Second Quarter 2011 Review September 12, 2011 Exhibit 99.2 |
1 Forward Looking Statements This presentation may contain certain forward-looking statements provided by Company management. These statements are intended to be covered by the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, including statements regarding future operations, financial results and projections, cash flows, costs and cost management initiatives, capital structure management, growth rates, market share, and operational and strategic initiatives, compliance efforts and results of compliance audits, and future impact of changes in Medicare case mix index, and can also be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “intend,” “plan,” “initiative,” “continue” or words or phrases of similar meaning. These forward- looking statements speak only as of the date hereof and 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. These risks and uncertainties are described in headings such as “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2010, and other reports filed with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ significantly from those expressed in any forward-looking statements in today’s presentation. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented and we do not intend to update any of these forward-looking statements. The presentation may contain certain non-GAAP financial measures. The Company’s earnings release for the quarter and six months ended June 30, 2011, located on the Company’s investor relations page at www.hcahealthcare.com, includes a reconciliation of the difference between certain non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP. These non-GAAP financial measures should not be considered an alternative to the GAAP financial measures. References to “Company” used herein refer to HCA Holdings, Inc. and its affiliates, unless otherwise stated or indicated by context. |
2 Introduction • Purpose of this presentation is to summarize the supplemental analysis performed and findings reached on our second quarter • Medicare revenue growth in second quarter fell short of expectations and was inconsistent with historical trends • Medicare revenue declined in second quarter due to several factors, including a decline in Medicare case mix index (CMI) • Based on information available to us at this time, including this analysis and preliminary results for July and August, we are confirming 2011 guidance of 3 to 5% growth in adjusted EBITDA for the full year, assuming we substantially meet HITECH reimbursement parameters |
3 2011 Annual Medicare IPPS Updates 3.4% (4Q’06) 3.3% 3.6% 1.9% (0.55%) 2007 2008 2009 2010 $93 $50 $67 $116 $154 $145 $115 $126 $127 $191 $190 $141 $111 $112 $71 $131 $147 ($4) Medicare revenue growth in 2 nd Quarter 2011 declined unexpectedly Medicare (Traditional & Managed) Revenue Growth, numbers show year over year change Consolidated Domestic Ops Same Facility - Hospital Only, Inpatient and Outpatient ($ in millions) |
Traditional Medicare Managed Medicare 4 Medicare case mix decline in 2 Quarter 2011 was unexpected Trend of Medicare CMI 1.4000 1.4500 1.5000 1.5500 1.6000 1.6500 1.7000 2007 2008 2009 2010 2011 nd |
5 Additional analysis of Q2 included three major areas • Data Integrity Review • Regulatory and Past Period Adjustments Review • Case Mix Review |
6 Supplemental data integrity review disclosed no issues Findings Analysis HCA has a robust compliance effort in all areas of compliance risk, including DRG coding • No changes in coding process, and no significant differences in historical coding results • Confirmed data flow operated correctly • DRG coding audit conducted, with independent review, of both shared services and hospital DRG coding • Reviewed systems that involve flow of data from coding to billing |
