HCA Healthcare's Top Line Grows On Buyouts, Bad Debts Hurt

HCA Healthcare, Inc. (NYSE:HCA) has been witnessing consistent growth in its revenue base. In the past five years, revenues have recorded a compound annual growth rate of nearly 7% on the back of organic and inorganic strategies. For 2017, it expects revenues to range within $43-$44 billion, reflecting 4% year-over-year growth.

The Nashville, TN-based company has been growing through buyouts over past many years. In 2017, its two major acquisitions of Florida and Texas hospitals from Community Health Systems, Inc (NYSE:CYH) are worth a mention. These deals have boosted patient volumes and expanded network across several markets.

The company’s strong financial position has supported its inorganic initiatives. HCA Healthcare has witnessed impressive cash flow generation over years enabling it to deploy capital in the most effective manner. The company has been paying dividends at regular intervals. It has also been taking up share buyback programs to enhance return to investors.

However, lately, the company’s commercial business has been facing challenges from declining volumes of admissions. Its international business is also under pressure due to a fall in admissions in Middle East and London. High level of bad debt is also a major headwind for the company.

Further, it also suffers from the prevailing industry-wide softness in volumes. Factors such as payor initiatives to move volumes away from hospitals, rising deductibles and prevalence of high deductible health plans, and increased proportion of hospital care to be paid by consumers are driving away volumes.

The company also faces challenges due to the constant uncertainty stemming from President Trump and the Republican Congress’ efforts to repeal and replace Obamacare. The recent tax bill that ends the “individual mandate” (which required most Americans to obtain health insurance or pay a fine) is also expected to result in higher uninsured rate going forward.

Moreover, as continued losses from public exchanges led the health insurers to scale back their participation from exchanges, the uninsured rate continues to increase, hurting the company.

Other players in the industry like Universal Health Services, Inc. (NYSE:UHS) and Tenet Healthcare Corporation. (NYSE:THC) are also victims of this political uncertainty.

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