I grew up with several family members in medical professions, and that's led me to sometimes think that the American health-care system was designed to be a sort of purgatory on Earth for those whose job it is to administer the facilities. And looking at the results for leading hospital operator HCA (NYSE:HCA), it doesn't seem like things are getting any better.
Revenue for the quarter was up almost 4%, and same-facility revenue increased 5% despite a nearly 1% drop in same-facility admissions. While same-facility surgeries were up (2.3% for in-patient and 1% for out-patient), flu-related admits were down more than 10% from the year-ago level in the wake of a pretty mild winter.
I hope you HCA bulls out there found some good news here, because that's about as good as it gets. While the reported bad debt expense stayed constant at 9.3% of revenues, adjusting that for insured discounts bumps it up to 12.8% (vs. 10.9% in the same quarter last year). Think about that for a minute. This company has to write off more than one-tenth of its revenue, and there's hardly a thing it can do about it (as hospitals must treat all-comers, regardless of their ability to pay).
Other items weren't encouraging, either. Salary and benefit expense rose 7%, supply costs rose 6%, and adjusted EBITDA was actually down from last year (as was structural free cash flow).
Hospital operators like HCA are stuck in a no-win situation right now. Device and drug suppliers like Medtronic (NYSE:MDT) and Motley Fool Inside Value pick Pfizer (NYSE:PFE) want robust prices for new technologies. On the other hand, companies like AmSurg (NASDAQ:AMSG) and UnitedSurgical Partners (NASDAQ:USPI) strip away more affluent customers by offering better service and less risk of problems like hospital-acquired infections. And furthermore, if hospitals were actually able to find a way to make a decent amount of money, I'd imagine the managed care and Medicare auditors would be all over them trying to lower reimbursement rates.
HCA is trading above my fair value estimate, and even if it weren't, would I really want to bother? HCA is likely a fine hospital operator, but this strikes me as an industry doomed to take body blows from almost every constituency it serves or interacts with. Personally, I'd rather go find some businesses with competitive moats and attractive trends in their favor.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
