ITEM 2. MANAGEMENTS 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 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) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act of 2010 (collectively, the Health Reform Law), including the effects of any repeal of, or changes to, the Health Reform Law or 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, (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 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) the emergence and effects related to infectious diseases, (16) future
divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and
any future tax audits, disputes and litigation associated with our tax positions, (20) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) the impact of
potential cybersecurity incidents or security breaches, (22) our ongoing ability to demonstrate meaningful use of certified electronic health record (EHR) technology, and (23) other risk factors described in our annual report
on
Form 10-K
for the year ended December 31, 2016 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 managements 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.
26
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Third Quarter 2017 Operations Summary
Revenues increased to $10.696 billion in the third quarter of 2017 from $10.270 billion in the third quarter of
2016. Net income attributable to HCA Healthcare, Inc. totaled $426 million, or $1.15 per diluted share, for the quarter ended September 30, 2017, compared to $618 million, or $1.59 per diluted share, for the quarter ended
September 30, 2016. Third quarter 2017 results include additional expenses and losses of revenues estimated at approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma on our Texas,
Florida, Georgia and South Carolina facilities, and a negative impact to operating results related to the Texas Medicaid Waiver program of approximately $50 million, or $0.08 per diluted share, related to final settlement amounts for the
program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance recoveries which we may receive. Third quarter 2017 results also include net gains on sales of facilities of $7 million, or $0.01
per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share. Third quarter 2016 results include legal claim costs of $11 million, or $0.02 per diluted share, losses on retirement of debt of
$4 million, or $0.01 per diluted share, and net gains on sales of facilities of $3 million, or $0.01 per diluted share. Our provisions for income taxes for the third quarters of 2017 and 2016 included tax benefits of $4 million, or
$0.01 per diluted share, and $11 million, or $0.03 per diluted share, respectively, related to excess tax benefits from employee equity award settlements. Our provision for income taxes for the third quarter of 2016 also included tax benefits
of $51 million, or $0.13 per diluted share, primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years. All per diluted share disclosures are based upon amounts net of the applicable income
taxes. Shares used for diluted earnings per share were 369.834 million shares for the quarter ended September 30, 2017 and 389.592 million shares for the quarter ended September 30, 2016. During 2016 and the first nine months of
2017, we repurchased 36.325 million shares and 17.847 million shares of our common stock, respectively.
Revenues increased 4.2% on a consolidated basis and increased 2.3% on a same facility basis for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016. The
increase in consolidated revenues can be attributed to the combined impact of a 1.6% increase in revenue per equivalent admission and a 2.5% increase in equivalent admissions. The same facility revenues increase resulted from the combined impact of
a 2.0% increase in same facility revenue per equivalent admission and a 0.3% increase in same facility equivalent admissions.
During the quarters ended September 30, 2017 and 2016, consolidated admissions and same facility admissions increased 2.7% and 0.6%, respectively. Surgeries declined 0.7% on a consolidated basis and
declined 2.9% on a same facility basis during the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016. Emergency department visits increased 2.5% on a consolidated basis and increased 0.3% on a same facility
basis during the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016.
For the quarter ended September 30, 2017, the provision for doubtful accounts increased $431 million, compared
to the quarter ended September 30, 2016. The
self-pay
revenue deductions for charity care and uninsured discounts increased $189 million and $256 million, respectively, during the third quarter
of 2017, compared to the third quarter of 2016. 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
36.3% for the third quarter of 2017, compared to 33.7% for the third quarter of 2016. Same facility uninsured admissions increased 6.4% for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016.
Cash flows from operating activities declined $198 million from $1.206 billion for the third quarter of 2016 to
$1.008 billion for the third quarter of 2017. The decline relates primarily to the decline in net income of $215 million.
27
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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. After the discounts are applied, we are still unable to collect a
significant portion of uninsured patients accounts, and we record provisions for doubtful accounts (based upon our historical collection experience) related to uninsured patients in the period the services are provided to record the net
self-pay
revenues at the estimated amounts we expect to collect.
