How HCA Healthcare’s ‘Conservative’ Covid Strategy Reaped Dividends
Sam Hazen, HCA Healthcare CEO
HCA Healthcare
Beneath the management of CEO Sam Hazen, the 54-year-old firm recorded greater income and earnings in 2021 than earlier than the pandemic.
By Katie Jennings
Sam Hazen has dealt together with his fair proportion of pure and man-made disasters. Floods. Tornadoes. Mass shootings. Because the CEO of HCA Healthcare, which operates 182 hospitals throughout 20 states and the U.Ok., he’s within the enterprise of dealing with regional crises. In January 2020, the Nashville, Tennessee-based firm had its emergency preparedness workforce begin investigating information of an undetermined virus out of China. “A pandemic, to be completely candid, was my worst nightmare,” says Hazen, 61. “As a result of I knew it will have an implication for the corporate largely and actually be an at-scale occasion.”
By mid-March, as the primary state lockdown orders went into impact, Hazen and HCA’s govt workforce zeroed in on two key priorities: “We’ve obtained to determine a strategy to shield our folks, that is our staff. After which we’ve obtained to discover a strategy to shield the group,” he says. “If we are able to do each of these, then we might be ready to deal with sufferers and deal with the group.”
It’s been a bumpy two years for lots of the nation’s hospitals. The Covid-19 pandemic crammed intensive care items with severely sick, ventilated sufferers, however working rooms and outpatient clinics went darkish. The shutdown of elective procedures, like knee replacements and cataract surgical procedures, noticed hospital surgical quantity drop nearly 50% in spring 2020, costing U.S. hospitals between $16.3 to $17.7 billion per 30 days in income, according to one analysis. A federal bailout within the type of supplier reduction grants and paycheck safety loans, which now complete round $278 billion, helped stem the tide of hospital closures that had began earlier than the pandemic. Forty-six hospitals closed in fiscal yr 2019, in keeping with the Medicare Payment Advisory Commission. That shrunk to 25 closures in 2020 and 10 in 2021.
A hospital hallway in New York in the course of the peak of Covid-19 lockdowns in April 2020.
Jeffrey Basinger/Newsday/Getty Photographs
Whereas different hospital methods relied on federal money to restrict the purple ink and preserve the lights on, HCA not solely survived the pandemic however thrived. The corporate, which has 283,000 staff, recorded greater income and earnings in 2021 than earlier than all of it started in 2019. In 2021, HCA reported $7 billion in web revenue on $58.8 billion in income, a margin of 11.8%, up from 6.8% in 2019. (If partnership preparations the place HCA has a noncontrolling curiosity are included, earnings enhance to $7.7 billion with a margin of 13.1%.) After closing at a low of $68.13 per share on March 18, 2020, HCA’s inventory has been on a gradual rise, up greater than 290% and buying and selling at $267 a share at Friday’s shut, giving the practically -year-old firm an $81.1 billion market cap. And the federal {dollars} that different hospitals wanted? Hazen gave HCA’s $6 billion in help again to the federal government.
Hazen, a 39-year firm veteran who was named to the highest position in 2019, credit a “very conservative philosophy” as the important thing to HCA’s monetary success in the course of the pandemic. It’s a technique as outdated because the profit-and-loss assertion itself: within the face of unsure and declining income, lower bills and preserve money. That sounds simple however it may be troublesome to execute, particularly for giant hospital methods that may be slowed down with bloat and paperwork. Not like a few of its friends, “HCA is operating very effectively,” says Ge Bai, an accounting professor on the Johns Hopkins Carey Enterprise College. “They shrunk their prices within the face of a discount of income. That is how they survived the pandemic.”
“We felt it was the precise factor for us to provide the cash again to the federal government,” says Hazen.
HCA Healthcare was initially based in 1968 by father and son physicians Thomas Frist, Jr. and Sr., and Kentucky Fried Rooster proprietor Jack Massey, because the Hospital Company of America. The corporate has gone by many iterations over the previous 5 many years from publicly traded to privately held and again once more with its third IPO in 2011. Forbes estimates 83-year-old Frist, Jr. and his household are value $21.8 billion.
The corporate acknowledges how diversification can assist it develop. It went from one to almost two dozen amenities by its second yr of operations. So is driving effectivity by consolidating hospital operations administration inside the bigger company. That consolidation gave HCA a bonus in negotiations with suppliers, profitable the corporate reductions because of its dimension. “Don’t underestimate the worth of quantity,” HCA’s then-CEO Richard Scott informed Forbes Journal in 1994, in reference to each suppliers and sufferers.
Along with hospitals, HCA operates greater than 2,300 different websites of care, like surgical procedure facilities, pressing care, rehab and behavioral well being amenities, which retains sufferers inside the system to deal with their numerous well being wants. The corporate focuses on high-growth markets in cities like Fort Value, Austin and Denver, and likewise tends to function a number of hospitals in every market, which creates extra leverage to barter costs with insurance coverage firms and suppliers. However geographic market share and better negotiated charges aren’t value as a lot when all non-essential medical procedures are canceled by authorities decree and sufferers cease coming as a result of they’re afraid to get sick, as was the case in spring 2020.
