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HCA HEALTHCARE, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report on Form 10-Q includes certain disclosures which contain
"forward-looking statements" within the meaning of the federal securities laws,
which involve risks and uncertainties. Forward-looking statements include
statements regarding expected share-based compensation expense, expected capital
expenditures, expected net claim payments, expected inflationary pressures,
expected labor costs and all other statements that do not relate solely to
historical or current facts, and can be identified by the use of words like
"may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan,"
"initiative" or "continue." These forward-looking statements are based on our
current plans and expectations and are subject to a number of known and unknown
uncertainties and risks, many of which are beyond our control, which could
significantly affect current plans and expectations and our future financial
position and results of operations. These factors include, but are not limited
to, (1) changes in or related to general economic conditions nationally and
regionally in our markets, including inflation and economic and business
conditions (and the impact thereof on the economy, financial markets and banking
industry); changes in revenues due to declining patient volumes; changes in
payer mix (including increases in uninsured and underinsured patients);
potential increased expenses related to labor, supply chain or other
expenditures; workforce disruptions; and supply shortages and disruptions, (2)
developments related to COVID-19, including, without limitation, the length and
severity of COVID-19-related impacts and the spread of virus strains with new
epidemiological characteristics; the volume of canceled or rescheduled
procedures and the volume and acuity of COVID-19 patients cared for across our
health systems; and measures we are taking to respond to COVID-19, (3) the
impact of our substantial indebtedness and the ability to refinance such
indebtedness on acceptable terms, (4) the impact of current and future federal
and state health reform initiatives and possible changes to other federal, state
or local laws and regulations affecting the health care industry, including but
not limited to, the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010 (collectively, the
"Affordable Care Act"), additional changes to the Affordable Care Act, its
implementation, or interpretation (including through executive orders and court
challenges), and proposals to expand coverage of federally-funded insurance
programs as an alternative to private insurance or establish a single-payer
system (such reforms often referred to as "Medicare for All"), (5) the effects
related to the implementation of sequestration spending reductions required
under the Budget Control Act of 2011, related legislation extending these
reductions and those required under the Pay-As-You-Go Act of 2010 as a result of
the federal budget deficit impact of the American Rescue Plan Act of 2021, and
the potential for future deficit reduction legislation that may alter these
spending reductions, which include cuts to Medicare payments, or create
additional spending reductions, (6) increases in the amount and risk of
collectability of uninsured accounts and deductibles and copayment amounts for
insured accounts, (7) the ability to achieve operating and financial targets,
and attain expected levels of patient volumes and control the costs of providing
services, (8) possible changes in Medicare, Medicaid and other state programs,
including Medicaid supplemental payment programs or Medicaid waiver programs,
that may impact reimbursements to health care providers and insurers and the
size of the uninsured or underinsured population, (9) personnel-related capacity
constraints, increases in wages and the ability to attract, utilize and retain
qualified management and other personnel, including affiliated physicians,
nurses and medical and technical support personnel, (10) the highly competitive
nature of the health care business, (11) changes in service mix, revenue mix and
surgical volumes, including potential declines in the population covered under
third-party payer agreements, the ability to enter into and renew third-party
payer provider agreements on acceptable terms and the impact of consumer-driven
health plans and physician utilization trends and practices, (12) the efforts of
health insurers, health care providers, large employer groups and others to
contain health care costs, (13) the outcome of our continuing efforts to
monitor, maintain and comply with appropriate laws, regulations, policies and
procedures, (14) the availability and terms of capital to fund the expansion of
our business and improvements to our existing facilities, (15) changes in
accounting practices, (16) the emergence of and effects related to pandemics,
epidemics and infectious diseases, (17) future divestitures which may result in
charges and possible impairments of long-lived assets, (18) changes in business
strategy or development plans, (19) delays in receiving payments for services
provided, (20) the outcome of pending and any future tax audits, disputes and
litigation associated with our tax positions, (21) potential adverse impact of
known and unknown government investigations, litigation and other claims that
may be made against us, (22) the impact of potential cybersecurity incidents or
security breaches, (23) our ongoing ability to demonstrate meaningful use of
certified electronic health record ("EHR") technology and the impact of
interoperability requirements, (24) the impact of natural disasters, such as
hurricanes and floods, physical risks from climate change or similar events
beyond our control, (25) changes in U.S. federal, state, or foreign tax laws
including interpretive guidance that may be issued by taxing authorities or
other standard setting bodies, and (26) other risk factors described in our
annual report on Form 10-K for the year ended December 31, 2022 and our other
filings with the Securities and Exchange Commission . As a consequence, current
plans, anticipated actions and future financial position and results of
operations may differ from those expressed in any forward-looking statements
made by or on behalf of HCA. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
report, which forward-looking statements reflect management's views only as of
the date of this report. We undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
COVID-19
We believe the extent of COVID-19's impact on our operating results and
financial condition has been and could continue to be driven by many factors,
most of which are beyond our control and ability to forecast. Because of these
uncertainties, we cannot estimate whether or to what extent COVID-19 will impact
our operations.