Revenues
increased 4.2% from $10.270 billion in the third quarter of 2016 to $10.696 billion in the third quarter of 2017. 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 the Medicare and Medicaid programs), managed care health plans and commercial insurance companies (including plans offered through the health insurance
exchanges), 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 uninsured copayment and
deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). Our revenues from our third-party payers, the uninsured and other payers for the quarters and nine months ended
September 30, 2017 and 2016 are summarized in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2017
|
|
|
Ratio
|
|
|
2016
|
|
|
Ratio
|
|
Medicare
|
|
$
|
2,354
|
|
|
|
22.0
|
%
|
|
$
|
2,158
|
|
|
|
21.0
|
%
|
Managed Medicare
|
|
|
1,156
|
|
|
|
10.8
|
|
|
|
1,068
|
|
|
|
10.4
|
|
Medicaid
|
|
|
362
|
|
|
|
3.4
|
|
|
|
405
|
|
|
|
3.9
|
|
Managed Medicaid
|
|
|
582
|
|
|
|
5.4
|
|
|
|
611
|
|
|
|
6.0
|
|
Managed care and other insurers
|
|
|
6,039
|
|
|
|
56.4
|
|
|
|
5,863
|
|
|
|
57.1
|
|
International (managed care and other insurers)
|
|
|
276
|
|
|
|
2.6
|
|
|
|
285
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,769
|
|
|
|
100.6
|
|
|
|
10,390
|
|
|
|
101.2
|
|
Uninsured
|
|
|
849
|
|
|
|
7.9
|
|
|
|
336
|
|
|
|
3.3
|
|
Other
|
|
|
349
|
|
|
|
3.3
|
|
|
|
384
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before provision for doubtful accounts
|
|
|
11,967
|
|
|
|
111.8
|
|
|
|
11,110
|
|
|
|
108.2
|
|
Provision for doubtful accounts
|
|
|
(1,271
|
)
|
|
|
(11.8
|
)
|
|
|
(840
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
10,696
|
|
|
|
100.0
|
%
|
|
$
|
10,270
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenue/Volume
Trends (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
2017
|
|
|
Ratio
|
|
|
2016
|
|
|
Ratio
|
|
Medicare
|
|
$
|
7,080
|
|
|
|
22.1
|
%
|
|
$
|
6,641
|
|
|
|
21.5
|
%
|
Managed Medicare
|
|
|
3,546
|
|
|
|
11.1
|
|
|
|
3,250
|
|
|
|
10.5
|
|
Medicaid
|
|
|
1,188
|
|
|
|
3.7
|
|
|
|
1,248
|
|
|
|
4.0
|
|
Managed Medicaid
|
|
|
1,798
|
|
|
|
5.6
|
|
|
|
1,816
|
|
|
|
5.9
|
|
Managed care and other insurers
|
|
|
18,071
|
|
|
|
56.4
|
|
|
|
17,324
|
|
|
|
56.2
|
|
International (managed care and other insurers)
|
|
|
814
|
|
|
|
2.5
|
|
|
|
926
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,497
|
|
|
|
101.4
|
|
|
|
31,205
|
|
|
|
101.1
|
|
Uninsured
|
|
|
1,593
|
|
|
|
5.0
|
|
|
|
750
|
|
|
|
2.4
|
|
Other
|
|
|
1,066
|
|
|
|
3.3
|
|
|
|
1,286
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before provision for doubtful accounts
|
|
|
35,156
|
|
|
|
109.7
|
|
|
|
33,241
|
|
|
|
107.7
|
|
Provision for doubtful accounts
|
|
|
(3,104
|
)
|
|
|
(9.7
|
)
|
|
|
(2,392
|
)
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,052
|
|
|
|
100.0
|
%
|
|
$
|
30,849
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated and same facility revenue per equivalent admission increased 1.6% and 2.0%,
respectively, in the third quarter of 2017, compared to the third quarter of 2016. Consolidated and same facility equivalent admissions increased 2.5% and 0.3%, respectively, in the third quarter of 2017, compared to the third quarter of 2016.
Consolidated and same facility outpatient surgeries declined 2.1% and 4.2%, respectively, in the third quarter of 2017, compared to the third quarter of 2016. Consolidated inpatient surgeries increased 1.6% and same facility inpatient surgeries
declined 0.7% in the third quarter of 2017, compared to the third quarter of 2016. Consolidated and same facility emergency department visits increased 2.5% and 0.3%, respectively, in the third quarter of 2017, compared to the third quarter of 2016.
Our uninsured revenues increased $513 million and $843 million, respectively, for the quarter and
nine months ended September 30, 2017 compared to the quarter and nine months ended September 30, 2016. The provision for doubtful accounts increased $431 million and $712 million, respectively, for the quarter and nine months
ended September 30, 2017, which offset the majority of the increases in uninsured revenues during the same periods. During these periods we also experienced declines in the percentages of our total uncompensated care that related to uninsured
discounts, with uninsured discounts comprising 59% and 64%, respectively, of total uncompensated care for the quarters ended September 30, 2017 and 2016, and 62% and 63%, respectively, of total uncompensated care for the nine months ended
September 30, 2017 and 2016.
29
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenue/Volume
Trends (Continued)
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 September 30, 2017, our allowance
for doubtful accounts represented 99.1% of the $5.465 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 nine months ended September 30, 2017 and 2016 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2017
|
|
|
Ratio
|
|
|
2016
|
|
|
Ratio
|
|
|
2017
|
|
|
Ratio
|
|
|
2016
|
|
|
Ratio
|
|
Charity care
|
|
$
|
1,235
|
|
|
|
20
|
%
|
|
$
|
1,046
|
|
|
|
20
|
%
|
|
$
|
3,494
|
|
|
|
20
|
%
|
|
$
|
3,100
|
|
|
|
21
|
%
|
Uninsured discounts
|
|
|
3,583
|
|
|
|
59
|
|
|
|
3,327
|
|
|
|
64
|
|
|
|
10,539
|
|
|
|
62
|
|
|
|
9,539
|
|
|
|
63
|
|
Provision for doubtful accounts
|
|
|
1,271
|
|
|
|
21
|
|
|
|
840
|
|
|
|
16
|
|
|
|
3,104
|
|
|
|
18
|
|
|
|
2,392
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,089
|
|
|
|
100
|
%
|
|
$
|
5,213
|
|
|
|
100
|
%
|
|
$
|
17,137
|
|
|
|
100
|
%
|
|
$
|
15,031
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same facility uninsured admissions increased by 2,354 admissions, or 6.4%, in the third
quarter of 2017, compared to the third quarter of 2016. Same facility uninsured admissions increased by 4.9%, in the second quarter of 2017, compared to the second quarter of 2016. Same facility uninsured admissions increased by 3.2%, in the first
quarter of 2017, compared to the first quarter of 2016. Same facility uninsured admissions in 2016, compared to 2015, declined 0.3% in the fourth quarter of 2016, increased 0.7% in the third quarter of 2016, increased 5.7% in the second quarter of
2016 and increased 10.6% in the first quarter of 2016.
