HCA Profit Outlook Reflects Rise in Unpaid Hospital Bills

HCA Holdings Inc., the largest for-profit U.S. hospital chain, gave an earnings forecast for this year that was lower than analysts’ estimates as recent revenue gains become overshadowed by unpaid patient bills.

Earnings excluding one-time items will be $3 to $3.30 a share, the Nashville, Tennessee-based company said today in a statement. Analysts were expecting $3.46, the average of 24 estimates compiled by Bloomberg. Fourth-quarter profit was 91 cents a share, exceeding analysts’ estimates of 82 cents.

HCA, which runs about 162 hospitals and 112 outpatient surgery centers, benefited last quarter from flu-related admissions. While revenue rose about 9 percent to $8.4 billion, a 67 percent surge in provisions for patient debt the company deems “doubtful” reflects problematic admissions through the emergency room, or more uncompensated and charity care, said Vicki Bryan, an analyst at debt researcher Gimme Credit LLC.

“The revenue is higher from higher admissions from the flu, but those are lower-margin” patients, Bryan said in a telephone interview. “This will be something to watch across the sector.”

HCA fell less than 1 percent to $37.51 at the close of New York trading. The shares gained 37 percent last year as hospital stocks rallied on prospects for millions of newly insured patients as the 2010 Affordable Care Act begins to be fully implemented next year.

CFO Comments

It’s too early to determine the effect of the health law because there are so many unknowns, including utilization by the uninsured and reimbursement in exchanges, R. Milton Johnson, HCA’s president and chief financial officer, told investors today on a conference call.

“We aren’t going to give guidance on 2014 health-care reform today,” he said. “Hopefully later this year we’ll be able to give you this information.”

That uncertainty rattled investors, many of whom aren’t aware there are still many unknowns about how reform will affect hospitals, Brian Tanquilut, an analyst with Jefferies & Co. in Los Angeles, said in an interview.

Tanquilut said the expansion of U.S. government-administered health programs starting in 2014 should still benefit HCA and other hospital companies that have high levels of uncompensated care.

Cash Flow

Sheryl Skolnick, an analyst at CRT Capital in Stamford, Connecticut, said the lower-than-expected forecast shouldn’t be cause for alarm.

“There’s no problem here, management is being typically conservative,” Skolnick said in a telephone interview. “The $4.1 billion in cash flow is amazing.”

The company reported $4.1 billion in cash from operating activities in 2012, a 6.1 percent jump from 2011. HCA’s earnings before interest, taxes, depreciation and amortization -- a measure of cash flow called Ebitda -- rose about 7.7 percent last year to $6.5 billion on an adjusted basis. Adjusted Ebitda for 2013 will be $6.25 billion to $6.5 billion, HCA said.

Revenue for 2013 will rise to a range of $33.5 billion to $34.5 billion, the company said. That would be an increase from $33 billion in 2012 after adjusting for doubtful accounts.

Acquisition Growth

For the fourth-quarter, net income fell to $314 million, or 68 cents a share, from $1.9 billion, or $4.25, a year earlier, the company said.

Much of the company’s growth in recent periods had been because of acquisitions, including its $1.45 billion buyout in 2011 of a partner’s stake in the Denver-based HealthOne hospital system.

“When you look at acquisitions, they’re not able to sustain their rate of growth,” Bryan said.

HCA also will have costs this year after a judge in Missouri ordered the company in January to pay $162 million because it didn’t make agreed upon improvements to hospitals it purchased in Kansas City.

The company was taken public in 2011 by an investment group led by Bain Capital LLC of Boston and New York-based KKR & Co. Bain and KKR remain the company’s two largest shareholders, with each holding stakes of about 20 percent, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.