First Quarter 2023 Operations Summary
Revenues increased to$15.591 billion in the first quarter of 2023 from$14.945 billion in the first quarter of 2022. Net income attributable toHCA Healthcare, Inc. totaled$1.363 billion , or$4.85 per diluted share, for the quarter endedMarch 31, 2023 , compared to$1.273 billion , or$4.14 per diluted share, for the quarter endedMarch 31, 2022 . First quarter results for 2023 and 2022 include losses on sales of facilities of$15 million , or$0.08 per diluted share and gains on sales of facilities of$10 million , or$0.02 per diluted share, respectively. During the first quarter of 2023, revenues include$145 million related to resolving certain disputed claims from prior years with a commercial payer. During the first quarter of 2022, revenues include$244 million and other operating expenses include$90 million from provider tax assessments related to aTexas directed payment program (CMS approval received inMarch 2022 ) for the period September throughDecember 2021 . All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 280.961 million shares for the quarter endedMarch 31, 2023 and 307.374 million shares for the quarter endedMarch 31, 2022 . During 2022 and the first quarter of 2023, we repurchased 30.747 million shares and 3.340 million shares, respectively, of our common stock. Revenues increased 4.3% on a consolidated basis and 5.1% on a same facility basis for the quarter endedMarch 31, 2023 , compared to the quarter endedMarch 31, 2022 . The increase in consolidated revenues can be primarily attributed to the net impact of a 6.7% increase in equivalent admissions and a 2.2% decline in revenue per equivalent admission. The same facility revenues increase primarily resulted from the net impact of a 7.5% increase in same facility equivalent admissions and a 2.3% decline in same facility revenue per equivalent admission. The consolidated and same facility declines in revenue per equivalent admission was impacted by higher COVID-19 volumes and reimbursement in the prior year quarter. During the quarter endedMarch 31, 2023 , consolidated admissions increased 3.6% and same facility admissions increased 4.4% compared to the quarter endedMarch 31, 2022 . Surgeries increased 3.2% on a consolidated basis and 4.6% on a same facility basis during the quarter endedMarch 31, 2023 , compared to the quarter endedMarch 31, 2022 . Emergency department visits increased 9.5% on a consolidated basis and 10.3% on a same facility basis during the quarter endedMarch 31, 2023 , compared to the quarter endedMarch 31, 2022 . Consolidated and same facility uninsured admissions declined 1.4% and 1.1%, respectively, for the quarter endedMarch 31, 2023 , compared to the quarter endedMarch 31, 2022 . Cash flows from operating activities increased$458 million , from$1.345 billion for the first quarter of 2022 to$1.803 billion for the first quarter of 2023. The increase in cash provided by operating activities was primarily related to the combined impact of changes in working capital items of$277 million and a$107 million increase in net income, excluding losses and gains on sales of facilities. Results of Operations Revenue/Volume Trends Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges), and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. 17 -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Revenues increased 4.3% from$14.945 billion in the first quarter of 2022 to$15.591 billion in the first quarter of 2023. Managed care and insurers revenues for the quarter endedMarch 31, 2023 include$145 million related to resolving certain disputed claims from prior years with a commercial payer. Managed Medicaid revenues for the quarter endedMarch 31, 2022 include$244 million , for the period from September throughDecember 2021 , related to theMarch 2022 CMS approval of aTexas directed payment program for the program year that beganSeptember 1, 2021 . Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for non-elective care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters endedMarch 31, 2023 and 2022 are summarized in the following table (dollars in millions): 2023 Ratio 2022 Ratio Medicare$ 2,738 17.6 %$ 2,726 18.2 % Managed Medicare 2,559 16.4 2,324 15.6 Medicaid 735 4.7 579 3.9 Managed Medicaid 913 5.9 1,110 7.4 Managed care and insurers 7,623 48.9 7,152 47.9 International (managed care and insurers) 375 2.4 356 2.4 Other 648 4.1 698 4.6 Revenues$ 15,591 100.0 %$ 14,945 100.0 % Consolidated and same facility revenue per equivalent admission declined 2.2% and 2.3%, respectively, in the first quarter of 2023, compared to the first quarter of 2022. Consolidated and same facility equivalent admissions increased 6.7% and 7.5%, respectively, in the first quarter of 2023, compared to the first quarter of 2022. Consolidated and same facility outpatient surgeries increased 3.5% and 5.1%, respectively, in the first quarter of 2023, compared to the first quarter of 2022. Consolidated and same facility inpatient surgeries increased 2.8% and increased 3.6%, respectively, in the first quarter of 2023, compared to the first quarter of 2022. Consolidated and same facility emergency department visits increased 9.5% and 10.3%, respectively, in the first quarter of 2023, compared to the first quarter of 2022. To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters endedMarch 31, 2023 and 2022 follows (dollars in millions): 2023