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 nine months ended September 30, 2017 and 2016 are set forth in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Medicare
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
31
|
%
|
Managed Medicare
|
|
|
15
|
|
|
|
15
|
|
|
|
16
|
|
|
|
15
|
|
Medicaid
|
|
|
5
|
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
Managed Medicaid
|
|
|
13
|
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
Managed care and other insurers
|
|
|
28
|
|
|
|
29
|
|
|
|
28
|
|
|
|
29
|
|
Uninsured
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenue/Volume
Trends (Continued)
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 nine months ended September 30, 2017 and 2016 are set forth in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Medicare
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
28
|
%
|
Managed Medicare
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
Medicaid
|
|
|
4
|
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
Managed Medicaid
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Managed care and other insurers
|
|
|
47
|
|
|
|
49
|
|
|
|
47
|
|
|
|
48
|
|
Uninsured
|
|
|
5
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017, we had 89 hospitals in the states of Texas and Florida.
During the third quarter of 2017, 56% of our admissions and 48% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 70% of our uninsured admissions during the third quarter of 2017.
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 & Medicaid Services (CMS) approved a Medicaid waiver that allows Texas to continue receiving supplemental Medicaid
reimbursement while expanding its Medicaid managed care program. Texas currently operates its Medicaid Waiver Program pursuant to this waiver, which CMS has agreed to extend through December 2017. We cannot predict whether the Texas Medicaid Waiver
Program will be further extended, be revised or that revenues recognized from the program will not decline.
The Texas Medicaid Waiver Program includes two primary components: an indigent care component and 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 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
states 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 Medicaid
supplemental payments of $60 million ($26 million DSRIP related and $34 million indigent care related) and $109 million ($25 million DSRIP related and $84 million indigent care related) during the third quarters of 2017
and 2016, respectively, and $261 million ($82 million DSRIP related and $179 million indigent care related) and $293 million ($78 million DSRIP related and $215 million indigent care related) during the first nine
months of 2017 and 2016, respectively.
31
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenue/Volume
Trends (Continued)
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 CMS, 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.
Operating Results Summary
The following is a comparative summary of results of operations for the quarters and nine months ended September 30, 2017 and 2016 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Revenues before provision for doubtful accounts
|
|
$
|
11,967
|
|
|
|
|
|
|
$
|
11,110
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
1,271
|
|
|
|
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
10,696
|
|
|
|
100.0
|
|
|
|
10,270
|
|
|
|
100.0
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
5,081
|
|
|
|
47.5
|
|
|
|
4,740
|
|
|
|
46.1
|
|
Supplies
|
|
|
1,777
|
|
|
|
16.6
|
|
|
|
1,699
|
|
|
|
16.5
|
|
Other operating expenses
|
|
|
2,075
|
|
|
|
19.4
|
|
|
|
1,896
|
|
|
|
18.5
|
|
Equity in earnings of affiliates
|
|
|
(13
|
)
|
|
|
(0.1
|
)
|
|
|
(22
|
)
|
|
|
(0.2
|
)
|
Depreciation and amortization
|
|
|
539
|
|
|
|
5.0
|
|
|
|
495
|
|
|
|
4.9
|
|
Interest expense
|
|
|
427
|
|
|
|
4.0
|
|
|
|
432
|
|
|
|
4.2
|
|
Gains on sales of facilities
|
|
|
(7
|
)
|
|
|
(0.1
|
)
|
|
|
(3
|
)
|
|
|
|
|
Losses on retirement of debt
|
|
|
39
|
|
|
|
0.4
|
|
|
|
4
|
|
|
|
|
|
Legal claim costs
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,918
|
|
|
|
92.7
|
|
|
|
9,252
|
|
|
|
90.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
778
|
|
|
|
7.3
|
|
|
|
1,018
|
|
|
|
9.9
|
|
Provision for income taxes
|
|
|
248
|
|
|
|
2.3
|
|
|
|
273
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
530
|
|
|
|
5.0
|
|
|
|
745
|
|
|
|
7.3
|
|
Net income attributable to noncontrolling interests
|
|
|
104
|
|
|
|
1.0
|
|
|
|
127
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Healthcare, Inc.
|
|
$
|
426
|
|
|
|
4.0
|
|
|
$
|
618
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4.2
|
%
|
|
|
|
|
|
|
4.2
|
%
|
|
|
|
|
Income before income taxes
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
20.6
|
|
|
|
|
|
Net income attributable to HCA Healthcare, Inc.