7 Regulatory changes & prior year cost reports and claims affected Medicare revenue Analysis • • • • Regulatory changes include the 72 hour rule (effective 6/30/10), with adverse impact of $21 million in Q2 (no year over year impact going forward); and CT scan reimbursement (effective 1/1/11) with adverse impact of $7 million in Q2 (similar impact anticipated in Q3 and Q4) Findings Prior year cost report and claims revenue was $18 million less in 2Q/2011 compared with 2Q/2010 (smaller expected impact in Q3 and Q4) Reviewed prior year cost report and claims results Reviewed impact of regulatory changes |
8 Extensive review of Medicare case mix conducted • CMI analysis by DRG type -- identified DRGs and facilities that appeared to account for primary CMI shifts • Surveyed facilities for root cause of change and outlook • Tested impact of CMS grouper changes implemented on October 1, 2010 |
9 Decline in Medicare case mix resulted in $28 million adverse impact Implications for Q3 and Q4 • Downward pressure on CMI likely to continue, driven by falling surgical volume • Difficult to predict future medical case mix • Grouper change not expected to have material impact • Shift in volume from surgical to medical, primarily in cardiovascular service line • CMI decline within medical cases, especially pulmonary • New CMS grouper, effective October 2010 Drivers of CMI decline |
Austin -2.9% Chattanooga -2.9% North Central Florida -2.3% San Antonio -2.3% Northeast -2.2% Panhandle West -1.9% Utah -1.8% Richmond -1.7% Southwest VA -1.6% El Paso -0.8% Las Vegas -0.5% Northwest Georgia -0.5% Denver 0.1% Dallas Ft. Worth 0.0% Northwest 0.4% (incl. Anchorage) Orlando 0.6% Valley 1.2% Central Louisiana 1.7% Houston 2.0% Other Georgia 2.1% Atlanta 3.4% Tampa 1.3% Southern California 4.1% Northern Virginia 4.5% Lafayette 4.9% Wichita 5.5% Oklahoma -9.1% New Orleans -8.4% Charleston -6.5% Miami/Ft. Lauderdale -3.7% Middle Georgia -5.0% Jacksonville -4.5% Nashville -4.0% San Jose -3.9% Myrtle Beach -3.7% Other North Florida -3.6% Corpus Christi -3.6% -0.1% to -2.9% 5.5 % to 0.0% -3.0% to -9.1% 12 15 11 Markets - 38 Range of % Change No geographical pattern to the decline in Medicare case mix in Q2 Kansas City 0.3% 10 Percent Change from Prior Year Same Facility |
11 Losses in Medicare IP cardiovascular surgical cases were partially offset by gains in medical cases across multiple service lines HCA change in number of Medicare cases (Q2 2011 to Q2 2010) -504 0 80 33 10 -59 93 0 -1 0 109 -769 Surgical Total Medicine Neuro Oncology Urology OB-GYN Orthopedics Gastro Other Pulmonary Surgery Cardiovascular 4,588 2,103 814 219 419 55 66 260 63 49 540 Medical n/a Increase Decrease 1 2 1 3 |
12 Medicare IP cardiovascuar 1 surgical cases drove a decline in CMI HCA change in number of Medicare cases (Q2 2011 to Q2 2010) 0 Surgical Other 33 Pulmonary Surgery 109 Cardiovascular -769 Medical 444 49 n/a 540 % of negative CMI change CMI Impact Change Drivers of CMI Impact Change: • Changes in cardiovascular account for 50% of the decline in Medicare CMI Impact Change • Surgery’s negative impact on Medicare CMI due to fewer mechanical ventilation cases (26 cases) which have high weight -1.09% 50% -0.59% 27% -0.31% 14% -0.19% 9% Total IP cardiovascular 1 surgical declined by 1,156 for all payers, with Medicare accounting for two-thirds (769 cases) of the decline Increase Decrease Sum of negative changes resulting in net Medicare CMI change of 1.2% -2.18% 2 3 1 Includes inpatient EP, interventional, cardiothoracic surgery, valve, and vascular surgeries and procedures; interventional cases included in “Surgical” category 2 Surgery includes ENT, ophthalmology, and general surgery 3 Major components of “Other” includes transplant, gastro, ortho, OB/GYN, neonatology, rehab, behavioral health, and alcohol/drug |
13 • Overall demand for cardiovascular services has been declining about 3% per year for several years • Appears to be an acceleration of this negative trend nationally that impacted HCA markets in Q2 2011 • In HCA, 20 hospitals across 10 divisions contributed to the majority of declines. The primary reasons for decline were: Physician attrition Competitor investments, such as starting a new program Medical management Generally weaker demand Cardiovascular declines were driven by several factors |
