01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
HCA Holdings' FY2014 10-K shows a company that grew revenue 8.0% to $36.9 billion and net income attributable to HCA to $1.875 billiona ($4.16 diluted EPS, up from $3.37).
Growth was driven by a 3.8% increase in revenue per equivalent admission and a 4.0% increase in equivalent admissions. Same-facility revenue rose 6.9%, and same-facility admissions rose 2.1%. Operating leverage improved as the provision for doubtful accounts fell $689 millionb, reflecting fewer uninsured patients after Health Reform Law coverage expansion.
Uninsured admissions at same facilities fell 9.4%. Earnings were partly flattered by one-time items, including a $142 millionc Texas Medicaid waiver recognition and a $94 million RAC-related Medicare settlement, while losses on debt retirement ($335 million) and legal claim costs ($78 million) weighed on results. The balance sheet remains highly leveraged, with total debt of $29.6 billion against a stockholders' deficit of $6.5 billion.
Operating cash flow rose to $4.45 billiond and capital expenditures were $2.18 billion, leaving substantial free cash flow that funded $1.75 billion of share repurchases. Management guided to 2015 capital expenditures of about $2.4 billion. Key risks include dependence on Medicare and Medicaid (42.6% of 2014 revenue), exposure to Florida and Texas (about 46% of revenue), pending government investigations and a securities class action, and the phased reduction in Medicare and Medicaid DSH funding.
02—Key points
Key Highlights
- Revenue rose 8.0% to $36.918 billion, driven by a 3.8% increase in revenue per equivalent admission and a 4.0% increase in equivalent admissions; same-facility revenue grew 6.9%.
- Net income attributable to HCA Holdings was $1.875 billion, or $4.16 per diluted share, versus $3.37 in 2013, a 23% increase in diluted EPS.
- Provision for doubtful accounts declined $689 million to $3.169 billion, as uninsured volumes fell (same-facility uninsured admissions down 9.4%) after Exchange and Medicaid expansion coverage.
- Total debt was $29.645 billion, with a stockholders' deficit of $6.498 billion; the company issued new senior secured and unsecured notes and redeemed higher-coupon debt, recording $335 million of debt retirement losses.
- Operating cash flow increased 21% to $4.448 billion; capital expenditures were $2.176 billion, and the company repurchased $1.75 billion of common stock.
- Revenue quality included one-time benefits: $142 million of Texas Medicaid waiver revenue and $94 million from a Medicare RAC settlement, both recognized in 2014.
- Concentration risk remains high: 42.6% of revenue came from Medicare and Medicaid, and Florida and Texas (78 of 166 hospitals) generated about 46% of revenue.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $36.92B$34.18B | +8.0% |
| Interest Expense | $1.74B$1.85B | −5.7% |
| Net Income | $1.88B$1.56B | +20.5% |
| EPS (Basic) | $4.30$3.50 | +22.9% |
| EPS (Diluted) | $4.16$3.37 | +23.4% |
| Shares Outstanding (Basic) | 435.67M445.07M | −2.1% |
| Shares Outstanding (Diluted) | 450.35M461.91M | −2.5% |
05—Questions
Frequently Asked Questions
What drove HCA's revenue and earnings growth in 2014?
Revenue grew 8.0%, mainly from a 4.0% increase in equivalent admissions and a 3.8% increase in revenue per equivalent admission. Diluted EPS rose to $4.16 from $3.37. Part of the increase came from non-recurring items, including $142 million of Texas Medicaid waiver revenue and $94 million of Medicare RAC settlement revenue, partly offset by $335 million of debt retirement losses and $78 million of legal claim costs.
How is the Affordable Care Act affecting HCA's uninsured exposure?
The provision for doubtful accounts fell $689 million in 2014, and the combined total of bad debt, charity care and uninsured discounts fell to 30.2% of the related revenue sum from 31.3%. Management attributes this to previously uninsured patients obtaining coverage through the Exchanges and Medicaid expansion. Same-facility uninsured admissions declined 9.4%. Management acknowledges that the net effect of the law remains uncertain, and some states have opted out of Medicaid expansion, including Texas and Florida.
How leveraged is HCA, and how is it managing its debt?
Total debt was $29.645 billion at year-end 2014, with interest expense of $1.743 billion, down from $1.848 billion because the average interest rate fell to 6.1% from 6.5%. The company refinanced high-coupon secured notes in 2014 and early 2015, which generated retirement losses but lowered borrowing costs. Management believes operating cash flow and available credit facilities are sufficient for the next twelve months, though the stockholders' deficit is $6.5 billion.
What are the biggest regulatory risks to HCA's revenue?
Medicare and Medicaid made up 42.6% of 2014 revenue. The Health Reform Law reduces Medicare market basket updates, cuts Medicare and Medicaid DSH payments by $1.2 billion in 2016 rising to $5.6 billion in 2019, and introduces value-based purchasing and readmission penalties. The 2015 physician fee schedule faces a scheduled cut of about 24% absent Congressional action. Texas supplemental Medicaid waiver payments are also under CMS review.
Are there material legal or investigative exposures?
Yes. The company faces a DOJ review of implantable cardio-defibrillator billing across 95 hospitals, a Miami U.S. Attorney review of interventional cardiology services, and an unsealed qui tam action on which DOJ declined to intervene. A securities class action over the 2011 IPO has been certified. The company has also recorded $175 million plus $78 million in Health Midwest litigation costs, with interest accruing, and expects a 2015 final judgment. Management says it cannot predict the outcome of these matters.
06—Continue