01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
HCA Healthcare's 2017 10-K shows a company that grew revenue while facing rising uninsured-patient costs and a heavy debt load.
Revenues before provision for doubtful accounts rose 6.5% to $47.653 billiona, but the provision for doubtful accounts increased $782 million to $4.039 billion, leaving net revenues of $43.614 billion (up 5.1%). Growth was driven mainly by a 3.0% increase in equivalent admissions and a 2.1% increase in revenue per equivalent admission. Same facility revenues rose 3.8%.
Net income attributable to HCA fell 23.3% to $2.216 billionb ($5.95 diluted EPS vs. $7.30 in 2016), though the decline was largely driven by a $301 million deferred tax remeasurement from the 2017 Tax Cuts and Jobs Act and a $246 million legal benefit recorded in 2016 that did not recur. Excluding these items, earnings were roughly stable. The key investor concern is the rising cost of uncompensated care.
Charity care, uninsured discounts and the provision for doubtful accounts combined reached $23.420 billionc (34.9% of the sum of revenues plus these items), up from 33.0% in 2016. Uninsured discounts rose to $14.520 billion. Management expects continued collection challenges, and the company noted that the elimination of the individual mandate penalty effective 2019 may reduce insured volumes.
On the balance sheet, total debt was $33.058 billiond, with an interest coverage that remains manageable given $1.690 billion of interest expense and $5.426 billion of operating cash flow. HCA returned capital through $2.051 billion of share repurchases and announced its first quarterly dividend of $0.35 per share, signaling a shift toward shareholder distributions. Florida and Texas account for about 48% of revenues, which concentrates regulatory and hurricane-related risk.
02—Key points
Key Highlights
- Revenues rose 5.1% to $43.614 billion, driven by a 3.0% increase in equivalent admissions and a 2.1% increase in revenue per equivalent admission.
- Net income attributable to HCA fell 23.3% to $2.216 billion ($5.95 diluted EPS), mainly due to a $301 million tax charge from the 2017 Tax Cuts and Jobs Act and the non-recurrence of a $246 million 2016 legal benefit.
- Uncompensated care (charity care, uninsured discounts and bad debt provision) climbed to $23.420 billion, or 34.9% of related revenues, up from 33.0% in 2016.
- Total debt was $33.058 billion; operating cash flow was $5.426 billion and capital expenditures were $3.015 billion.
- HCA repurchased $2.051 billion of stock in 2017 and initiated a quarterly dividend of $0.35 per share, beginning March 2018.
- Florida and Texas facilities generated about 48% of revenues, creating concentration risk to state policy and hurricane exposure (Harvey and Irma cost an estimated $140 million).
- Management expects 2018 capital expenditures of about $3.5 billion and continued pressure from Medicaid supplemental payment program reviews and the Texas Medicaid waiver phase-down.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $43.61B$41.49B | +5.1% |
| Operating Expenses | $39.23B$36.68B | +7.0% |
| Interest Expense | $1.69B$1.71B | −1.0% |
| Net Income | $2.22B$2.89B | −23.3% |
| EPS (Basic) | $6.12$7.53 | −18.7% |
| EPS (Diluted) | $5.95$7.30 | −18.5% |
| Shares Outstanding (Basic) | 362.31M383.59M | −5.5% |
| Shares Outstanding (Diluted) | 372.22M395.85M | −6.0% |
05—Questions
Frequently Asked Questions
Why did HCA's net income decline in 2017 even though revenues grew?
Net income attributable to HCA fell from $2.890 billion to $2.216 billion. The main drivers were a $301 million one-time increase in income tax expense from remeasuring deferred tax assets and liabilities under the 2017 Tax Cuts and Jobs Act, and the absence of a $246 million legal claim benefit recorded in 2016 related to the Health Midwest litigation. Hurricane-related losses of about $140 million also weighed on results.
How significant is the growth in uninsured patient costs?
Very significant. The combined total of charity care, uninsured discounts and the provision for doubtful accounts rose to $23.420 billion in 2017 from $20.455 billion in 2016. Uninsured discounts alone increased $1.473 billion. As a share of related revenues, the total rose to 34.9% from 33.0%, which pressures margins and cash collections, especially as the individual mandate penalty is eliminated in 2019.
How is HCA's balance sheet and liquidity position?
The company is highly leveraged, with total debt of $33.058 billion and a stockholders' deficit of $4.995 billion. Liquidity is supported by $5.426 billion of operating cash flow, $732 million of cash, and available credit facility capacity of roughly $2.0 billion under the senior secured revolver as of year-end. Management believes cash flows and credit availability will meet needs for the next twelve months.
What does the new dividend and buyback activity signal for shareholders?
In 2017 HCA repurchased $2.051 billion of common stock, and the board authorized an additional $2 billion program in October 2017, with $1.802 billion remaining at year-end. In January 2018 the board began a regular quarterly dividend of $0.35 per share. This marks a move toward returning cash to shareholders, although the company notes dividends depend on cash flow, debt service and capital needs, and that the leverage level limits flexibility.
What are the main regulatory risks to HCA's revenue?
Medicare and Medicaid represented about 41.8% of 2017 revenues. Key risks include continued Medicare payment reductions (such as market basket adjustments and the 2% sequestration), the phase-out of Medicaid supplemental and Designated State Health Program funding, the Texas uncompensated care pool restructuring beginning in October 2019, and possible changes to the Affordable Care Act, including its repeal or replacement. Concentration in Florida and Texas magnifies these risks.
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