01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
HCA Holdings, Inc. closed 2012 with 162 hospitals, 112 freestanding surgery centers and 41,804 licensed beds across 20 states and England.
Revenue grew 11.2% to $33.0 billiona, driven by a 9.1% increase in equivalent admissions (largely from the October 2011 consolidation of the HealthONE joint venture in Denver) and a 2.0% gain in revenue per equivalent admission. Same-facility revenue rose a more modest 4.5%. Net income attributable to HCA Holdings fell 34.9% to $1.605 billion, or $3.49 per diluted share, versus $4.97 in 2011.
The decline mainly reflects the absence of 2011's $1.522 billionb non-cash gain on the HealthONE remeasurement and the $175 million legal claim charge recorded in 2012 related to the Health Midwest litigation, along with a higher tax rate. The most important investor concerns are credit quality and leverage. Total debt was $28.9 billion at year-end 2012, up from $27.1 billion, and the provision for doubtful accounts rose to $3.77 billion.
Uninsured discounts and charity care also grew sharply, and the combined uncompensated-care measure reached 29.5% of revenue, up from 27.4% in 2011 and 25.6% in 2010. Operating cash flow improved to $4.18 billionc, but the company paid $3.14 billion in distributions to stockholders during 2012, funded partly with new debt, and the stockholders' deficit widened to $(8.3) billion. Regulatory exposure is substantial.
Medicare and Medicaid accounted for 43%d of 2012 revenue, and the Health Reform Law introduces Medicare DSH cuts, productivity-adjusted market basket reductions, value-based purchasing and readmission penalties, along with Medicaid expansion decisions that remain uncertain in states such as Texas. Florida and Texas generated about 47% of revenue, and the company faces open items including a DOJ review of implantable cardio-defibrillator billing, a securities class action over the 2011 IPO, and an IRS audit.
02—Key points
Key Highlights
- Revenue rose 11.2% to $33.0 billion, but same-facility revenue grew only 4.5%, so much of the growth came from the HealthONE consolidation rather than organic performance.
- Net income attributable to HCA fell 34.9% to $1.605 billion ($3.49 diluted EPS) after 2011 included a $1.522 billion non-cash remeasurement gain and 2012 absorbed a $175 million legal claim charge.
- Uncompensated care (provision for doubtful accounts, uninsured discounts and charity care) reached $13.8 billion, or 29.5% of revenue, up from 25.6% in 2010, a key pressure point for margins and cash collection.
- Total debt stood at $28.9 billion against a stockholders' deficit of $(8.3) billion, and the company paid $3.14 billion in special distributions to stockholders during 2012.
- Operating cash flow increased to $4.18 billion, and management guided to 2013 planned capital expenditures of roughly $2.0 billion and EHR incentive income of $200–225 million.
- Medicare and Medicaid represent 43% of revenue, and pending reforms (DSH cuts, market basket reductions, value-based purchasing, sequestration, and state Medicaid expansion decisions) create significant reimbursement uncertainty.
- Concentration risk is high, with 74 of 162 hospitals and about 47% of revenue located in Florida and Texas, both hurricane-exposed states.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $33.01B$29.68B | +11.2% |
| Interest Expense | $1.80B$2.04B | −11.7% |
| Net Income | $1.60B$2.46B | −34.9% |
| EPS (Basic) | $3.65$5.17 | −29.4% |
| EPS (Diluted) | $3.49$4.97 | −29.8% |
| Shares Outstanding (Basic) | 440.18M476.61M | −7.6% |
| Shares Outstanding (Diluted) | 459.40M495.94M | −7.4% |
05—Questions
Frequently Asked Questions
Why did net income fall in 2012 even though revenue grew 11%?
The 2011 results included a $1.522 billion pretax non-cash gain from remeasuring the HealthONE joint venture, which has no 2012 equivalent. 2012 also included a $175 million legal claim cost and a higher effective tax rate (35.6% versus 22.6%). Excluding these one-time items, underlying performance was considerably steadier than the headline decline suggests.
How much of the revenue growth came from acquisitions versus the existing hospital base?
Most of the 11.2% increase came from consolidating HealthONE, which contributed $2.2 billion in 2012 versus $347 million in 2011. Same-facility revenue rose 4.5%, driven by 4.1% growth in same-facility equivalent admissions and only 0.3% growth in revenue per equivalent admission, indicating limited pricing power.
Is the rising uninsured and bad-debt burden a serious concern?
Yes. The provision for doubtful accounts rose to $3.77 billion from $2.82 billion, and uninsured discounts increased $1.27 billion. Uninsured admissions grew about 9.7% on a same-facility basis. Management expects these trends to continue, and the Health Reform Law's coverage expansion is not fully effective until 2014 and may not reduce uninsured volume in states that decline Medicaid expansion, such as Texas.
What are the main balance sheet and capital allocation risks?
Debt of $28.9 billion is high relative to earnings, and the company recorded a stockholders' deficit of $(8.3) billion. Interest expense fell to $1.8 billion because average borrowing rates declined, but about $2.9 billion of debt is variable-rate, so rising rates would increase costs. Stockholder distributions of $3.1 billion in 2012 were partly financed by new debt, and management has said future repurchases of debt or equity may occur.
What legal and regulatory contingencies could materially affect results?
The Health Midwest ruling could cost at least $162 million plus attorney fees, and the court-supervised accounting could increase that amount. A DOJ review of implantable cardio-defibrillator billing at 95 hospitals and a U.S. Attorney inquiry into interventional cardiology could lead to False Claims Act claims. A securities class action related to the 2011 IPO is pending, and the IRS is auditing the 2007–2009 returns. Management believes most of these will not be material, but outcomes are uncertain.
06—Continue