Merrill Lynch/Dec 04 2004HCA Jack O. Bovender, Jr. Chairman and CEO Milton Johnson Executive Vice...

Merrill Lynch/Dec 04Merrill Lynch/Dec 0420042004HCAHCA

Jack O. Bovender, Jr.Jack O. Bovender, Jr.Chairman and CEO

Milton JohnsonMilton JohnsonExecutive Vice President and CFO

Vic CampbellVic CampbellSenior Vice President

Mark KimbroughMark KimbroughVP, Investor Relations

Merrill Lynch/Dec 04Merrill Lynch/Dec 0420042004HCAHCA 22

This presentation contains forward-looking statements based on current management expectations. Those forward-looking statements include all statements other than those made solely with respect to historical fact. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in any forward-looking statements. These factors include, but are not limited to (i) the increased leverage resulting from the financing of the tender offer, (ii) increases in the amount and risk of collectability of uninsured accounts and deductibles and co-pay amounts for insured accounts, (iii) the ability to achieve operating and financial targets, achieve expected levels of patient volumes and control the costs of providing services, (iv) the highly competitive nature of the health care business, (v) the efforts of insurers, health care providers and others to contain health care costs, (vi) possible changes in the Medicare and Medicaid programs that may impact reimbursements to health care providers and insurers, (vii) the ability to attract and retain qualified management and other personnel, including affiliated physicians, nurses and medical support personnel, (viii) potential liabilities and other claims that may be asserted against the Company, (ix) fluctuations in the market value of the Company’s common stock, (x) the impact of the Company’s charity care and self-pay discounting policy changes, (xi) changes in accounting practices, (xii) changes in general economic conditions, (xiii) future divestitures which may result in charges, (xiv) changes in revenue mix and the ability to enter into and renew managed care provider arrangements on acceptable terms, (xv) the availability and terms of capital to fund the expansion of the Company’s business, (xvi) changes in business strategy or development plans, (xvii) delays in receiving payments for services provided, (xviii) the possible enactment of Federal or state health care reform, (xix) the outcome of pending and any future tax audits, appeals and litigation associated with the Company’s tax positions, (xx) the outcome of the Company’s continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures and the Company’s corporate integrity agreement with the government, (xxi) changes in Federal, state or local regulations affecting the health care industry, (xxii) the ability to successfully integrate the operations of Health Midwest, (xxiii) the ability to develop and implement the payroll and human resources information systems within the expected time and cost projections and, upon implementation, to realize the expected benefits and efficiencies, (xxiv) the continuing impact of the recent hurricanes on the Company’s Florida facilities and the ability to obtain recoveries under the Company’s insurance policies, and (xxv) other risk factors detailed in the Company’s filings with the SEC. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. Notwithstanding any statement in this press release, the safe harbor protections of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with a tender offer.

All references to “Company” and “HCA” as used throughout this document refer to HCA Inc. and its affiliates.


HCA is located in 16 of 20 Fastest HCA is located in 16 of 20 Fastest Growing Large US CitiesGrowing Large US Cities

Switzerland

U.K.

%%

%

%%%

Compared to the National Average of 4.5%

Compared to the National Average of 4.5%

Las Vegas+22%

Las Vegas+22%

Southern California

+9%

Southern California

+9%

Denver+9%

Denver+9%

Dade+8%

Dade+8%

Nashville+8%

Nashville+8%

Panhandle+10%

Panhandle+10%

Tampa Bay+8%

Tampa Bay+8%

Dallas/Ft. Worth+12%

Dallas/Ft. Worth+12%

Austin+18%

Austin+18%

Richmond+8%

Richmond+8%

Palm Beach+11%

Palm Beach+11%

Houston+10%

Houston+10%

Kansas City+5%

Kansas City+5%

Percent Growth in Market Population 2000-2005

Percent Growth in Market Population 2000-2005

Generally 25-40% Market Share40% of facilities in Texas & Florida

Generally 25-40% Market Share40% of facilities in Texas & Florida


HCA Capital ExpendituresHCA Capital Expenditures

ER & Outpatient Services19%/$720

Replacement Facilities3%/$98M

New & Expanded Services

18%/$740M

New Facilities10%/$395MBeds

14%/$550M

Surgery/Spec'l Units

22%/$870M

Land & Improvements

14%/$565M

1,565 New Beds

54 Facilities with Surgeryand/or ICU/CCU

expansions

Four NewFacilities

378 Beds

Open Heart, ImagingCardiology, Oncology, etc.

