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HCA > SEC Filings for HCA > Form 10-Q on 5-Aug-2014All Recent SEC Filings

Show all filings for HCA HOLDINGS, INC.

Form 10-Q for HCA HOLDINGS, INC.


5-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This quarterly report on Form 10-Q includes certain disclosures which contain "forward-looking statements." Forward-looking statements include statements regarding estimated electronic health record ("EHR") incentive income and related EHR operating expenses, expected capital expenditures, 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) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the effects related to the implementation of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the "Health Reform Law"), possible delays in or complications related to implementation of the Health Reform Law, the possible enactment of additional federal or state health care reforms and possible changes to the Health Reform Law and other federal, state or local laws or regulations affecting the health care industry,
(3) 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,
(4) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (5) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (6) possible changes in the Medicare, Medicaid and other state programs, including Medicaid upper payment limit programs or Waiver Programs, that may impact reimbursements to health care providers and insurers, (7) the highly competitive nature of the health care business, (8) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under managed care agreements, the ability to enter into and renew managed care provider agreements on acceptable terms and the impact of consumer driven health plans and physician utilization trends and practices, (9) the efforts of insurers, health care providers and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (13) changes in accounting practices,
(14) changes in general economic conditions nationally and regionally in our markets, (15) future divestitures which may result in charges and possible impairments of long-lived assets, (16) changes in business strategy or development plans, (17) delays in receiving payments for services provided,
(18) the outcome of pending and any future tax audits, appeals and litigation associated with our tax positions, (19) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (20) our ongoing ability to demonstrate meaningful use of certified EHR technology and recognize income for the related Medicare or Medicaid incentive payments, and (21) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2013 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.


Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Health Care Reform

The Health Reform Law changes how health care services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced growth in Medicare program spending, reductions in Medicare and Medicaid Disproportionate Share Hospital payments, and the establishment of programs in which reimbursement is tied to quality and integration. In addition, the Health Reform Law reforms certain aspects of health insurance, expands existing efforts to tie Medicare and Medicaid payments to performance and quality, and contains provisions intended to strengthen fraud and abuse enforcement. Most of the provisions of the Health Reform Law that seek to decrease the number of uninsured became effective January 1, 2014. Based on the CBO's February 2014 projection, by 2022, the Health Reform Law will expand coverage to 25 million additional individuals. This increased coverage will occur through a combination of public program expansion and private sector health insurance and other reforms. The employer mandate, which requires firms with 50 or more full-time employees to offer health insurance or pay fines, has been delayed until January 1, 2015. For employers with 50 to 99 employees, this requirement has been further delayed until January 1, 2016. In addition, a number of states have opted out of the Medicaid expansion, but these states could choose to implement the expansion at a later date. It is unclear how many states will ultimately decline to implement the Medicaid expansion provisions of the law.

Second Quarter 2014 Operations Summary

Revenues increased to $9.230 billion in the second quarter of 2014 from $8.450 billion in the second quarter of 2013. Revenues for the second quarter of 2014 include $142 million, or $0.20 per diluted share, of Medicaid revenues related to the receipt of reimbursements in excess of our estimates for the indigent care component of the Texas Medicaid Waiver Program for the program year ended September 30, 2013. All revenue amounts and revenue-related statistics for the quarter and six months ended June 30, 2014 include the impact of this $142 million increase in Medicaid revenues. Net income attributable to HCA Holdings, Inc. totaled $483 million, or $1.07 per diluted share, for the quarter ended June 30, 2014, compared to $423 million, or $0.91 per diluted share, for the quarter ended June 30, 2013. Second quarter 2014 results include losses on retirement of debt of $226 million, or $0.32 per diluted share, and net gains on sales of facilities of $11 million, or $0.02 per diluted share. Second quarter 2013 results include net gains on sales of facilities of $4 million. All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 453.0 million shares for the quarter ended June 30, 2014 and 463.2 million shares for the quarter ended June 30, 2013. During May 2014, we repurchased 14.6 million shares of our common stock.

Revenues increased 9.2% on a consolidated basis and increased 7.7% on a same facility basis for the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013. The increase in consolidated revenues can be attributed primarily to the combined impact of a 5.4% increase in revenue per equivalent admission and a 3.6% increase in equivalent admissions. The same facility revenues increase resulted primarily from the combined impact of a 5.4% increase in same facility revenue per equivalent admission and a 2.2% increase in same facility equivalent admissions.

During the quarter ended June 30, 2014, consolidated admissions and same facility admissions increased 2.3% and 1.2%, respectively, compared to the quarter ended June 30, 2013. Inpatient surgeries increased 1.7% on a consolidated basis and 1.0% on a same facility basis during the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013. Outpatient surgeries increased 1.3% on a consolidated basis and declined 0.3% on a same facility basis during the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013. Emergency department visits increased 7.1% on a consolidated basis and 5.7% on a same facility basis during the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013.


Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF (Continued)

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Second Quarter 2014 Operations Summary (continued)

For the quarter ended June 30, 2014, the provision for doubtful accounts declined $295 million, compared to the quarter ended June 30, 2013. The self-pay revenue deductions for charity care and uninsured discounts increased $103 million and $124 million, respectively, during the second quarter of 2014, compared to the second quarter of 2013. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, provision for doubtful accounts, uninsured discounts and charity care, was 29.0% for the second quarter of 2014, compared to 31.2% for the second quarter of 2013. Same facility uninsured admissions declined 14.7% for the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013. We believe these favorable trends are primarily due to previously uninsured patients obtaining medical coverage through the health insurance exchanges and Medicaid expansion programs.

Electronic health record incentive income declined $17 million, from $52 million in the second quarter of 2013 to $35 million in the second quarter of 2014. Share-based compensation expense increased $12 million, from $28 million in the second quarter of 2013 to $40 million in the second quarter of 2014.

Cash flows from operating activities increased $436 million from $814 million for the second quarter of 2013 to $1.250 billion for the second quarter of 2014. The increase is related primarily to the net impact of a $95 million increase in net income, a $219 million increase related to gains on sales of facilities and losses on retirement of debt, a $156 million increase from changes in working capital items and a $71 million decline related to income taxes.

Results of Operations

Revenue/Volume Trends

Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Gross charges typically do not reflect what our facilities are actually paid. Our facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts related to patients who meet our guidelines to qualify for charity care; therefore, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans. After the discounts are applied, we are still unable to collect a significant portion of uninsured patients' accounts, and we record significant provisions for doubtful accounts (based upon our historical collection experience) related to uninsured patients in the period the services are provided.


Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

Revenues increased 9.2% from $8.450 billion in the second quarter of 2013 to $9.230 billion in the second quarter of 2014. Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under Medicare, Medicaid and other programs), managed care health plans (includes the health insurance exchanges, beginning with the first quarter of 2014), commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay revenues at the estimated amounts we expect to collect. Our revenues from our third-party payers, the uninsured and other revenues for the quarters and six months ended June 30, 2014 and 2013 are summarized in the following tables (dollars in millions):

                                                                     Quarter
                                               2014           Ratio           2013           Ratio
Medicare                                      $ 2,040           22.1 %      $  1,976           23.4 %
Managed Medicare                                  906            9.8             804            9.5
Medicaid                                          588            6.4             365            4.3
Managed Medicaid                                  452            4.9             378            4.5
Managed care and other insurers                 4,959           53.8           4,655           55.1
International (managed care and other
insurers)                                         334            3.6             291            3.4

                                                9,279          100.6           8,469          100.2
Uninsured                                         318            3.4             693            8.2
Other                                             361            3.9             311            3.7

Revenues before provision for doubtful
accounts                                        9,958          107.9           9,473          112.1
Provision for doubtful accounts                  (728 )         (7.9 )        (1,023 )        (12.1 )

Revenues                                      $ 9,230          100.0 %      $  8,450          100.0 %

                                                                        Six Months
                                                      2014          Ratio          2013          Ratio
Medicare                                            $  4,165          23.1 %     $  4,114          24.4 %
Managed Medicare                                       1,805          10.0          1,647           9.8
Medicaid                                               1,032           5.7            697           4.1
Managed Medicaid                                         873           4.8            779           4.6
Managed care and other insurers                        9,669          53.5          9,141          54.1
International (managed care and other insurers)          660           3.7            581           3.4

                                                      18,204         100.8         16,959         100.4
Uninsured                                                706           3.9          1,092           6.5
Other                                                    731           4.0            616           3.6

Revenues before provision for doubtful accounts       19,641         108.7         18,667         110.5
Provision for doubtful accounts                       (1,579 )        (8.7 )       (1,777 )       (10.5 )

Revenues                                            $ 18,062         100.0 %     $ 16,890         100.0 %


Table of Contents

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 each increased 5.4% in the second quarter of 2014, compared to the second quarter of 2013. Consolidated and same facility equivalent admissions increased 3.6% and 2.2%, respectively, in the second quarter of 2014, compared to the second quarter of 2013. Consolidated and same facility admissions increased 2.3% and 1.2%, respectively, in the second quarter of 2014, compared to the second quarter of 2013. Consolidated and same facility outpatient surgeries increased 1.3% and declined 0.3%, respectively, in the second quarter of 2014, compared to the second quarter of 2013. Consolidated and same facility inpatient surgeries increased 1.7% and 1.0%, respectively, in the second quarter of 2014, compared to the second quarter of 2013. Consolidated and same facility emergency department visits increased 7.1% and 5.7%, respectively, in the second quarter of 2014, compared to the second quarter of 2013.