|
|
|
(31.1
|
)
|
|
|
|
|
|
|
37.7
|
|
|
|
|
|
Admissions(a)
|
|
|
2.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
2.5
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
1.6
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.3
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
Admissions(a)
|
|
|
0.6
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
0.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.0
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
32
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Operating
Results Summary (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Revenues before provision for doubtful accounts
|
|
$
|
35,156
|
|
|
|
|
|
|
$
|
33,241
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
3,104
|
|
|
|
|
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
32,052
|
|
|
|
100.0
|
|
|
|
30,849
|
|
|
|
100.0
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
14,878
|
|
|
|
46.4
|
|
|
|
14,133
|
|
|
|
45.8
|
|
Supplies
|
|
|
5,369
|
|
|
|
16.8
|
|
|
|
5,131
|
|
|
|
16.6
|
|
Other operating expenses
|
|
|
5,970
|
|
|
|
18.6
|
|
|
|
5,617
|
|
|
|
18.2
|
|
Equity in earnings of affiliates
|
|
|
(36
|
)
|
|
|
(0.1
|
)
|
|
|
(44
|
)
|
|
|
(0.1
|
)
|
Depreciation and amortization
|
|
|
1,581
|
|
|
|
4.9
|
|
|
|
1,463
|
|
|
|
4.8
|
|
Interest expense
|
|
|
1,257
|
|
|
|
3.9
|
|
|
|
1,275
|
|
|
|
4.1
|
|
Gains on sales of facilities
|
|
|
(10
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
Losses on retirement of debt
|
|
|
39
|
|
|
|
0.1
|
|
|
|
4
|
|
|
|
|
|
Legal claim costs
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,048
|
|
|
|
90.6
|
|
|
|
27,604
|
|
|
|
89.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,004
|
|
|
|
9.4
|
|
|
|
3,245
|
|
|
|
10.5
|
|
Provision for income taxes
|
|
|
902
|
|
|
|
2.8
|
|
|
|
898
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,102
|
|
|
|
6.6
|
|
|
|
2,347
|
|
|
|
7.6
|
|
Net income attributable to noncontrolling interests
|
|
|
360
|
|
|
|
1.2
|
|
|
|
377
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Healthcare, Inc.
|
|
$
|
1,742
|
|
|
|
5.4
|
|
|
$
|
1,970
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3.9
|
%
|
|
|
|
|
|
|
4.8
|
%
|
|
|
|
|
Income before income taxes
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
11.7
|
|
|
|
|
|
Net income attributable to HCA Healthcare, Inc.
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
27.3
|
|
|
|
|
|
Admissions(a)
|
|
|
1.8
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
2.1
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
1.7
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3.0
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
Admissions(a)
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.2
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
1.8
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
(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.
|
(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.
|
33
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Quarters Ended September 30, 2017 and 2016
Net income attributable to HCA Healthcare, Inc. totaled $426 million, or $1.15 per diluted share, for the third
quarter of 2017, compared to $618 million, or $1.59 per diluted share, for the third quarter of 2016. Third quarter 2017 results include additional expenses and losses of revenues estimated at approximately $140 million, or $0.24 per
diluted share, associated with the impact of hurricanes Harvey and Irma on our Texas, Florida, Georgia and South Carolina facilities, and a negative impact to operating results related to the Texas Medicaid Waiver program of approximately
$50 million, or $0.08 per diluted share, related to final settlement amounts for the program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance recoveries which we may receive. Third quarter
2017 results also include net gains on sales of facilities of $7 million, or $0.01 per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share. Third quarter 2016 results include legal claim costs of
$11 million, or $0.02 per diluted share, losses on retirement of debt of $4 million, or $0.01 per diluted share, and net gains on sales of facilities of $3 million, or $0.01 per diluted share. Our provision for income taxes for
the third quarter of 2016 also included tax benefits of $51 million, or $0.13 per diluted share, primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years. All per diluted share disclosures are
based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 369.834 million shares for the quarter ended September 30, 2017 and 389.592 million shares for the quarter ended September 30,
2016. During 2016 and the first nine months of 2017, we repurchased 36.325 million and 17.847 million shares of our common stock, respectively.
Revenues before provision for doubtful accounts increased 7.7% for the third quarter of 2017 compared to the third quarter of 2016. The provision for doubtful accounts increased $431 million, from
$840 million in the third quarter of 2016 to $1.271 billion in the third quarter of 2017. The provision for doubtful accounts relates primarily to uninsured amounts due directly from patients, including copayment and deductible amounts for
patients who have health care coverage. The
self-pay
revenue deductions for charity care and uninsured discounts increased $189 million and $256 million, respectively, during the third quarter of
2017, compared to the third quarter of 2016. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was
36.3% for the third quarter of 2017, compared to 33.7% for the third quarter of 2016. At September 30, 2017, our allowance for doubtful accounts represented 99.1% of the $5.465 billion total patient due accounts receivable balance,
including accounts, net of estimated contractual discounts, related to patients for which eligibility for Medicaid coverage or uninsured discounts was being evaluated.