37 ERExpansions

37 ERExpansions

Distribution of Capital Dollars2002 and Beyond

Distribution of Capital Dollars2002 and Beyond

New Denver FacilityNew Denver Facility

Expansions

$0.0

$0.5

$1.0

$1.5

$2.0

2000 2001 2002 2003 2004E

Billions2000

$1.22001

$1.42002

$1.72003

$1.82004E

$1.6

Routine

Patient Safety & Infrastructure

New Facilities

Expansions


Capital Regional Medical CenterCapital Regional Medical Center

Tallahassee, FL ($100M) 200 beds

Opened: August 2003

HCA


Stonecrest Medical CenterStonecrest Medical Center

Smyrna, TN ($96M) 75 beds

Opened: December 2004

HCA


Inpatient Admissions and Outpatient Visits Inpatient Admissions and Outpatient Visits 1980 - 20031980 - 2003

Source: AHA Annual Survey 1980 - 2003

Inp

atie

nt

Ad

mis

sio

ns

(mil

lio

ns)

Ou

tpat

ien

t V

isit

s (m

illi

on

s)

27

28

29

30

31

32

33

34

35

36

37

100

150

200

250

300

350

400

450

500

550

600

Inpatient Admissions Outpatient Visits


Socio-Demographics—Age WaveDriving Healthcare Utilization

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

95

100

105

110

115

120

125

Acu

te C

are

Uti

lizat

ion

Ind

ex(2

003=

100)

Baby Boomer Impact Accelerates

1.58% CAGR 2003-2012

1.58% CAGR 2003-2012

121

119

117

115

113

112

110

108

106

105

103

102100

9897

96

1.7%1.6%

1.6%1.6%

1.5%1.6%

1.6%1.6%

1.6%1.6%

1.6%1.5%

1.6%1.5%

1.4%

1.56%3-Year CAGR

1.59%3-Year CAGR

1.58%3-Year CAGR

1.62%3-Year CAGR


-1.0%

1.0%

3.0%

5.0%

7.0%

Admissions Rolling 12 mo. Avg

HCA Admission Trends 2001 to 3Q 2004HCA Admission Trends 2001 to 3Q 2004Same FacilitySame Facility

6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

HCAMarket

Competitors

15.4%

*

HCA Growing Medicare Market Share

Growth in Medicare Admissions 1998-2001

HCA Growing Medicare Market Share

Growth in Medicare Admissions 1998-2001

*2Q includes same-market admissions


4.4%

3.3%

4.6%

1.8%

4.0%

2.5%

0.3%

-0.7% -0.8%

2.4%

1.4%1.9%

2.6%2.3%

0.1%

-2%

0%

2%

4%

6%

8%

10%

1Q 012Q 01

3Q 014Q 01

1Q 022Q 02

3Q 024Q 02

1Q 032Q 03

3Q 034Q 03

1Q 042Q 04

3Q 04

Inpatient surgeries Rolling 12 mo. Avg.

Inpatient Surgery Trends ImprovingInpatient Surgery Trends Improving2001 to 32001 to 3rdrd Quarter 2004 - Same Facility Quarter 2004 - Same Facility

1: Includes Kansas City facilities.

1

-3.3%

2.3%8.8%

0.6%

-2.4%

5.8%

-0.8%

5.5%1.0%

-15%

0%

15%

Jan Feb Mar Apr May Jun Jul Aug Sep

Inpatient Surgeries (2004)


9.4%

37.2%

OutpatientOutpatientERER

OutpatientOutpatientERER

Enhanced Outpatient Services FocusEnhanced Outpatient Services Focus

12.5%Hospital BasedHospital BasedHospital BasedHospital Based

FreestandingFreestandingFreestandingFreestanding

OutpatientOutpatientDiagnostic Diagnostic ServicesServices

OutpatientOutpatientDiagnostic Diagnostic ServicesServices

ImagingImagingCardiologyCardiologyOncologyOncologyOrthopedicsOrthopedicsNeurologyNeurology

ImagingImagingCardiologyCardiologyOncologyOncologyOrthopedicsOrthopedicsNeurologyNeurology

Hospital BasedHospital BasedHospital BasedHospital BasedOutpatient Outpatient SurgeriesSurgeriesOutpatient Outpatient SurgeriesSurgeries