To quantify the total impact of and trends related to uninsured accounts, we believe it is beneficial to view the direct uninsured revenue deductions (charity care and uninsured discounts) and provision for doubtful accounts in combination, rather than each separately. At June 30, 2014, our allowance for doubtful accounts represented approximately 93% of the $5.688 billion total patient due accounts receivable balance. The patient due accounts receivable balance represents the estimated uninsured portion of our accounts receivable. A summary of these adjustments to revenues amounts, related to uninsured accounts, for the quarters and six months ended June 30, 2014 and 2013 follows (dollars in millions):

                                                     Quarter                                        Six Months
                                     2014       Ratio        2013       Ratio        2014       Ratio        2013       Ratio
Charity care                        $   900         24 %    $   797         21 %    $ 1,825         23 %    $ 1,702         23 %
Uninsured discounts                   2,142         57        2,018         52        4,443         57        3,968         53
Provision for doubtful accounts         728         19        1,023         27        1,579         20        1,777         24

Totals                              $ 3,770        100 %    $ 3,838        100 %    $ 7,847        100 %    $ 7,447        100 %

Same facility uninsured admissions declined by 5,133 admissions, or 14.7%, in the second quarter of 2014, compared to the second quarter of 2013. We believe this decline was primarily due to previously uninsured patients obtaining medical coverage through the health insurance exchanges and Medicaid expansion programs. Same facility uninsured admissions increased by 2.1%, in the first quarter of 2014, compared to the first quarter of 2013. Same facility uninsured admissions in 2013, compared to 2012, increased 8.3% in the fourth quarter of 2013, increased 10.1% in the third quarter of 2013, increased 6.3% in the second quarter of 2013 and increased 5.4% in the first quarter of 2013.


Table of Contents

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 admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and other insurers and the uninsured for the quarters and six months ended June 30, 2014 and 2013 are set forth in the following table.

                                                Quarter              Six Months
                                            2014       2013       2014       2013
          Medicare                             32 %       32 %       32 %       33 %
          Managed Medicare                     14         13         14         13
          Medicaid                              8          8          8          8
          Managed Medicaid                      9          9          9          9
          Managed care and other insurers      30         30         30         29
          Uninsured                             7          8          7          8

                                              100 %      100 %      100 %      100 %

The approximate percentages of our inpatient revenues, before provision for doubtful accounts, related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and other insurers and the uninsured for the quarters and six months ended June 30, 2014 and 2013 are set forth in the following table.

                                                Quarter              Six Months
                                            2014       2013       2014       2013
          Medicare                             28 %       29 %       29 %       31 %
          Managed Medicare                     11         10         11         11
          Medicaid                              8          6          7          5
          Managed Medicaid                      5          4          5          4
          Managed care and other insurers      48         46         47         46
          Uninsured                             -          5          1          3

                                              100 %      100 %      100 %      100 %

At June 30, 2014, we had 78 hospitals in the states of Texas and Florida. During the second quarter of 2014, 56% of our admissions and 47% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 65% of our uninsured admissions during the second quarter of 2014.

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 2011, the Centers for Medicare and Medicaid Services ("CMS") approved a Medicaid waiver that allows Texas to continue receiving supplemental Medicaid reimbursement while expanding its Medicaid managed care program. Thus, Texas is operating pursuant to a Waiver Program. The Texas Waiver Program includes two primary components: the continuation of an indigent care component and the establishment of a Delivery System Reform Incentive Payment ("DSRIP") component. Initiatives under the DSRIP program are designed to provide incentive payments to hospitals and other providers for their investments in delivery system reforms that increase access to health care, improve the quality of care and enhance the health of patients and families they serve. We provide indigent care services in several communities in the state of Texas, in affiliation with other hospitals. The state of Texas has been involved in efforts to increase the indigent care provided by private hospitals. As a result of additional indigent care being provided by private hospitals, public hospital districts or counties in Texas have available funds that were previously devoted to indigent care. The public hospital districts or counties are under


Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

no contractual or legal obligation to provide such indigent care. The public hospital districts or counties have elected to transfer some portion of these available funds to the state's Medicaid program. Such action is at the sole discretion of the public hospital districts or counties. It is anticipated that these contributions to the state will be matched with federal Medicaid funds. The state then may make supplemental payments to hospitals in the state for Medicaid services rendered. Hospitals receiving Medicaid supplemental payments may include those that are providing additional indigent care services. Our Texas Medicaid revenues included $210 million ($22 million DSRIP related and $188 million indigent care related) and $72 million (all indigent care related) during the second quarters of 2014 and 2013, respectively, and $323 million ($43 million DSRIP related and $280 million indigent care related) and $151 million (all indigent care related) during the first six months of 2014 and 2013, respectively, of Medicaid supplemental payments. During the second quarter of 2014, we recorded $142 million of Medicaid revenues related to the receipt of reimbursements in excess of our estimates for the indigent care related component of the Texas Medicaid Waiver Program for the program year ended September 30, 2013.

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 waiver requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and waiver 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.

Electronic Health Record Incentive Payments

The American Recovery and Reinvestment Act of 2009 provides for Medicare and Medicaid incentive payments, beginning in 2011, for eligible hospitals and professionals that adopt and meaningfully use certified EHR technology. We recognize income related to Medicare and Medicaid incentive payments using a gain contingency model that is based upon when our eligible hospitals have demonstrated meaningful use of certified EHR technology for the applicable period and the cost report information for the full cost report year that will . . .

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