0.22 per diluted share, and$53 million , or$0.15 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. Revenues increased 8.7% on a consolidated basis and 9.0% on a same facility basis for the quarter endedMarch 31, 2021 , compared to the quarter endedMarch 31, 2020 . The increase in consolidated revenues can be primarily attributed to the net impact of a 16.1% increase in revenue per equivalent admission offset by a 6.4% decline in equivalent admissions. The same facility revenues increase primarily resulted from the net impact of a 16.6% increase in same facility revenue per equivalent admission offset by a 6.5% decline in same facility equivalent admissions. Salaries and benefits, as a percentage of revenues, were 45.1% in the first quarter of 2021 and 47.6% in the first quarter of 2020. Salaries and benefits per equivalent admission increased 10.0% in the first quarter of 2021 compared to the first quarter of 2020. Same facility labor rate increases averaged 6.1% for the first quarter of 2021 compared to the first quarter of 2020. Supplies, as a percentage of revenues, were 15.9% in the first quarter of 2021 and 16.5% in the first quarter of 2020. Supply costs per equivalent admission increased 11.9% in the first quarter of 2021 compared to the first quarter of 2020. Supply costs per equivalent admission increased 7.0% for medical devices, 21.0% for pharmacy supplies and 12.0% for general medical and surgical items in the first quarter of 2021 compared to the first quarter of 2020. Other operating expenses, as a percentage of revenues, were 17.4% in the first quarter of 2021 and 18.9% in the first quarter of 2020. 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$134 million and$140 million for the first quarters of 2021 and 2020, respectively. Equity in earnings of affiliates was$21 million and$7 million in the first quarters of 2021 and 2020, respectively. 24
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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, 2021 and 2020 (continued)
Depreciation and amortization increased $23 million , from $674 million in the
first quarter of 2020 to $697 million in the first quarter of 2021. The increase
in depreciation relates primarily to capital expenditures at our existing
facilities.
Interest expense was $384 million in the first quarter of 2021 and $428 million
in the first quarter of 2020. Our average debt balance was $31.019 billion for
the first quarter of 2021 compared to $34.136 billion for the first quarter of
2020. The average effective interest rate for our long-term debt was 5.0% for
both of the quarters ended March 31, 2021 and 2020.
During the first quarters of 2021 and 2020, we recorded gains on sales of
facilities of $2 million and $7 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 21.7% and 16.2% for the first quarters of 2021 and
2020, 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 2021 and
2020 included tax benefits of $74 million and $53 million , respectively, related
to employee equity award settlements. Excluding the effect of these adjustments,
the effective tax rate for the first quarters of 2021 and 2020 would have been
25.7% and 23.8%, respectively.
Net income attributable to noncontrolling interests increased from $117 million
for the first quarter of 2020 to $157 million for the first quarter of 2021. The
increase in net income attributable to noncontrolling interests related
primarily to the operations of two of our Texas markets.
Liquidity and Capital Resources
Cash provided by operating activities totaled $1.988 billion in the first
quarter of 2021 compared to $1.375 billion in the first quarter of 2020. The
$613 million increase in cash provided by operating activities, in the first
quarter of 2021 compared to the first quarter of 2020, related primarily to the
net effect of an increase in net income, excluding gains on sales of facilities
and losses on retirement of debt, of $659 million and an increase related to
income taxes of $218 million , offset by negative changes in working capital of
$311 million , primarily related to an increase in accounts receivable. The net
combination of interest payments and net income tax refunds in the first
quarters of 2021 and 2020 totaled $362 million and $459 million , respectively.
Working capital totaled $3.394 billion at March 31, 2021 and $3.629 billion at
December 31, 2020 .
