Coming off Q2 surprise, HCA brass still focused on costs, cap ex projects

Amid merger mania, industry leader also still pursuing deals

HCA Holdings executives reported today second-quarter profits of $423 million, an increase of 8 percent from a year ago, as patient volumes rose slightly and the company kept a lid on expense growth. Per diluted share, earnings were 91 cents versus 85 cents in Q2 2012.

Nashville-based HCA's revenues for the quarter rose 4 percent to $8.45 billion. The company's report, which was in line with its preview from two weeks ago, showed same-facility equivalent admissions rising 1.1 percent — a notable difference from many of its hospital peers — and revenues per equivalent admission climbing 3 percent. Nine of the company's 14 U.S. divisions grew same-facility adjusted admissions versus the spring of 2012.

On their conference call with analysts and investors, HCA's top execs said the cost-cutting moves they took in the first quarter when volumes began to sag continued to pay off in Q2. Both operating expenses and salaries per equivalent admissions rose less than 2 percent. Ongoing initiatives to improve the company's supply chain and other processes should continue to work their way toward the bottom line over the next couple of quarters, execs said.

Chairman and CEO Richard Bracken and his team also said they are scouting for acquisitions while emphasizing investments in new, smaller hospitals, emergency rooms and back-office services housed on their Parallon platform.

Asked to share his perspective on the recently announced big hospital deals involving local players Vanguard Health Systems and Community Health Systems, CFO (and CEO-designate) Milton Johnson demurred specific comment but said HCA is still very much in the game. The company has signed deals to buy facilities in Kansas City and Tampa — the latter from Franklin-based Iasis Healthcare — and is on the lookout for similar deals elsewhere.

"We are actively pursuing acquisitions in markets that make sense to us," Johnson said. "But those opportunities tend to come and go at a certain pace."

HCA also will continue to invest in organic growth. The company last week opened new hospitals in suburbs of Orlando and Salt Lake City that are smaller and more focused on outpatient work than most of its current facilities. These hospitals generally have just 40 to 60 inpatient beds when they open — they typically get built out over time — and are intended to fill out markets and act as feeders to HCA's larger treatment centers. Similar projects are underway in Houston and Fort Worth, and President of Operations Sam Hazen said his team is "evaluating two or three other ones we think make sense for us."

Another area of emphasis is emergency rooms, where visits were up 2.1 percent year-to-date but rose just 0.7 percent in Q2. Hazen said the company is seeing a "general softness in lower-acuity business" and stronger competition in a number of its markets, both from other hospitals and urgent care clinics. But HCA, which has opened a number of stand-alone ERs across its footprint, plans to continue to grow that line of business.

"We don't want to take our eye off the ball in this area," Johnson said.

Shares of HCA (Ticker: HCA) were flat at about $39 in mid-day trading. Year to date, they've risen about 30 percent.