2022
Patient care costs (salaries and benefits, supplies, other
operating expenses and depreciation
and amortization)$ 13,157
Cost-to-charges ratio (patient care costs as percentage of
gross patient charges)
10.4 % 11.3 % Total uncompensated care$ 7,991 $ 7,005 Multiply by the cost-to-charges ratio 10.4 % 11.3 % Estimated cost of total uncompensated care$ 831 $ 792
Same facility uninsured admissions declined 1.1%, in the first quarter of 2023
compared to the first quarter of 2022. Same facility uninsured admissions
declined in 2022, compared to 2021, 5.5% in the fourth quarter, 4.5% in the
third quarter, 5.1% in the second quarter and 3.0% in the first quarter.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters endedMarch 31, 2023 and 2022 are set forth in the following table. 2023 2022 Medicare 22 % 23 % Managed Medicare 25 23 Medicaid 4 5 Managed Medicaid 13 13 Managed care and insurers 30 30 Uninsured 6 6 100 % 100 % The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters endedMarch 31, 2023 and 2022 are set forth in the following table. 2023 2022 Medicare 24 % 24 % Managed Medicare 19 18 Medicaid 7 6 Managed Medicaid 6 9 Managed care and insurers 44 43 100 % 100 % AtMarch 31, 2023 , we had 91 hospitals in the states ofTexas andFlorida . During the quarter endedMarch 31, 2023 , 58% of our admissions and 50% of our revenues were generated by these hospitals. Uninsured admissions inTexas andFlorida represented 76% of our uninsured admissions during the quarter endedMarch 31, 2023 . We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. Some state Medicaid programs use, or have applied to use, waivers granted by CMS to implement Medicaid expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. We receive supplemental payments in several states. We are aware these supplemental payment programs are currently being reviewed by certain government agencies and some states have made requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.
Key Performance Indicators
We present certain metrics and statistical information that management uses when
assessing our results of operations. We believe this information is useful to
investors as it provides insight to how management evaluates operational
performance and trends between reporting periods. Information on how these
metrics and statistical information are defined is provided in the following
tables summarizing operating results and operating data.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
ended
2023 2022
Amount Ratio Amount Ratio
Revenues $ 15,591 100.0 $ 14,945 100.0
Salaries and benefits 7,084 45.4 6,939 46.4
Supplies 2,423 15.5 2,321 15.5
Other operating expenses 2,894 18.7 2,752 18.5
Equity in losses (earnings) of affiliates 18 0.1 (11 ) (0.1 )
Depreciation and amortization 756 4.8 732 5.0
Interest expense 479 3.1 408 2.7
Losses (gains) on sales of facilities 15 0.1 (10 ) (0.1 )
13,669 87.7 13,131 87.9
Income before income taxes 1,922 12.3 1,814 12.1
Provision for income taxes 379 2.4 349 2.3
Net income 1,543 9.9 1,465 9.8
Net income attributable to noncontrolling interests 180 1.2 192 1.3
Net income attributable to HCA Healthcare, Inc. $ 1,363 8.7 $ 1,273 8.5
% changes from prior year:
Revenues 4.3 % 6.9 %
Income before income taxes 5.9 (8.1 )
Net income attributable to HCA Healthcare, Inc. 7.1 (10.6 )
Admissions(a) 3.6 0.1
Equivalent admissions(b) 6.7 3.2
Revenue per equivalent admission (2.2 )
3.6
Same facility % changes from prior year(c):
Revenues 5.1 7.8
Admissions(a) 4.4 2.1
Equivalent admissions(b) 7.5 5.0
Revenue per equivalent admission (2.3 ) 2.7
(a)
Represents the total number of patients admitted to our hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b)
Equivalent admissions are used by management and certain investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenues and gross outpatient revenues and then dividing the resulting
amount by gross inpatient revenues. The equivalent admissions computation
"equates" outpatient revenues to the volume measure (admissions) used to measure
inpatient volume, resulting in a general measure of combined inpatient and
outpatient volume.
