Faisal Zain is a healthcare expert specializing in medical technology. He has extensive experience in the manufacturing of medical devices used for diagnostics and treatment, driving innovation in the field. In this interview, Faisal will share his insights on hospital operations and financial performance, focusing on recent trends, key factors affecting hospital revenues and expenses, and capital allocation strategies.
How did inpatient admission growth fare across the five hospital operators in Q4?
In Q4, the major hospital operators saw stable-to-strong growth in inpatient admissions, ranging from 2% to 4%. This was largely driven by the rising demand for elective procedures and higher-acuity surgical volumes, particularly in specialties like orthopedics, neurosurgery, and cardiology.
Which hospital operator led in specialty ASC expansions?
Tenet’s USPI was the leader in specialty ASC expansions. They saw robust growth, particularly in high-acuity outpatient procedures such as total joint replacements, orthopedics, and cardiology, which drove a significant portion of the incremental demand.
Did the hospital operators see any notable changes in outpatient surgical volumes, especially among different payer segments?
Yes, most hospital operators noted strong or growing ASC volumes overall. However, some operators mentioned a mild softness in outpatient surgeries among lower-paying segments such as Medicaid and uninsured patients. Conversely, there were favorable shifts toward higher-margin surgical lines among commercial payers.
What factors contributed to revenue growth for the hospital operators in 2024?
Revenue growth in 2024 was supported by several factors, including mid-single-digit to low-double-digit growth from commercial rate increases, improving commercial mix, and in some cases, state Medicaid supplemental payments. These rate increases typically ranged from 3% to 5%, driven by higher inflation pressures over the past 18 months.
How did Medicaid supplemental programs affect the revenues of CHS, Ardent, Tenet, and HCA in 2024?
Medicaid supplemental programs, such as Directed Payment Programs (DPPs), played a significant role in boosting revenues. CHS, Ardent, Tenet, and HCA recognized notable incremental revenue from these programs. Many figures for 2024 included retroactive or catch-up payments, making these supplemental revenues central to their financial performance.
What impact did rate increases have on commercial revenue for these operators?
Commercial rate increases positively impacted revenues, with typical negotiated rate bumps around 3% to 5%. The higher inflation pressures led payers to offer slightly higher-than-historical increases, contributing to overall revenue growth.
How has the moderation of labor costs impacted the margins of the hospital operators?
The moderation of labor costs significantly helped expand or maintain margins for the hospital operators. Premium (contract) labor spending dropped from the peaks of 2022-2023, and wage inflation is stabilizing, though it remains above pre-pandemic norms. This reduction in labor costs contributed to margin improvements across the board.
Which hospital operators highlighted concerns about rising physician fees?
CHS, Ardent, and HCA highlighted concerns about rising hospital-based physician fees, particularly in areas like anesthesia, radiology, and ER coverage. Although these fees are increasing at a moderating pace, they remain a significant expense concern in the current environment.
Are hospital operators preparing for potential increases in medical supply costs due to tariffs?
While there is potential for medical supply cost increases stemming from tariffs, hospital operators appear to have mitigation strategies in place. They are not overly concerned at this point but are keeping an eye on the situation to ensure they can manage any upticks effectively.
What divestitures did CHS and Tenet make in 2024, and how are they using the proceeds?
In 2024, both CHS and Tenet made significant divestitures. CHS sold multiple hospitals and plans additional sales in 2025, using the proceeds to reduce debt. Similarly, Tenet sold 14 hospitals for approximately $5 billion, reshaping their portfolio and using the proceeds for deleveraging and fueling ASC expansions.
How is HCA planning to allocate its capital in terms of organic bed expansions?
HCA is heavily investing in organic bed expansions, focusing on increasing capacity to meet the rising demand for inpatient services. This involves substantial capital allocation toward building and expanding bed capacity within their existing facilities.
Is there a trend towards capital investments in ASCs and outpatient facilities among the hospital operators?
Yes, there is a clear trend toward capital investments in ASCs and outpatient facilities among the major hospital operators. Tenet, through USPI, remains the largest ASC operator, while Ardent, CHS, and HCA are all making significant investments in de novo outpatient sites, urgent care centers, and ASC expansions.
What growth projections do hospital operators have for 2025 in terms of volumes and revenue?
Hospital operators generally project steady growth for 2025. They anticipate 2% to 3% (or slightly higher) growth in inpatient admissions, along with continued expansions in ASC and outpatient volumes. Revenue growth is expected to be in the mid-single to high-single-digit range, with incremental margin improvements driven by labor cost control and higher commercial rates.
What uncertainties are they concerned about heading into 2025?
Operators are concerned about several uncertainties heading into 2025, including the sustainability and magnitude of Medicaid DPP payments, potential site-neutral payment reforms, and exchange subsidy continuity. These factors could significantly impact financial performance if they do not unfold favorably.
What trends did HCA see in inpatient surgeries and ER visits in Q4?
In Q4, HCA saw a 3% increase in inpatient admissions and a 2.8% increase in inpatient surgeries. ER visits also grew by 2.4%. However, outpatient surgery volumes were slightly down by 1.3%, although net outpatient surgical revenue increased due to a favorable payer mix.
How is the patient acuity changing at HCA?
Patient acuity at HCA is trending higher, particularly because of an increase in specialized procedures like neurology, orthopedics, and vascular surgeries. This shift towards more complex and higher-margin procedures contributes positively to their financial performance.
How did same-facility revenue and net revenue per equivalent admission change for HCA in Q4?
In Q4, HCA’s same-facility revenue grew by approximately 6%, and net revenue per equivalent admission increased by 2.9%. This growth was driven by higher commercial mix, rate increases, and improved operational efficiencies.
What portion of HCA’s revenue comes from exchange patients?
Exchange patients accounted for about 7.5% of HCA’s admissions and contributed to 9% of the revenue in 2024. Despite a slowing growth rate in exchange patient volumes, they remain a significant part of the payer mix.
How are labor costs affecting HCA’s adjusted EBITDA margin?
Labor costs have a substantial impact on HCA’s adjusted EBITDA margin. Contract labor costs have decreased, now representing around 4.5% to 4.6% of total salaries and wages. This reduction, along with stable wage inflation and improved staff retention, has helped maintain their margin steady.
What impact did professional fees have on HCA’s expenses?
Professional fees, including radiology subsidies, continue to be a persistent cost factor for HCA. Approximately 24% of other operating expenses are attributed to professional fees, affecting the overall expense structure.
How did HCA allocate its $10.5B in operating cash flow?
HCA used its $10.5 billion in operating cash flow for capital expenditures around $4.9 billion in 2024, share repurchases amounting to $6 billion, and increasing dividends from $0.66 to $0.72 quarterly. They also focused on small “tuck-in” M&A deals, including acquiring a hospital in New Hampshire.
Do you have any advice for our readers?
In the constantly evolving healthcare landscape, staying adaptable and ahead of industry trends is crucial. Focus on innovation, whether through technology or operational efficiencies, as this can significantly impact patient outcomes and financial performance. Investing in staff development and retention is also key to maintaining high-quality care and controlling costs.