Revenues increased 4.2% due to the combined impact of revenue per equivalent admission growth of 1.6% and a 2.5% increase
in equivalent admissions for the third quarter of 2017 compared to the third quarter of 2016. Same facility revenues increased 2.3% due to the combined impact of a 2.0% increase in same facility revenue per equivalent admission and a 0.3% increase
in same facility equivalent admissions for the third quarter of 2017 compared to the third quarter of 2016.
Salaries and benefits, as a percentage of revenues, were 47.5% in the third quarter of 2017 and 46.1% in the third
quarter of 2016. Salaries and benefits per equivalent admission increased 4.6% in the third quarter of 2017 compared to the third quarter of 2016. Same facility labor rate increases averaged 3.3% for the third quarter of 2017 compared to the third
quarter of 2016.
Supplies, as a percentage of revenues, were 16.6% in the third quarter of 2017 and 16.5% in
the third quarter of 2016. Supply costs per equivalent admission increased 2.1% in the third quarter of 2017 compared to the third quarter of 2016. Supply costs per equivalent admission increased 2.9% for medical devices, 0.8% for pharmacy supplies
and 1.8% for general medical and surgical items in the third quarter of 2017 compared to the third quarter of 2016.
34
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended
September 30, 2017 and 2016 (continued)
Other operating expenses, as a percentage of revenues, were 19.4% in the
third quarter of 2017 and 18.5% in the third quarter of 2016. 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. The increase in other operating expenses, as a percentage of revenues, for the third quarter of 2017 compared to the third quarter of 2016 was due to small increases in many of the other operating expense components.
Provisions for losses related to professional liability risks were $116 million and $106 million for the third quarters of 2017 and 2016, respectively.
Equity in earnings of affiliates was $13 million and $22 million in the third quarters of 2017 and 2016,
respectively.
Depreciation and amortization increased $44 million, from $495 million in the third
quarter of 2016 to $539 million in the third quarter of 2017. The increase in depreciation relates to both acquired facilities and increased routine capital expenditures.
Interest expense was $427 million in the third quarter of 2017 and $432 million in the third quarter of 2016.
Our average debt balance was $32.337 billion for the third quarter of 2017 compared to $31.358 billion for the third quarter of 2016. The average effective interest rate for our long-term debt declined to 5.2% from 5.5% for the quarters
ended September 30, 2017 and 2016, respectively.
During the third quarters of 2017 and 2016, we recorded
net gains on sales of facilities of $7 million and $3 million, respectively.
During June 2017, we
issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption, during July
2017, of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million. During August 2016, we issued $1.200 billion aggregate principal
amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this
senior secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was $4 million.
We recorded $11 million of legal claim costs during the third quarter of 2016 related to the Health Midwest
litigation.
The effective tax rates were 36.7% and 30.6% for the third quarters of 2017 and 2016,
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 third quarters of 2017 and 2016 included tax benefits
of $4 million and $11 million, respectively, related to excess tax benefits from employee equity award settlements. Our provision for income taxes for the third quarter of 2016 also included a tax benefit of $51 million primarily
related to the resolution of federal income tax issues for our 2011 and 2012 tax years. Our provision for income taxes for the third quarter of 2017 also included $4 million of reductions in interest expense (net of tax). Excluding the effect
of these adjustments, the effective tax rate for the third quarters of 2017 and 2016 would have been 37.8% and 37.6%, respectively.
Net income attributable to noncontrolling interests declined from $127 million for the third quarter of 2016 to $104 million for the third quarter of 2017. The decline in net income attributable
to noncontrolling interests related primarily to one of our Texas markets.
35
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine months Ended September 30, 2017 and 2016
Net income attributable to HCA Healthcare, Inc. totaled $1.742 billion, or $4.64 per diluted share, in the nine
months ended September 30, 2017 compared to $1.970 billion, or $4.93 per diluted share, in the nine months ended September 30, 2016. The first nine months of 2017 results include additional expenses and losses of revenues estimated at
approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma on our Texas, Florida, Georgia and South Carolina facilities, and a negative impact to operating results related to the Texas
Medicaid Waiver program of approximately $50 million, or $0.08 per diluted share, related to final settlement amounts for the program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance
recoveries which we may receive. The first nine months of 2017 results also include net gains on sales of facilities of $10 million, or $0.02 per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share.
The first nine months of 2016 results include legal claim costs of $33 million, or $0.05 per diluted share, losses on retirement of debt of $4 million, or $0.01 per diluted share, and net gains on sales of facilities of $8 million, or
$0.01 per diluted share. Our provision for income taxes for the first nine months of 2016 also included tax benefits of $51 million, or $0.13 per diluted share, primarily related to the resolution of federal income tax issues for our 2011 and 2012
tax years. All per diluted share disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 375.013 million shares and 399.577 million shares for the nine months ended
September 30, 2017 and 2016, respectively. During 2016 and the first nine months of 2017, we repurchased 36.325 million and 17.847 million shares of our common stock, respectively.