HCA already noticed the pandemic’s impression by its first-quarter earnings in April 2020. The yr earlier than it’d seen income progress of practically 10%, however that quarter it was lower than 3%. At the moment, Hazen introduced cost-cutting initiatives: suspending quarterly dividend payouts, pausing its share buyback program, slowing down capital spending and taking a $2 billion time period mortgage to extend liquidity. In hindsight, that was not an over-reaction. HCA noticed its revenues decline over $1.6 billion in second quarter 2020 in contrast with 2019, and for the complete yr 2020 revenues have been mainly flat–a giant change for a corporation accustomed to consecutive years of progress.
One a part of the enterprise spared from cost-cutting was its workers. Hazen promised that nobody can be laid off or furloughed on account of the pandemic. Since a majority of HCA’s staff are hourly employees, the corporate instituted a pandemic pay program to cowl wages for employees who weren’t getting their hours on account of lockdowns. Hazen says greater than 150,000 staff participated at a price of greater than $250 million.
Regardless of the declines in anticipated income, the cost-cutting measures HCA instituted helped guarantee money circulate, and so by the fourth quarter of 2020, HCA said it planned to “return, or repay” round $6 billion in federal help it acquired as a part of the Covid reduction bundle. “It was a very bullish assertion from an investor perspective,” says Gary Taylor, senior fairness analyst at Cowen and Co. Affected person visits have been nonetheless down throughout the board and the FDA had but to authorize a Covid-19 vaccine. “We felt it was the precise factor for us to provide the cash again to the federal government,” says Hazen. “As a result of as a company that ought to stand by itself, we felt we had sufficient confidence and talent to regulate – even with the uncertainty.”
By the tip of the fourth quarter 2020, Hazen says the corporate had a greater deal with on its price traits. Having efficiently navigated the worst of the pandemic, HCA might now begin waiting for rising the enterprise and rising spending. The corporate reinstated its quarterly dividend program declaring 48 cents per share and the resumption of its share buyback program. “So long as we weren’t utterly shut down [again] … we felt as, as a company, we might take the learnings that we had simply gained from the early a part of the pandemic and apply that to no matter situation developed in 2021.”
In every of the 4 quarters of 2021, HCA declared dividends of 48 cents, repurchased a mixed $8.2 billion value of shares and within the fourth quarter licensed an extra buyback program for as much as $8 billion. In November, HCA stated it will construct three new hospitals in Florida, and some months later introduced 5 new hospitals in Texas. “HCA actually started to lean again into plenty of incremental initiatives to drive high line, drive quantity and reinvest again into their amenities,” says Whit Mayo, a senior analysis analyst at SVB Leerink.
“We’ll most likely be the most important educator of nurses within the nation in 5 years,” Hazen says.
As the pandemic recedes (barring any new, wildly contagious variants), 2022 presents its personal challenges from the fallout of Covid. Ben Hendrix, an fairness analyst at RBC Capital Markets, describes it as a “transition yr.” Demand will proceed to be sturdy, he says, as hospitals proceed to recapture a number of the deferred elective procedures that sufferers postpone in the course of the peak of the pandemic. On the similar time, another authorities help applications, like a 20% premium for hospitalized Medicare sufferers with Covid and a freeze on 2% Medicare cuts throughout the board, will come to an finish as the general public well being emergency ends. The add-ons and delay in cuts totaled round $900 million in help in 2021 that’s anticipated to shrink to $150 million in 2022.
However the greatest concern is the healthcare labor provide. There was already a rising scarcity of nurses earlier than the pandemic, which has grow to be much more acute as folks go away the career resulting from burnout. To fill the hole, hospitals are having to show to contract companies fairly than hiring immediately. This typically means having to pay charges practically 8 instances the $38.47 the Bureau of Labor Statistics estimates because the mean hourly wage for a registered nurse. “There’s a specific amount of labor inflation that is most likely right here to remain,” says Hendrix. “However the premium element for companies and contract work ought to normalize over time.”
SEIU, the labor union that represents round 23,000 HCA staff, together with nurses, techs, upkeep and clerical employees, disputes the concept labor prices are a problem for a corporation that made $7 billion in revenue final yr whereas paying custodial and cafeteria workers $12.50 an hour. “That wage is just not sufficient for employees to maintain up with the price of meals, childcare, medical health insurance, housing, transportation and different primary requirements,” says Joe Lyons, analysis coordinator at SEIU.
Wages aren’t the one contentious concern between labor and administration. In February, the union released a report alleging its evaluation of HCA’s higher-than-average emergency room admissions prompt the corporate was partaking in Medicare fraud. HCA has beforehand denied comparable claims, stating it “discovered nothing” to counsel its ER admits are “based mostly upon something aside from [physicians’] unbiased medical judgment.”
Hazen says the corporate is concentrated on retaining current staff, recruiting new ones and higher managing capability. The corporate can also be utilizing expertise and information to streamline a few of its processes and care supply fashions. “We’re not going to unravel all of our issues in 2022 with the labor market, as a result of there are specific macro issues which can be going to take time,” he says. One of many firm’s longer performs is its majority stake within the Galen School of Nursing, which has campuses in Kentucky, Texas, Florida and Ohio, accomplished in January 2020. “We’ll most likely be the most important educator of nurses within the nation in 5 years with the enlargement that we’re going by,” says Hazen.
Trying again on the previous two years, along with its monetary success, HCA was general capable of develop its market share, says Hazen: “[It] provides us confidence that we are able to work our means by the following set of challenges or alternatives in a productive means, and preserve pushing the group ahead.”
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