(c)
Same facility information excludes the operations of hospitals and their related
facilities which were either acquired or divested during the current and prior
period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended
Revenues increased to$15.591 billion in the first quarter of 2023 from$14.945 billion in the first quarter of 2022. Net income attributable toHCA Healthcare, Inc. totaled$1.363 billion , or$4.85 per diluted share, for the quarter endedMarch 31, 2023 , compared to$1.273 billion , or$4.14 per diluted share, for the quarter endedMarch 31, 2022 . First quarter results for 2023 and 2022 include losses on sales of facilities of$15 million , or$0.08 per diluted share, and gains on sales of facilities of$10 million , or$0.02 per diluted share, respectively. During the first quarter of 2023, revenues include$145 million related to resolving certain disputed claims from prior years with a commercial payer. During the first quarter of 2022, revenues include$244 million and other operating expenses include$90 million from provider tax assessments related to aTexas directed payment program (CMS approval received inMarch 2022 ) for the period September throughDecember 2021 . All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 280.961 million shares for the quarter endedMarch 31, 2023 and 307.374 million shares for the quarter endedMarch 31, 2022 . During 2022 and the first quarter of 2023, we repurchased 30.747 million shares and 3.340 million shares, respectively, of our common stock. Revenues increased 4.3% on a consolidated basis and 5.1% on a same facility basis for the quarter endedMarch 31, 2023 , compared to the quarter endedMarch 31, 2022 . The increase in consolidated revenues can be primarily attributed to the net impact of a 6.7% increase in equivalent admissions and a 2.2% decline in revenue per equivalent admission. The same facility revenues increase primarily resulted from the net impact of a 7.5% increase in same facility equivalent admissions and a 2.3% decline in same facility revenue per equivalent admission. Salaries and benefits, as a percentage of revenues, were 45.4% in the first quarter of 2023 and 46.4% in the first quarter of 2022. Salaries and benefits per equivalent admission declined 4.3% in the first quarter of 2023 compared to the first quarter of 2022. Same facility salaries and benefits per full time equivalent increased 1.0% for the first quarter of 2023 compared to the first quarter of 2022. We continue to utilize certain contract, overtime and other premium rate labor costs to support our clinical staff and patients. These costs declined compared to the prior year period and the three month period endedDecember 31, 2022 ; however, any expected future declines may be affected by labor market conditions and other factors. Supplies, as a percentage of revenues, were 15.5% in both the first quarters of 2023 and 2022. Supply costs per equivalent admission declined 2.1% in the first quarter of 2023 compared to the first quarter of 2022. Supply costs per equivalent admission increased 1.9% for medical devices and declined 15.3% for pharmacy supplies and 0.8% for general medical and surgical items in the first quarter of 2023 compared to the first quarter of 2022. The decline in pharmacy supplies is primarily related to certain COVID-19 therapies that were heavily utilized during the first quarter of 2022. Other operating expenses, as a percentage of revenues, were 18.7% in the first quarter of 2023 and 18.5% in the first quarter of 2022. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. We have seen inflation have a negative impact on certain of these expenses and expect inflationary pressures will continue to impact operating expenses in the future. Provisions for losses related to professional liability risks were$144 million and$143 million for the first quarters of 2023 and 2022, respectively.
Equity in losses of affiliates was
affiliates was
The loss for 2023 was primarily related to a physician group entity investment.