Cash used in investing activities was $649 million in the first quarter of 2021
compared to $1.145 billion in the first quarter of 2020. Acquisitions of
hospitals and health care entities declined from $328 million in the first
quarter of 2020 to $22 million in the first quarter of 2021. Excluding
acquisitions, capital expenditures were $654 million in the first quarter of
2021 and $853 million in the first quarter of 2020. Planned capital expenditures
are expected to approximate $3.7 billion in 2021. At March 31, 2021 , there were
projects under construction which had estimated additional costs to complete and
equip over the next five years of approximately $3.0 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$2.104 billion in the first quarter of 2021 compared to$109 million in the first quarter of 2020. During the first quarter of 2021, net cash flows used in financing activities included a net increase of$33 million in our indebtedness, payment of dividends of$169 million , repurchase of common stock of$1.527 billion and distributions to noncontrolling interests of$234 million . During the first quarter of 2020, net cash flows used in financing activities included an increase of$813 million from net borrowings on our revolving credit facilities and refinancing activity, payment of dividends of$152 million , repurchase of common stock of$441 million , distributions to noncontrolling interests of$154 million and payment of debt issuance costs of$34 million . We are a highly leveraged company with significant debt service requirements. Our debt totaled$31.072 billion atMarch 31, 2021 . Our interest expense was$384 million for the first quarter of 2021 and$428 million for the first quarter of 2020. In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($5.590 billion an d$5.140 b illion available as ofMarch 31, 2021 andApril 29, 2021 , respectively) and anticipated access to public and private debt markets. Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled$501 million and$504 million atMarch 31, 2021 andDecember 31, 2020 , respectively. An insurance subsidiary maintained net reserves for professional liability risks of$148 million and$188 million atMarch 31, 2021 andDecember 31, 2020 , respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to$75 million per occurrence; however, this coverage is generally subject, in most cases, to a$15 million per occurrence self-insured retention. Additionally, the insurance subsidiary has entered into reinsurance contracts providing reimbursement for a certain portion of losses in excess of self-insured retentions. Net reserves for the self-insured professional liability risks retained were$1.816 billion and$1.736 billion atMarch 31, 2021 andDecember 31, 2020 , respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate$463 million . We estimate that approximately$422 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention. 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 InformationHCA Inc. , a direct wholly-owned subsidiary ofHCA Healthcare, Inc. , is the primary 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 byHCA Inc. are fully and unconditionally guarantee d on an unsecured basis b yHCA Healthcare, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed on a senior secured basis by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are "Unrestricted Subsidiaries" under our Indenture datedDecember 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 a list of subsidiary guarantors, see Exhibit 22 to this quarterly report on Form 10-Q. The subsidiary guarantees rank senior in right of payment to all subordinated indebtedness of each subsidiary guarantor, equally in right of payment with all senior indebtedness of the subsidiary guarantors and are structurally subordinated in right of payment to all indebtedness and other liabilities of any nonguarantor subsidiaries of the subsidiary guarantors (other than indebtedness and liabilities owed to one of the subsidiary guarantors). The subsidiary guarantees are secured by first-priority liens on the subsidiary guarantors' assets, 26
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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)
subject to certain exceptions, that secure our senior secured cash flow credit
facility on a first-priority basis. The subsidiary guarantees are secured by
second-priority liens on the subsidiary guarantors' assets that secure our
senior secured asset-based revolving credit facility on a first-priority basis
and our senior secured cash flow credit facility on a second-priority basis.
The subsidiary guarantees may be automatically and unconditionally released and
discharged upon certain customary events, including in the event such guarantee
is released under our senior secured credit facilities. The indentures governing
the senior secured notes include a "savings clause" intended to limit each
subsidiary guarantor's obligations as necessary to prevent the guarantee from
constituting a fraudulent conveyance under applicable law, which could reduce a
subsidiary guarantor's liability on its guarantee to zero. For further
information regarding the 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, 2020 .
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, 2021 and year
ended December 31, 2020 and the summarized balance sheet information at
March 31, 2021 and December 31, 2020 , for HCA Healthcare, Inc. , HCA Inc. and the
subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors)
follow (dollars in millions):
Quarter Ended March 31, 2021 and Year Ended December 31, 2020 :
Quarter Year
March 31, 2021 December 31, 2020
Revenues $ 8,401 $ 31,040
Income before income taxes 1,479 4,016
Net income 1,168 3,172
Net income attributable to Parent,
Subsidiary Issuer and Subsidiary Guarantors 1,148 3,091
At
March 31, 2021 December 31, 2020
Current assets $ 7,198 $ 7,442
Property and equipment, net 14,934 14,939
Goodwill and other intangible assets 5,762 5,763
Total noncurrent assets 21,801 21,771
Total assets 28,999 29,213
Current liabilities 5,178 5,316
Long-term debt, net 30,488 30,444
Intercompany balances 2,324 2,090
Income taxes and other liabilities 1,230 1,004
Total noncurrent liabilities 34,559 34,035
Stockholders' deficit attributable to
Parent, Subsidiary Issuer and Subsidiary
Guarantors (10,845 ) (10,247 )
Noncontrolling interests 107 109
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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)
The first-priority liens securing the subsidiary guarantees discussed above
include liens on (i) substantially all of the capital stock of substantially all
wholly owned first-tier subsidiaries of HCA Inc. or of the subsidiary guarantors
(but limited to 65% of the stock of any such wholly owned first-tier subsidiary
that is a foreign subsidiary), subject to certain limited exceptions, and (ii)
substantially all indebtedness owing to HCA Inc. or to the subsidiary
guarantors, including any and all intercompany indebtedness owed by HCA
Healthcare, Inc. or any subsidiary thereof to HCA Inc. , or any subsidiary
guarantor. For a list of affiliates whose securities are pledged as collateral
for the senior secured notes, see Exhibit 22 to this quarterly report on Form
10-Q.
