HCA Hospital Chain Pumps Up The Numbers Just in Time for Its IPO
The outlook of HCA Inc., the nation's largest for-profit hospital chain, is brighter than it was a few months ago, when its IPO seemed to be on indefinite hold. Now the public offering is expected shortly; HCA is acquiring more hospitals; and its earnings are headed up up up.
But the company still has underlying problems, some related to the economy and others of HCA's own making.
Net income attributable to HCA Holdings Inc. jumped 31 percent in the fourth quarter to $283 million on revenues of $7.7 billion. For all of 2010, they rose 14.5 percent to $1.2 billion on volume of $30.7 billion. Revenues advanced slightly for the quarter and the year, as did same-facility admissions. But surgical volume and average revenue per case both dropped. Operating costs as a percent of revenue stayed about even. So how did HCA do its earnings hat trick?
During the fourth quarter, HCA saw charges related to "impairments of long-lived assets" drop from $27 million to $4 million. Additionally, the company gained $6 million on sales of facilities, compared to $7 million in losses for the prior-year period. If you add those two items up, they total $36 million. That's more than half of the $67 million increase in Q4 profit.
HCA's provision for "doubtful accounts" declined to $575 million, or 7.4 percent of revenue, from $693 million, or 9.1 percent of volume, in the prior-year period. That income-raising maneuver seems at odds with the fact that same-facility uninsured admissions jumped to 8.9 percent of total admissions in Q4, compared to 6.5 percent a year earlier. But HCA pulled another rabbit out of its hat by increasing the amount of charity care and uninsured discounts it provided: in other words, it took care of more patients for free, so it didn't have to write off the cost of their care.
Now we get to the interesting part: HCA's equity firm owners borrowed $2.25 billion last spring and paid most of that to themselves in a whopping dividend. Now, with the healthcare industry starting to show signs of life, they're finally wheeling out their IPO for a second payday. Needless to say, their stellar fourth quarter report is designed to impress investors.
But, despite this rosy picture of profitability, the company's debt service continues to rise. In fall of 2009, HCA owed $22.1 billion; at the end of the third quarter of 2010, it owed $26.1 billion, and by Dec. 31, its debt had spiked to $28.2 billion. So here's the deal: the company is paying a hefty chunk of its cash flow for debt service, while its debt steadily expands.
Maybe that's chump change for a company the size of HCA. But investors ought to look under the hood before they jump on this IPO.
Image supplied courtesy of arch-hiroshima.net.
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