HCA Telegraphs Earnings Leap As It Pays Big Dividend

(MoneyWatch)  Recession? What recession? That's what the private-equity owners of HCA must be thinking as they receive a $1.75 billion dividend from the nation's largest for-profit hospital chain. The money is being paid from HCA's credit facilities and cash on hand.

Back in 2006, Kohlberg Kravis Roberts and Co., Bain Capital Partners, and Merrill Lynch Global Private Equity, along with members of the Frist family, which founded HCA, bought the company for $21.3 billion in the largest private-equity purchase in history. Now they're reaping the rewards as HCA trounces the conventional wisdom that the recession would limit hospital profitability.

According to preliminary financial results released Friday, 2009 net income attributable to HCA is expected to jump to $1.05 billion from $673 million in 2008. Adjusted EBITDA is expected to be $5.47 billion, compared to $4.57 billion for 2008. Revenues increased to $30.05 billion from $28.37 billion for the prior year.

For the fourth quarter of 2009, net income attributable to HCA dipped to $216 million from $276 million for the prior-year period. But adjusted EBITDA for the quarter ended Dec. 31, 2009 was $1.343 billion, compared to $1.237 billion for the fourth quarter of 2008. Revenues advanced 4.7 percent to $7.61 billion from $7.27 billion for the prior-year period.

Same-facility admissions for 2009 are expected to show an increase of 1.2 percent while same-facility admissions are expected to increase by 2.6 percent for the fourth quarter. HCA is scheduled to release its full 2009 results Feb. 18.

A scan of the company's 10-Q for the third quarter of 2009 provides some insights into the reasons for its stellar financial performance last year. In management's analysis of results, the 7.7 percent gain in revenues on a same-facility basis is attributed to a 2.8 percent gain in revenue per admission combined with a 4.8 percent increase in admissions. Now, it is certainly possible that marketing was responsible for the rise in admissions; but the increased revenue per admission could only have resulted from increased intensity of care, including more procedures and imaging tests.

A bit further on, the filing states that inpatient surgeries increased 3.2 percent on a consolidated basis and 1.9 percent on a same-facility basis. Outpatient surgeries rose 1.3 percent on a consolidated basis and 0.8 percent on a same-facility basis. And ER visits-something that HCA has no control over-jumped 10.6 percent on a consolidated basis and 11.1 percent on a same-facility basis. The latter partly reflects the increase in the number of the uninsured. The number of uninsured ER visits rose 12 percent and uninsured admissions were up 8.2 percent in the third quarter, compared with the prior-year period.

What this all shows is that providers-both hospitals and physicians-are devising methods to generate new revenues, despite the recession. Charity care for the uninsured and indigent are a drag on the bottom line, but HCA has even figured out a way to deal with that: For the fourth quarter of 2009, provision for "doubtful accounts" was 9.1 percent of revenues, compared to 12.2 percent of revenues for the prior-year period. "The reduction in the provision for doubtful accounts was primarily the result of an increase in charity care and uninsured discounts," according to HCA. In other words, to reduce bad debt, just write it off right away.