Depreciation and amortization increased$24 million , from$732 million in the first quarter of 2022 to$756 million in the first quarter of 2023. The increase in depreciation relates primarily to capital expenditures at our existing facilities. Interest expense was$479 million in the first quarter of 2023 and$408 million in the first quarter of 2022. Our average debt balance was$38.513 billion for the first quarter of 2023 compared to$35.798 billion for the first quarter of 2022. The average effective interest rate for our long-term debt was 5.0% and 4.6%, respectively, for the quarters endedMarch 31, 2023 and 2022.
During the first quarters of 2023 and 2022, we recorded losses on sales of
facilities of
respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended
The effective tax rates were 21.8% and 21.5% for the first quarters of 2023 and 2022, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provisions for income taxes for the first quarters of 2023 and 2022 included tax benefits of$74 million and$64 million , respectively, related to employee equity award settlements. Net income attributable to noncontrolling interests declined from$192 million for the first quarter of 2022 to$180 million for the first quarter of 2023. The decline in net income attributable to noncontrolling interests related primarily to the prior period impact of theTexas directed payment program in the prior quarter on two of ourTexas markets and our group purchasing organization.
Liquidity and Capital Resources
Cash provided by operating activities totaled$1.803 billion in the first quarter of 2023 compared to$1.345 billion in the first quarter of 2022. The$458 million increase in cash provided by operating activities, in the first quarter of 2023 compared to the first quarter of 2022, related primarily to the combined impact of changes in working capital items of$277 million and a$107 million increase in net income, excluding losses and gains on sales of facilities. The combination of interest payments and net income tax payments in the first quarters of 2023 and 2022 totaled$581 million and$411 million , respectively. Working capital totaled$2.513 billion atMarch 31, 2023 and$3.741 billion atDecember 31, 2022 . The decline in working capital was primarily related to the increase in long-term debt due within one year. Cash used in investing activities was$1.151 billion in the first quarter of 2023 compared to$845 million in the first quarter of 2022. Excluding acquisitions, capital expenditures were$1.197 billion in the first quarter of 2023 and$861 million in the first quarter of 2022. Planned capital expenditures are expected to approximate$4.6 billion in 2023. AtMarch 31, 2023 , there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately$5.0 billion . We expect to finance capital expenditures with internally generated and borrowed funds. Cash used in financing activities totaled$725 million in the first quarter of 2023, compared to cash provided by financing activities of$425 million in the first quarter of 2022. During the first quarter of 2023, net cash flows used in financing activities included a net increase of$690 million in our indebtedness, payment of dividends of$175 million , repurchase of common stock of$846 million and distributions to noncontrolling interests of$187 million . During the first quarter of 2022, net cash flows provided by financing activities included a net increase of$3.120 billion in our indebtedness, payment of dividends of$177 million , repurchase of common stock of$2.101 billion and distributions to noncontrolling interests of$171 million . We are a highly leveraged company with significant debt service requirements. Our debt totaled$38.856 billion atMarch 31, 2023 . Our interest expense was$479 million for the first quarter of 2023 and$408 million for the first quarter of 2022. In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($3.795 billion and$3.745 billion available as ofMarch 31, 2023 andApril 24, 2023 , respectively) and anticipated access to public and private debt markets. Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled$486 million and$473 million atMarch 31, 2023 andDecember 31, 2022 , respectively. An insurance subsidiary maintained net reserves for professional liability risks of$134 million and$147 million atMarch 31, 2023 andDecember 31, 2022 , respectively. Our facilities are insured by our insurance subsidiary for losses up to$80 million per occurrence; however, this coverage is generally subject, in most cases, to a$15 million per occurrence self-insured retention. Additionally, the insurance subsidiary has entered into reinsurance contracts providing reimbursement for a certain portion of losses in excess of self-insured retentions. Net reserves for the self-insured professional liability risks retained were$1.889 billion and$1.836 billion atMarch 31, 2023 andDecember 31, 2022 , respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate$510 million . We estimate that approximately$469 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention. 22 -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs for the foreseeable future. Market Risk We are exposed to market risk related to changes in market values of securities. The investment securities held by our insurance subsidiaries were recorded at$486 million atMarch 31, 2023 . These investments are carried at fair value, with changes in unrealized gains and losses that are not credit-related being recorded as adjustments to other comprehensive income. AtMarch 31, 2023 , we had net unrealized losses of$31 million on the insurance subsidiaries' investments. We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors. We are also exposed to market risk related to changes in interest rates. With respect to our interest-bearing liabilities, approximately$5.509 billion of long-term debt atMarch 31, 2023 was subject to variable rates of interest, while the remaining balance of long-term debt of$33.347 billion atMarch 31, 2023 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. The average effective interest rate for our long-term debt was 5.0% and 4.6% for the quarters endedMarch 31, 2023 and 2022, respectively. The estimated fair value of our total long-term debt was$36.918 billion atMarch 31, 2023 . The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately$55 million . To mitigate the impact of fluctuations in interest rates, we generally target a majority of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations.
