Privately Held HCA Doing Better Job of Stabilizing Bad Debt Expense: Analyst

Hospital operator HCA, Inc. said last week that second quarter net income increased 21.6 percent to $141 million during the second quarter ended June 30, 2008, compared to $116 million a year ago.  The Nashville, Tenn.-based company said revenues increased 3.7 percent to nearly $7 billion despite a decline in surgeries and flat admission numbers.

Lehman Brothers Analyst Adam Feinstein said in a note to investors that one of the biggest positive items in HCA’s second quarter was its ability to stabilize bad debt expense.  HCA said it set aside $813 million, or 11.7 percent of revenues, in the second quarter for doubtful accounts.  During the year ago period, HCA set aside $753 million, or 11.2 percent of revenues. Charity care and uninsured discounts climbed almost 23 percent during the quarter to $869 million, compared with $707 million a year ago.

Overall, Feinstein said HCA’s total uncompensated care expense — which includes bad debt expense, charity care and discounts — was flat at 21.4 percent. But he noted that HCA applied $60 million in look-back adjustments to its bad debt expense.

“The company believes that this look-back adjustment is mostly attributable to its pure uninsured book of business rather than a decline in collections of co-pays and deductibles,” Feinstein said in the note. “We note that the company was more cautious than others around this issue, but we believe HCA is being more conservative in building reserves.”

HCA said uninsured admissions increased just 1 percent during the quarter compared with the year ago period, and was close to the 1.3 percent increase in total admissions at facilities open at least one year. 

HCA said its net income for the six month period ended June 30, 2008 was $311 million, including $40 million in gains on sales of some hospitals. During the prior year period, HCA had $296 million in net income, including $16 million in gains on the sale of some hospitals. Revenues for the first half of the year increased 5.2 percent to $14.1 billion.

Although HCA is privately held, it remains the largest hospital company in the U.S. with 169 hospitals and 107 freestanding surgery centers