For the first nine months of 2017, consolidated and same facility admissions increased 1.8% and 1.0%, respectively,
compared to the first nine months of 2016. Consolidated and same facility outpatient surgical volumes declined 0.8% and 2.0%, respectively, during the first nine months of 2017, compared to the first nine months of 2016. Consolidated and same
facility inpatient surgeries increased 1.0% and 0.1%, respectively, in the first nine months of 2017, compared to the first nine months of 2016. Consolidated and same facility emergency department visits increased 1.7% and 0.7%, respectively, during
the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.
Revenues before provision for doubtful accounts increased 5.8% for the first nine months of 2017 compared to the first
nine months of 2016. Provision for doubtful accounts increased $712 million from $2.392 billion in the first nine months of 2016 to $3.104 billion in the first nine months of 2017. The provision for doubtful accounts relates primarily
to uninsured amounts due directly from patients, including copayment and deductible amounts for patients who have health care coverage. The
self-pay
revenue deductions for charity care and uninsured discounts
increased $394 million and $1.000 billion, respectively, during the first nine months of 2017, compared to the first nine months of 2016. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage
of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 34.8% for the first nine months of 2017, compared to 32.8% for the first nine months of 2016. At September 30, 2017, our allowance for
doubtful accounts represented approximately 99.1% of the $5.465 billion total patient due accounts receivable balance, including accounts, net of estimated contractual discounts, related to patients for which eligibility for Medicaid coverage
or uninsured discounts was being evaluated.
Revenues increased 3.9% primarily due to the combined impact of
revenue per equivalent admission growth of 1.7% and an increase of 2.1% in equivalent admissions for the first nine months of 2017 compared to the first nine months of 2016. Same facility revenues increased 3.0% due to the combined impact of a 1.8%
increase in same facility revenue per equivalent admission and a 1.2% increase in same facility equivalent admissions for the first nine months of 2017 compared to the first nine months of 2016.
36
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine months
Ended September 30, 2017 and 2016 (continued)
Salaries and benefits, as a percentage of revenues, were 46.4% in the
first nine months of 2017 and 45.8% in the first nine months of 2016. Salaries and benefits per equivalent admission increased 3.1% in the first nine months of 2017 compared to the first nine months of 2016. Same facility labor rate increases
averaged 2.7% for the first nine months of 2017 compared to the first nine months of 2016.
Supplies, as a
percentage of revenues, were 16.8% in the first nine months of 2017 and 16.6% in the first nine months of 2016. Supply costs per equivalent admission increased 2.5% in the first nine months of 2017 compared to the first nine months of 2016. Supply
costs per equivalent admission increased 5.1% for medical devices and 1.6% for general medical and surgical items, and were flat for pharmacy supplies in the first nine months of 2017 compared to the first nine months of 2016.
Other operating expenses, as a percentage of revenues, increased to 18.6% in the first nine months of 2017 from 18.2% in
the first nine months of 2016. 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 $353 million and $329 million for the first nine months of 2017 and 2016, respectively.
Equity in earnings of affiliates was $36 million and $44 million in the first nine months of 2017 and 2016,
respectively.
Depreciation and amortization increased $118 million, from $1.463 billion in the
first nine months of 2016 to $1.581 billion in the first nine months of 2017. The increase in depreciation relates to both acquired facilities and increased routine capital expenditures.
Interest expense was $1.257 billion for the first nine months of 2017 and $1.275 billion for the first nine
months of 2016. Our average debt balance was $31.846 billion for the first nine months of 2017 compared to $31.002 billion for the first nine months of 2016. The average effective interest rate for our long-term debt declined from 5.5% for
the nine months ended September 30, 2016 to 5.3% for the nine months ended September 30, 2017.
During
the first nine months of 2017 and 2016, we recorded net gains on sales of facilities of $10 million and $8 million, respectively.
During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase
of certain hospital acquisitions, and the redemption, during July 2017, of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.
During August 2016, we issued $1.200 billion aggregate principal amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also
entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was
$4 million.
37
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine months
Ended September 30, 2017 and 2016 (continued)
We recorded $33 million of legal claim costs during the first nine
months of 2016 related to the Health Midwest litigation.
The effective tax rates were 34.1% and 31.3% for the
first nine months of 2017 and 2016, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provision for income taxes for the first nine months of
2017 and 2016 included tax benefits of $80 million and $129 million, respectively, related to excess tax benefits from employee equity award settlements. Our provision for income taxes for the first nine months of 2016 also included a tax
benefit of $51 million primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years. Our provision for income taxes for the first nine months of 2017 also included $16 million of reductions in interest
expense (net of tax). Excluding the effect of these adjustments, the effective tax rate for the first nine months of 2017 and 2016 would have been 37.7% and 37.6%, respectively.
Net income attributable to noncontrolling interests declined from $377 million for the first nine months of 2016 to
$360 million for the first nine months of 2017. The decline in net income attributable to noncontrolling interests related primarily to one of our Texas markets.
Liquidity and Capital Resources
Cash provided by operating
activities totaled $3.692 billion in the first nine months of 2017 compared to $3.954 billion in the first nine months of 2016. The $262 million decline in cash provided by operating activities in the first nine months of 2017
compared to the first nine months of 2016 primarily related to the $245 million decline in net income. The combined interest payments and net tax payments in the first nine months of 2017 and 2016 were $2.294 billion and
$2.229 billion, respectively. Working capital totaled $3.837 billion at September 30, 2017 and $3.252 billion at December 31, 2016.
