HCA Holdings reported preliminary second-quarter results that were slightly ahead of our forecast following weaker-than-expected results in the first quarter. Management also maintained its year-end outlook, and we’ll probably increase our fair value estimate since the company should ultimately surpass our year-end expectations. While initial indications suggest insurance exchange pricing is somewhat better than our earlier guess, we think ongoing Medicare reimbursement pressure and government oversight will sustain HCA’s inability to earn an economic moat.
We’re also still concerned how the net effect of declining disproportionate share payments for uninsured individuals may play out in some of HCA’s key markets where the states may not expand Medicaid. The decline in uncompensated care is one of the biggest advantages for hospitals under health reform, in our view, so ongoing admissions from uninsured patients could remain a sizable headwind for HCA.
For the second quarter, management expects 4.2% net revenue growth with an adjusted EBITDA margin of approximately 20%, or about a 70-basis-point improvement from the year-ago period. This quarter’s profitability surpassed our expectations, likely helped by favorable pricing and the ability to keep costs in check thanks to the low inflationary environment. Same-facility revenue per equivalent admission grew 2.9% during the quarter, and as in previous quarters, we assume commercial insurance drove most of the beneficial payment growth. Same-facility admissions and adjusted admissions growth remained somewhat weak at 1.3% and 1.1%, respectively, both near our estimates.
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