Is Humana’s pain HCA Healthcare’s gain?

Key Points

• HCA Healthcare is the nation's largest for-profit hospital owner and operator, serving 20 states and the U.K.
• HCA crushed Q4 2023 EPS estimates by 85 cents, and revenues rose 11% YoY to $17.3 billion, crushing analyst estimates for $16.51 billion.
• HCA raising its full-year 2024 EPS and revenue guidance handily while Humana lowering its top and bottom line guidance dramatically could be more than a coincidence.

HCA Healthcare Inc. NYSE: HCA is the largest for-profit hospital company in the United States. The company owns and operates 186 hospitals and nearly 2,400 ambulatory sites, including freestanding emergency rooms, urgent care and surgery centers, and physician clinics in 20 states and the United Kingdom. Originally formed as Hospital Corporation of America in 1968, the medical sector leader has evolved into a powerhouse provider of medical services. It competes with hospital and healthcare facilities operators Tenet Healthcare Ins. NYSE: THC and Community Health Systems Inc. NYSE: CYH.

Its recent earnings report showcased both top and bottom-line growth. Incidentally, one of the nation's largest health insurers, Humana Inc. NYSE: HUM, warned of spiraling Medicare Advantage plan costs, severely cutting EPS estimates through 2025. Is there an asymmetric relationship between the provider and payor that has formed? If Human’s pain HCA Healthcare’s gain?

Growing the ecosystem

HCA continues to invest capital toward a large pipeline of projects to continue expanding its network of facilities, services, and workforce. The significant investment in workforce training and development programs includes expanding its majority-owned Galen College of Nursing and centers for clinical advancement with over 20 campuses nationwide.

It has over $2 billion of new capital projects that are expected to come online in 2024. It will also integrate a number of newly acquired outpatient facilities and hospitals to benefit its networks. The company plans to increase capital spending to more than $5 billion and enhance its stock buyback program to nearly $5 billion.

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Strong quarter

On Jan. 30, 2024, HCA reported Q4 2023 EPS of $5.90, beating consensus analyst estimates by 85 cents. Revenues grew 11.7% YoY to $17.3 billion versus $16.51 billion consensus estimates. Same-facility admissions rose 3.1% YoY, and same-facility equivalent admissions rose 3.9%. It's worth noting that Humana had also mentioned a strong uptick in inpatient utilization with Medicare Advantage plan members towards the end of the year in 2023.

HCA Healthcare CEO Sam Hazen commented, “Same-facility volumes across the company were strong in the fourth quarter. Admissions grew 3% year-over-year. Equivalent admissions were up 4%, emergency room visits grew 2%. Inpatient and outpatient surgery volumes increased by approximately 1%. Most of our other volume categories, including cardiac procedures and rehab admissions, also had solid growth metrics in the quarter.”

Raising the bar

HCA issued upside guidance for full-year 2024 EPS of $19.70 to $21.20 versus $19.51 consensus analyst estimates. Full-year 2024 revenues are expected between $67.75 billion to $70.25 billion versus $67.55 billion consensus analyst estimates. Capital expenditures are estimated to be around $5.1 billion to $5.3 billion, excluding acquisitions. Check out the sector heatmap on MarketBeat.

Medicare Advantage plan utilizations

HCA CFO Bill Rutherford stated that HCA saw Medicare Advantage admissions rise 10% in the quarter, which was consistent throughout the year. CFO Rutherford also pointed out that HCA could gain some moderate positive results in 2024 from Medicare Advantage volumes as a result. He claims the company has seen no impact in 2023 yet. This could also be a clue as to why Humana experienced the surge in Medicare Advantage plan inpatient utilization near the end of the fourth quarter of 2023.

Medicare two-midnight rule

The Medicare two-midnight rule applies to traditional and Medicare Advantage plan patients. It applies to inpatient admissions that cross over two-midnight stays are covered under Medicare Part A. This rule took effect on June 5, 2023, but will go fully into effect as final policies become applicable in 2024. This means Medicare Advantage plans must cover inpatient admissions where the patient is expected to stay for at least two nights and for medically necessary inpatient surgical procedures.

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Daily ascending triangle and Golden Cross breakout

The daily candlestick chart for HCA illustrates an ascending triangle breakout pattern. The ascending trendline formed at $263.22 lows, rising to the flat-top upper horizontal trendline at $287.19. The breakout triggered the Q4 2023 earnings report, gapping shares up to the $296.12 level as it rose to $314.82 in the following days.

The daily relative strength index (RSI) spiked through the 70-band on the triangle breakout but peaked and started to slip towards the 70-band. The daily 50-period moving average (MA) at $272.11 has crossed up through the 200-period MA at $267.28, forming the Golden Cross breakout. Pullback support levels are at $296.12, $287.19, $271.66 and $263.22.