Cash used in investing activities was $3.172 billion in the first nine months of 2017 compared to $2.234 billion in the first nine months of 2016. Acquisitions of hospitals and health care
entities increased from $468 million in the first nine months of 2016 to $1.142 billion in the first nine months of 2017. Excluding acquisitions, capital expenditures were $2.033 billion in the first nine months of 2017 and
$1.884 billion in the first nine months of 2016. Capital expenditures, excluding acquisitions, are expected to approximate $3.0 billion in 2017. At September 30, 2017, there were projects under construction which had estimated
additional costs to complete and equip over the next five years of approximately $3.5 billion. We expect to finance capital expenditures with internally generated and borrowed funds.
Cash used in financing activities totaled $448 million in the first nine months of 2017 compared to
$1.784 billion in the first nine months of 2016. During the first nine months of 2017, net cash flows used in financing activities included a net increase of $1.452 billion in our indebtedness, repurchases of common stock of
$1.475 billion, distributions to noncontrolling interests of $363 million and payments of debt issuance costs of $25 million. During the first nine months of 2016, net cash flows used in financing activities included a net increase of
$906 million in our indebtedness, repurchases of common stock of $2.213 billion, distributions to noncontrolling interests of $342 million and payments of debt issuance costs of $40 million.
We are a highly leveraged company with significant debt service requirements. Our debt totaled $32.953 billion at
September 30, 2017. Our interest expense was $1.257 billion for the first nine months of 2017 and $1.275 billion for the first nine months of 2016.
38
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
In addition to cash flows from operations, available sources of capital
include amounts available under our senior secured credit facilities ($2.037 billion and $2.154 billion available as of September 30, 2017 and October 31, 2017, respectively) and anticipated access to public and private debt
markets.
During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured
notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption, during July 2017, of all $500 million aggregate principal amount of our existing
8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.
During June 2017, we amended our senior secured revolving credit facilities by (i) increasing the commitments under
the senior secured asset-based revolving credit facility to $3.750 billion, (ii) extending the maturity date of the revolving credit commitments to June 28, 2022, (iii) amending the incremental facility provisions to permit the
incurrence of additional incremental credit facilities in an aggregate principal amount of $1.5 billion and (iv) providing that the commitment fee for unutilized commitments under the senior secured asset-based revolving credit facility
shall be 0.250% per annum.
During August 2016, we issued $1.200 billion aggregate principal amount
of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior
secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was $4 million.
During March 2016, we issued $1.500 billion aggregate principal amount of 5.250% senior secured notes due 2026. We
used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new
$1.500 billion senior secured term loan facility maturing in March 2023.
Investments of our
professional liability insurance subsidiaries, to maintain statutory equity and pay claims, totaled $421 million and $385 million at September 30, 2017 and December 31, 2016, respectively. An insurance subsidiary maintained net
reserves for professional liability risks of $202 million and $215 million at September 30, 2017 and December 31, 2016, respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to
$50 million per occurrence; however, this coverage is subject to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.378 billion and $1.279 billion
at September 30, 2017 and December 31, 2016, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $419 million. We estimate that approximately $372 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.
Market Risk
We are exposed to market risk related to changes in market values of securities. The investments in debt and equity
securities of our 100% owned insurance subsidiaries were $418 million and $3 million, respectively, at
39
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market
Risk (continued)
September 30, 2017. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At
September 30, 2017, we had a net unrealized gain of $16 million on the insurance subsidiaries investment securities.
We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our 100% owned insurance subsidiaries could be impaired by the inability to access the capital
markets. Should the 100% owned 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 other-than-temporary 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, and changes in the fair value of derivatives which have not been designated as hedges are recorded in operations.
With respect to our interest-bearing liabilities, approximately $4.486 billion of long-term debt at September 30, 2017 was subject to variable rates of interest, while the remaining balance in
long-term debt of $28.467 billion at September 30, 2017 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% and (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 declined from 5.5% for the nine months ended September 30, 2016
to 5.3% for the nine months ended September 30, 2017.
The estimated fair value of our total long-term
debt was $34.998 billion at September 30, 2017. 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 interest
rates, the potential annualized reduction to future pretax earnings would be approximately $45 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. Our international
operations represented 2.6% and 2.5%, respectively, of our consolidated revenues for the quarter and nine months ended September 30, 2017. The United Kingdoms vote to exit the European Union in June 2016 contributed to a 16.8% decline in
the Great British pound (GBP) to US dollar (USD) translation ratio during 2016. However, the GBP/USD translation ratio has stabilized (6.6% increase) during the first nine months of 2017. We currently do not consider the market risk related to
GBP/USD translation to be material to our consolidated financial statements or our liquidity.
