Morningstar | HCA Healthcare's Third-Quarter Results Continue Year-to-Date Outperformance; Raising FVE
Third-quarter results put HCA Healthcare on track to report performance for the full year that could be among the best over the last decade. Same-facility revenue growth of 7.3% is the best number we've seen since 2015, with year-to-date growth of 6.5% split between 2.7% growth in equivalent admissions and pricing that has expanded 3.8%. These results underscore the strength of this narrow-moat enterprise, in our view, and we'll likely raise our fair value estimate by a mid-single-digit percentage as we incorporate this better-than-expected performance and the cash flows received since our last update.Management indicated the strength in revenue-per-equivalent-admission is a continuation of many of the factors that have driven upside year to date. Higher acuity and patient mix have been the most critical drivers, with case-mix again increasing roughly 3.8% and same-facility managed care equivalent admissions up nearly 4%. We've been surprised by the persistence of this strength quarter after quarter, and model normalized same-facility revenue growth closer to 4% in the later years of our model. That said, EBITDA growth has also been trending above what we tend to think of as a normalized level, with guidance for 2018 raised to 7% over reported levels seen in 2017. While 2017 was impacted by sizable costs associated with last year's hurricane season, this has been partially offset by the lost profits associated with the sale of the firm's Oklahoma University system at the beginning of this year.
Finally, management briefly discussed its outlook for 2019 that suggested EBITDA growth is likely to remain near 7% into next year. We think the persistence of these tailwinds, along with the finalized 2019 payment update from the Centers for Medicare and Medicaid Services that came in better than in recent years, helps support this above-trend performance. Long term, however, we think modeling normalized EBITDA growth near 5% remains appropriate.
HCA Healthcare is a holding company. Through its subsidiaries, partnerships and joint ventures, the company owns and operates hospitals and related health care entities. Most of the company's general, acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. The company's psychiatric hospitals provide therapeutic programs including child, adolescent and adult psychiatric care, adolescent and adult alcohol and drug abuse treatment and counseling.
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