Under the first lien intercreditor agreement, the administrative agent for the
lenders under the cash flow credit facility, subject to the occurrence of
certain events, has the exclusive right to direct foreclosures and take other
actions with respect to these liens, and the trustee for the senior secured
notes has no right to take any such actions. In certain circumstances, including
upon certain events of default under the senior secured credit facilities and
the senior secured notes, the collateral agent in respect of the cash flow
credit facility and the senior secured notes could proceed against the
collateral granted to it to secure such indebtedness, including the
aforementioned pledged capital stock and pledged indebtedness, and require such
collateral to be delivered to the collateral agent to the extent not already in
its possession for purposes of perfecting the lien on such assets. For further
information regarding the collateral, including events or circumstances that may
require delivery of the collateral, refer to the applicable indentures, the
first lien intercreditor agreement, the cash flow credit agreement and the
pledge agreement that are filed as exhibits to our annual report on Form 10-K
for the year ended December 31, 2020 .
There is no trading market for any of HCA Healthcare, Inc.'s affiliates whose
securities are pledged as collateral for the senior secured notes.
Rule 13-02 of Regulation S-X requires the presentation of summarized financial
information of the combined affiliates whose securities are pledged as
collateral for the senior secured notes unless such information is not material.
The rule provides that such information is not material if the assets,
liabilities and results of operations of the combined affiliates whose
securities are pledged as collateral are not materially different than the
corresponding amounts presented in the consolidated financial statements of the
Registrant. Healthtrust, Inc. - The Hospital Company ("Healthtrust") is the
first-tier subsidiary of HCA Inc. , and the common stock of Healthtrust is
pledged as collateral for the senior secured notes. Due to the corporate
structure relationship of HCA Healthcare, Inc. and Healthtrust, all of HCA
Healthcare, Inc.'s operating subsidiaries, including all other affiliates whose
securities are pledged as collateral for the senior secured notes, are also
subsidiaries of Healthtrust. The corporate structure relationship, combined with
the application of push-down accounting in Healthtrust's consolidated financial
statements related to HCA Healthcare Inc.'s debt and financial instruments, mean
that the assets, liabilities and results of operations of Healthtrust (and,
therefore, of the combined affiliates whose securities are pledged as collateral
for the senior secured notes) are not materially different than the
corresponding amounts presented in the financial statements of HCA Healthcare,
Inc. As a result, summarized financial information of affiliates whose
securities are pledged as collateral for the senior secured notes is not
required to be presented under Rule 13-02.
Market Risk
We are exposed to market risk related to changes in market values of securities.
The investment securities held by our insurance subsidiaries were recorded at
$501 million at March 31, 2021 . 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, 2021 , we had
a net unrealized gain of $21 million on the insurance subsidiaries' investments.
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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)
We are exposed to market risk related to market illiquidity. Investment
securities held by our insurance subsidiaries could be impaired by the inability
to access the capital markets. Should the 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
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 $1.238 billion
of long-term debt at March 31, 2021 was subject to variable rates of interest,
while the remaining balance in long-term debt of $29.834 billion at March 31,
2021 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 5.0% for both of the
quarters ended March 31, 2021 and 2020.
The estimated fair value of our total long-term debt was $34.872 billion at
March 31, 2021 . 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 variable interest rates, the
potential annualized reduction to future pretax earnings would be approximately
$12 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, 2021 . 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 ,
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Tax Examinations (continued)
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
2021 2020
Number of hospitals in operation at:
March 31 186 186
June 30 186
September 30 187
December 31 185
Number of freestanding outpatient surgical centers in
operation at:
March 31 121 123
June 30 122
September 30 121
December 31 121
Licensed hospital beds at(a):
March 31 49,561 49,357
June 30 49,403
September 30 49,473
December 31 49,265
Weighted average licensed beds in service(b):
Quarter:
First 42,363 42,177
Second 42,309
Third 42,426
Fourth 42,072
Year 42,246
Average daily census(c):
Quarter:
First 29,678 28,822
Second 24,844
Third 28,186
Fourth 29,065
Year 27,734
Admissions(d):
Quarter:
First 506,380 528,244
Second 452,992
Third 506,756
Fourth 521,917
Year 2,009,909
Equivalent admissions(e):
Quarter:
First 832,489 889,035
Second 723,136
Third 835,576
Fourth 864,583
Year 3,312,330
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
2021 2020
Average length of stay (days)(f): Quarter: First 5.3 5.0 Second 5.0 Third 5.1 Fourth 5.1 Year 5.1 Emergency room visits(g): Quarter: First 1,841,778 2,264,707 Second 1,516,116 Third 1,813,661 Fourth 1,855,823 Year 7,450,307 Outpatient surgeries(h): Quarter: First 231,228 226,319 Second 170,911 Third 232,493 Fourth 252,760 Year 882,483 Inpatient surgeries(i): Quarter: First 127,590 135,145 Second 118,591 Third 133,492 Fourth 135,157 Year 522,385 Days revenues in accounts receivable(j): Quarter: First 48 49 Second 50 Third 44 Fourth 45 Outpatient revenues as a % of patient revenues(k): Quarter: First 36 % 37 % Second 32 % Third 36 % Fourth 35 % Year 35 %
(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 in service, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
(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
admitted to our hospitals. Pain management and endoscopy procedures are not
included in outpatient surgeries.
(i) Represents the number of surgeries performed on patients
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
admitted to our hospitals.
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