40
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Tax Examinations
We are subject to examination by federal, 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, 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
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Number of hospitals in operation at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
171
|
|
|
|
168
|
|
June 30
|
|
|
172
|
|
|
|
169
|
|
September 30
|
|
|
177
|
|
|
|
169
|
|
December 31
|
|
|
|
|
|
|
170
|
|
Number of freestanding outpatient surgical centers in operation at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
118
|
|
|
|
116
|
|
June 30
|
|
|
119
|
|
|
|
116
|
|
September 30
|
|
|
119
|
|
|
|
117
|
|
December 31
|
|
|
|
|
|
|
118
|
|
Licensed hospital beds at(a):
|
|
|
|
|
|
|
|
|
March 31
|
|
|
44,374
|
|
|
|
43,817
|
|
June 30
|
|
|
44,727
|
|
|
|
44,127
|
|
September 30
|
|
|
46,250
|
|
|
|
44,226
|
|
December 31
|
|
|
|
|
|
|
44,290
|
|
Weighted average licensed beds(b):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
44,362
|
|
|
|
43,780
|
|
Second
|
|
|
44,605
|
|
|
|
44,064
|
|
Third
|
|
|
45,887
|
|
|
|
44,188
|
|
Fourth
|
|
|
|
|
|
|
44,274
|
|
Year
|
|
|
|
|
|
|
44,077
|
|
Average daily census(c):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
26,699
|
|
|
|
26,325
|
|
Second
|
|
|
25,353
|
|
|
|
25,199
|
|
Third
|
|
|
25,653
|
|
|
|
24,748
|
|
Fourth
|
|
|
|
|
|
|
25,096
|
|
Year
|
|
|
|
|
|
|
25,340
|
|
Admissions(d):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
485,761
|
|
|
|
479,568
|
|
Second
|
|
|
473,174
|
|
|
|
467,218
|
|
Third
|
|
|
482,557
|
|
|
|
469,764
|
|
Fourth
|
|
|
|
|
|
|
475,281
|
|
Year
|
|
|
|
|
|
|
1,891,831
|
|
Equivalent admissions(e):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
812,192
|
|
|
|
798,001
|
|
Second
|
|
|
809,367
|
|
|
|
792,599
|
|
Third
|
|
|
818,887
|
|
|
|
799,120
|
|
Fourth
|
|
|
|
|
|
|
801,799
|
|
Year
|
|
|
|
|
|
|
3,191,519
|
|
41
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (Continued)
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Average length of stay (days)(f):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
4.9
|
|
|
|
5.0
|
|
Second
|
|
|
4.9
|
|
|
|
4.9
|
|
Third
|
|
|
4.9
|
|
|
|
4.8
|
|
Fourth
|
|
|
|
|
|
|
4.9
|
|
Emergency room visits(g):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
2,163,138
|
|
|
|
2,133,289
|
|
Second
|
|
|
2,116,123
|
|
|
|
2,093,039
|
|
Third
|
|
|
2,130,460
|
|
|
|
2,077,938
|
|
Fourth
|
|
|
|
|
|
|
2,074,074
|
|
Year
|
|
|
|
|
|
|
8,378,340
|
|
Outpatient surgeries(h):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
225,915
|
|
|
|
226,486
|
|
Second
|
|
|
234,215
|
|
|
|
234,578
|
|
Third
|
|
|
224,252
|
|
|
|
229,054
|
|
Fourth
|
|
|
|
|
|
|
242,095
|
|
Year
|
|
|
|
|
|
|
932,213
|
|
Inpatient surgeries(i):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
133,341
|
|
|
|
131,840
|
|
Second
|
|
|
134,553
|
|
|
|
134,068
|
|
Third
|
|
|
137,187
|
|
|
|
135,013
|
|
Fourth
|
|
|
|
|
|
|
136,385
|
|
Year
|
|
|
|
|
|
|
537,306
|
|
Days revenues in accounts receivable(j):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
48
|
|
|
|
52
|
|
Second
|
|
|
49
|
|
|
|
50
|
|
Third
|
|
|
51
|
|
|
|
49
|
|
Fourth
|
|
|
|
|
|
|
50
|
|
Outpatient revenues as a % of patient revenues(k):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
37
|
%
|
|
|
38
|
%
|
Second
|
|
|
38
|
%
|
|
|
38
|
%
|
Third
|
|
|
38
|
%
|
|
|
39
|
%
|
Fourth
|
|
|
|
|
|
|
39
|
%
|
Year
|
|
|
|
|
|
|
38
|
%
|
42
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (Continued)
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
|
Under 91 Days
|
|
|
91 180 Days
|
|
|
Over 180 Days
|
|
Accounts receivable aging at September 30, 2017(l):
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
11
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other discounted
|
|
|
29
|
|
|
|
5
|
|
|
|
5
|
|
Uninsured
|
|
|
21
|
|
|
|
6
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
61
|
%
|
|
|
12
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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.
|
(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 who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient
surgeries.
|
(i)
|
Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient
surgeries.
|
(j)
|
Revenues per day is calculated by dividing the revenues for the quarter by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts
receivable, net of allowance for doubtful accounts, at the end of the quarter divided by the revenues per day. Revenues used in this computation are net of the provision for doubtful accounts.
|
(k)
|
Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.
|
(l)
|
Accounts receivable aging data is based upon consolidated gross accounts receivable of $11.396 billion (each 1% is equivalent to approximately $114 million of
gross accounts receivable).
|
43