15.3%ASC BasedASC BasedASC BasedASC Based

70%

30%

2003% of HCA

Net Revenue

As a % of Outpatient Surgeries

O/P Comprised of Three Business LinesO/P Comprised of Three Business Lines


Outpatient Strategy ProcessingOutpatient Strategy Processing

Transactions totaling $41 million completed20–30 imaging center and 8-10 surgery center transactions expected to

be completed over the next 12 months

Sarah Cannon Research Institute

(Nashville)

Sarah Cannon Research Institute

(Nashville)

Austin Radiology Assoc.2 imaging centers

Austin Radiology Assoc.2 imaging centers

Diversified Radiology (Denver)

4 imaging centers/fifth under

construction

Diversified Radiology (Denver)

4 imaging centers/fifth under

construction

Thousand Oaks

Diagnostic Imaging

Thousand Oaks

Diagnostic Imaging

Millcreek Imaging CenterSalt Lake City, UT

Millcreek Imaging CenterSalt Lake City, UT

HCA Surgery Centers

LAD Imaging Centers

(Orange City, Deltona)

LAD Imaging Centers

(Orange City, Deltona)


2004 Managed Care Contracting2004 Managed Care Contracting

2005 Contract

Pricing Timeline*

6,844 Facility Level Active Contracts

*Anticipated Completion Dates

Pre-2004 1Q04 2Q04 3Q04 4Q04

75% of 2005 and 35% of 2006 contracts 75% of 2005 and 35% of 2006 contracts completedcompleted

75% of 2005 and 35% of 2006 contracts 75% of 2005 and 35% of 2006 contracts completedcompleted

2005Cumulative

42%42% 55%55% 75%75% 95%95%35%35% 100%100%

Net Revenue per Adjusted AdmissionManaged Care & Other Discounted

15.0%

10.5%11.4%

13.0% 13.3%

9.6%

7.0% 7.3%

11.1%9.2%

0%

16%

1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04

11.1%9.9%

3Q 04

6.6%

9.0%


Medicare Reimbursement Improves Oct. 1, 2004with Outlier Threshold Change and Full Market Basket Update

Hospitals receive full market basket update 3.3% beginning

October 1, 2004

Hospitals receive full market basket update 3.3% beginning

October 1, 2004

Medicare outlier threshold reduced from $30,150 (Oct ’03),

to $25,800 (Oct ’04)

Medicare outlier threshold reduced from $30,150 (Oct ’03),

to $25,800 (Oct ’04)


LaborLabor CostCost

* Eastern and Western Consolidated Operations

$48

$34$41

$28$35

$24

$32

$22

$34

$23

$34

$22

$32

$20

$0

$25

$50

Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04

15%vs.

Q103

15%vs.

Q103

25%vs.

Q103

25%vs.

Q10333%vs.

Q103

33%vs.

Q103

29%vs.

Q103

29%vs.

Q103

29%vs.

Q103

29%vs.

Q103

7.0%

4.4%4.9%4.7%5.2%5.4%5.0%5.4%7.0%

5.0%4.9%4.5%4.8%4.8%6.4%

0%

5%

10%20012001

+6.5% +5.1% +4.7% +4.6%+4.6%Sept YTDSept YTD

Wage Rate Same Facility - % Change from PY

20022002 20032003 20042004

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

Total Operations* Nursing

1: Includes Kansas City facilities.

1

3Q04

Contract Labor Reduction$/Adj. Patient Day

33%vs.

Q103

33%vs.

Q103


Bad Debt Impact on Operating Expenses Bad Debt Impact on Operating Expenses per Adjusted Admissionper Adjusted Admission

Op

erat

ing

Exp

en

ses /

AA

– P

erc

en

t C

han

ge

fro

m P

rio

r Y

ear

Operating Expense/AA Operating Expense/AA (Adj. For Bad Debt)

Same Facility – Percent Change from Prior Year

4.7%

8.1%5.4%

5.6% 5.5%5.5%

5.8%5.3%

3.8%

6.0%6.2%

7.5%

9.3%

7.4%7.8%

5.5%

7.6%6.6%

10.4%

7.6%

8.9%

10.8%10.2%

8.0%

6.0%

7.0%

8.8%8.5%8.0%

5.2%

0%

5%

10%

15%

1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04

20012001 20022002 20032003 20042004

7.0% 9.4%7.4%

6.4%6.7%6.5% 6.0%

8.5%Sept. YTDSept. YTD

Sept. YTDSept. YTD

7.0%1

5.1%1

1: Adjusted for $26M in net hurricane operating expense impact during the 3rd quarter