We currently do not consider the market risk related to foreign currency
translation to be material to our consolidated financial statements or our
liquidity.
Tax Examinations
AtMarch 31, 2023 , the Internal Revenue Service was conducting examinations of the Company's 2016, 2017 and 2018 federal income tax returns and the 2019 return for one affiliated partnership. We are also subject to examination by state and foreign taxing authorities. Management believesHCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established withIRS , state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position. 23 --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data
2023 2022
Number of hospitals in operation at:
March 31 180 182
June 30 182
September 30 182
December 31 182
Number of freestanding outpatient surgical centers in
operation at:
March 31 126 124
June 30 126
September 30 125
December 31 126
Licensed hospital beds at(a):
March 31 48,891 48,892
June 30 48,979
September 30 49,179
December 31 49,281
Weighted average beds in service(b):
Quarter:
First 41,684 41,818
Second 41,930
Third 42,056
Fourth 42,119
Year 41,982
Average daily census(c):
Quarter:
First 29,310 29,797
Second 28,256
Third 28,287
Fourth 28,790
Year 28,778
Admissions(d):
Quarter:
First 525,235 506,956
Second 515,113
Third 523,092
Fourth 530,298
Year 2,075,459
Equivalent admissions(e):
Quarter:
First 916,535 859,290
Second 902,757
Third 917,262
Fourth 931,990
Year 3,611,299
Average length of stay (days)(f):
Quarter:
First 5.0 5.3
Second 5.0
Third 5.0
Fourth 5.0
Year 5.1
24
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
2023 2022
Emergency room visits(g):
Quarter:
First 2,252,669 2,056,389
Second 2,223,999
Third 2,278,782
Fourth 2,412,781
Year 8,971,951
Outpatient surgeries(h):
Quarter:
First 255,971 247,421
Second 258,182
Third 252,026
Fourth 265,610
Year 1,023,239
Inpatient surgeries(i):
Quarter:
First 130,460 126,880
Second 130,961
Third 132,470
Fourth 131,840
Year 522,151
Days revenues in accounts receivable(j):
Quarter:
First 50 51
Second 53
Third 53
Fourth 53
Outpatient revenues as a % of patient revenues(k):
Quarter:
First 38 % 37 %
Second 39 %
Third 37 %
Fourth 38 %
Year 38 %
(a)
Licensed beds are those beds for which a facility has been granted approval to
operate from the applicable state licensing agency.
(b)
Represents the average number of beds in service, weighted based on periods
owned.
(c)
Represents the average number of patients in our hospital beds each day.
(d)
Represents the total number of patients admitted to our hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e)
Equivalent admissions are used by management and certain investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenues and gross outpatient revenues and then dividing the resulting
amount by gross inpatient revenues. The equivalent admissions computation
"equates" outpatient revenues to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
(f)
Represents the average number of days admitted patients stay in our hospitals.
(g)
Represents the number of patients treated in our emergency rooms.
(h)
Represents the number of surgeries performed on patients who were not admitted
to our hospitals. Pain management and endoscopy procedures are not included in
outpatient surgeries.
(i)
Represents the number of surgeries performed on patients who have been admitted
to our hospitals. Pain management and endoscopy procedures are not included in
inpatient surgeries.
(j)
Revenues per day is calculated by dividing revenues for the quarter by the days
in the quarter. Days revenues in accounts receivable is then calculated as
accounts receivable at the end of the quarter divided by revenues per day.
(k)
Represents the percentage of patient revenues related to patients who are not
admitted to our hospitals.
25
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