Dive Brief:
- HCA Healthcare missed Wall Street estimates on profit in its third-quarter earnings report released Tuesday, after being negatively impacted by increased staffing costs and lower-than-expected sales at its joint venture with physician staffing firm Valesco, which it acquired a majority stake in earlier this year.
- CFO Bill Rutherford told investors that the venture cost approximately $100 million on the company’s adjusted earnings before interest, taxes, depreciation and amortization this quarter, and that the loss from the venture will be approximately $50 million per quarter moving forward.
- The for-profit health system reported increased revenue in the third quarter of $16.2 billion, compared to $15 billion in the prior-year period. However, expenses also rose, with salaries and benefits increasing 9.5% year over year, from $6.9 million to $7.6 million.
Dive Insight:
HCA, the largest for-profit hospital operator in the country, reported adjusted net income earnings of $3.91 per share for the third quarter, compared with analysts’ estimate of $3.98 per share, according to financial data from FactSet.
HCA downwardly revised its upper-bound revenue expectations for the year. It now expects to capture between $63.5 billion to $64.5 billion in revenue, a change from the $63.3 billion to $64.8 billion in 2023 revenue the health system said it expected during its second-quarter earnings.
HCA CEO Sam Hazen told investors that anesthesia and ER physician compensation associated with the Valesco venture and its subsidies pressured its third-quarter earnings more than in the first half of the year.
The CEO said the hospital operator missed Wall Street expectations due to costs associated with the Valesco staffing firm venture. HCA acquired 90% of Valesco during the first quarter this year in a joint venture with now-bankrupt Envision Healthcare.
In January, Hazen said the deal was an opportunity to improve quality, support graduate medical education and increase staffing efficiency in HCA’s emergency departments and medical-surgical nursing floors.
Though Hazen stood by the long-term strategic value of acquiring the firm, which absorbed approximately 5,000 physicians across 200 locations into its payroll, CFO Bill Rutherford acknowledged on Tuesday’s earnings call that the company is “not clearing as much revenue as we anticipated.”
Outside of the Valesco venture, HCA continued to report rebounding demand for patient services that outpaced original expectations set at the beginning of the year, Rutherford said.
Same facility equivalent admissions increased 4.1% in the third quarter compared to the prior-year period, with same facility emergency room visits increasing 3.5%.
HCA had its strongest quarter to date for nurse hiring and reported stable turnover rates and a 12.5% reduction in contract labor costs compared to the prior-year period, according to Frank Morgan, vice president of investor relations at HCA. Investments in labor and graduate nursing training programs could provide tailwinds heading into 2024, he said.
However, investors still questioned the healthcare operator about its rising professional fees. Professional fees for contracted providers grew approximately 20% in the third quarter compared to the prior year, according to the CFO.