HCA Reduces Malpractice Reserves by HCA Reduces Malpractice Reserves by $59 Million in 2Q 2004$59 Million in 2Q 2004

4

1618

14

25

103

9

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 2004

HCA Large Claims DecliningHCA Large Claims Declining


HCA is Investing Significantly in ProgramsHCA is Investing Significantly in Programs for Patient Safety and Improved Patient Outcomesfor Patient Safety and Improved Patient Outcomes

E MAR: Medication Error Prevention

E POM: Physician Order Entry

100% Participation in CMS Quality Reporting Initiative

Member of NQF and Leapfrog

Cardiovascular, OB and Emergency Department Initiatives


Accounts Receivable IndicatorsCash Collections % Adj. Net Revenue / Days in A/R

49 49 50 51 5148 49

51 50 49 4740

55Days in Accounts ReceivableDays in Accounts Receivable

101.8%103.4%

103.6%105.9%105.1%

103.6%

100.8%103.5% 102.8%98.0%

100.5%96%

110%

Cash CollectionsCash Collections% Adjusted Net Revenue% Adjusted Net Revenue


Strong Cash Flow Trends Provide Strong Cash Flow Trends Provide OpportunitiesOpportunities

$1,301

$1,584

$2,046

$2,786 $2,822

$0

$3,500

1999 2000 2001 2002 2003

Net Cash Provided by Operating ActivitiesDollars in Millions

Excluding settlements with government agencies and investigation related costs.

New DividendNew DividendPolicyPolicy$250mm annually$250mm annually

Share Share Repurchase Repurchase ProgramProgram$10.0B in 8 years$10.0B in 8 years$2.5B “Dutch Auction” $2.5B “Dutch Auction” completed at $39.75 incompleted at $39.75 inNovember ‘04November ‘04

Capital ReinvestmentCapital Reinvestment$1.6B in 2004$1.6B in 2004


$7.5 Billion$7.5 Billion

249 Million Shares249 Million Shares

38% of outstanding shares38% of outstanding shares

Average Price: $30.20Average Price: $30.20

Opportunities Of Having Strong Cash Flow

Share Share repurchase repurchase programprogram

$1.3B: 37.9M Shares1997

1998

1999

2000

2001

20032002

20041

1: 2004 purchases through 3-12-04 2: Includes other activities affecting share balance (stock option exercises, restricted grants, and ESPP activity.)

$33.59/share$22.68/share

$930M: 41M Shares

$1.4B: 55.6M Shares $24.61/share$1.3B: 43.5M Shares $28.65/share$706M: 19.2M Shares$706M: 19.2M Shares $36.88/share$1.1B: 31.1M Shares $35.76/share

$600M: 14.5M Shares$41.45/share

650M Shares 12/31/96

491M Shares2 12/31/03

$282M: 6.2M Shares$45.53/share

Impact of Tender OfferImpact of Tender Offer

$10 Billion$10 Billion

311 Million Shares311 Million Shares

48% of outstanding shares48% of outstanding shares

Average Price: $32.20Average Price: $32.20


Employee Satisfaction at Record LevelsEmployee Satisfaction at Record Levels

26.7%25.9%

22.8%

20.1%

18.8%18.3%

17.0% 16.8%

3.5%

3.6%

3.7%

3.8%

15%

20%

25%

30%

2000 2001 2002 2003

3.3%

3.4%

3.5%

3.6%

3.7%

3.8%

3.9%

Employee Satisfaction(Gallup Score)

Employee Turnover

Nurse Turnover

Tu

rno

ver

Rat

eS

atisfaction

Sco

re


A prudent financial strategy that provides for a strong A prudent financial strategy that provides for a strong balance sheet and return of cash to shareholders through balance sheet and return of cash to shareholders through

share repurchase and/or dividendsshare repurchase and/or dividends

Excellent Investment OpportunitiesExcellent Investment Opportunities

Strong Cash FlowsStrong Cash Flows

Excellent Long-Term Earnings Growth OutlookExcellent Long-Term Earnings Growth Outlook

Great AssetsGreat Assets

In Summary We Have….In Summary We Have….

Merrill Lynch/Dec 04 2004HCA Jack O. Bovender, Jr. Chairman and CEO Milton Johnson Executive Vice...

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Transcript of Merrill Lynch/Dec 04 2004HCA Jack O. Bovender, Jr. Chairman and CEO Milton Johnson Executive Vice...