14 90 80 100 95 85 HCA hospitals Non-HCA hospitals Change in HCA and non-HCA IP cardiovascular surgical case volume 1,2 , all payers ’08-10 CAGR (%) 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 HCA cardiovascular IP surgical market share: 26.7% 27.0% 27.0% HCA has had slight growth in its share of inpatient cardiovascular surgical case volume ’08-10 share change ~0.3% ~0% Annual share change: 0 -2.3% -3.2% 0.3% 1 Includes inpatient EP, interventional, cardiothoracic surgery, valve, and vascular surgeries and procedures 2 HCA defines 29 markets based on county service areas. Analysis excluded Kansas City, Denver and San Jose markets due to incomplete data; also excluded Augusta and N. Virginia due to low patient volumes (<100 patients/quarter). Remaining 24 markets were used to compare HCA vs. non-HCA hospital evolution in CV IP surgical volume SOURCE: Intellimed |
Total Market Discharges 4,975,899 HCA Share Service Line Market HCA Total All SLs 4,975,899 1,193,717 0.4% 0.3% 24.0% 0.0% Medicine 863,436 204,873 4.7% 3.6% 23.7% (0.3%) Women's 833,216 193,634 (4.0%) (4.5%) 23.2% (0.1%) Cardiology/Cardiovascular 642,064 169,285 (3.1%) (3.1%) 26.4% 0.0% Neurosciences 366,760 90,604 1.4% 1.8% 24.7% 0.1% Gen Surgery 388,670 86,680 (1.1%) (1.6%) 22.3% (0.1%) Orthopedics 307,546 74,921 2.4% 3.1% 24.4% 0.2% Behavioral 285,172 61,102 6.0% 5.9% 21.4% 0.0% Oncology 114,781 23,249 (1.4%) (0.9%) 20.3% 0.1% Neonatology 100,891 22,391 (1.7%) (2.1%) 22.2% (0.1%) All Other SLs 1,073,363 266,978 1.5% 2.2% 24.9% 0.2% Market HCA Total Total HCA Discharges 1,193,717 Discharges Growth (Over Prior 12 months) HCA Point Trend 15 Note 1: Statistics are based on data for the most recently available 24 month period from 143 HCA facilities in 29 defined markets. Market shares differ from Slide 14 because of different groupings of cases included in overall categories. Note 2: Analysis includes data from 10 markets through Q1 ’11, 16 through Q4 ’10, 1 through Q3 ’10, 1 through Q2 ’10 (KC), and 1 market through Q4 ’09 (San Jose). Note 3: Source = State data via Intellimed. Overall market share for HCA is stable with some service line variation |
16 Conclusion 1 Based upon decline in actual CMI change from expected CMI change • Relevant HCA actions are being implemented, both as to revenue opportunities and expense control • Based on information available to us at this time, including this analysis and preliminary results for July and August, we are confirming 2011 guidance of 3 to 5% growth in adjusted EBITDA for the full year, assuming we substantially meet HITECH reimbursement parameters • Medicare revenue decline in second quarter due to several factors (numbers show year over year change, Q2 2011 to Q2 2010) and estimates of future impact refer to Q3 and Q4 2011: Issue May impact future quarters, in whole or part Unlikely to impact future quarters Not expected to impact future quarters Case Mix 1 $25 Million $3 Million 72 hour rule $21 Million CT Scans $7 Million Prior year cost reports & claims $5 Million $13 Million TOTAL $37 Million $16 Million $21 Million |
Transaction Run Rate Annual Interest Savings/(Costs) Estimated EPS Impact 2011 1 2012 2 Extended $3.0B Bank Term Loans (May) ($36 mm) ($0.03) ($0.04) Called all $1.0B of 2014 and $108mm of 2017 2 lien notes (June) ³ $90 mm $0.06 $0.10 Extended $4.5B of interest rate swaps (2009-2011) 4 $190 mm $0.03 $0.21 Refinanced $4.8B of 2016 2 lien notes (August) $114 mm $0.01 $0.13 TOTAL $358 mm $0.07 $0.40 1 Excludes losses on retirement of debt 2 Assumes effective tax rate of 38% and estimated diluted shares of 550 million 3 Funded out of revolving credit facilities 4 Commencing 11/17/11 when $7.1B of higher rate swaps expire 5 Excludes acquisition of HealthONE JV partnership interest 17 Debt/Adjusted EBITDA 12/31/2010A 4.8x 12/31/2011P 4.0x 5 One further topic: Recent debt refinancings provide financial flexibility and enhance earnings nd nd |