HCA Makes Discount Headway

On Wednesday morning's earnings conference call, HCA execs said that, as of Dec. 31, they were several percentage points short of meeting the targets for the discount orthopedic contract. But "the good news is that we have now met our targets" and anticipate pricing discounts will continue, execs added.

Indeed, during the latest quarter, that effort seemed to pay off. Supply costs, which have been rising in recent years, actually held steady as a percentage of revenue.

Meanwhile, HCA's provision for doubtful accounts -- another skyrocketing expense -- actually fell slightly during the latest period. But the company's total amount of uncompensated care, which also includes charity write-offs and discounts for the uninsured, has now reached a whopping 13.4% of revenue overall.

Hopeful Prognosis

Still, some analysts see reason for hope.

Clearly, Bernstein analyst Ellen Wilson felt reassured by HCA's recent performance. Wilson noted that HCA's patient volumes, while admittedly weak, had at least risen during the latest quarter. At the same time, she pointed out that the company's bad debt expense had actually fallen despite mounting pressures from the uninsured.

Thus, Wilson emerged from the company's recent update feeling optimistic about HCA's future growth -- even though the company itself had failed to raise its guidance for the current year.

"Overall, HCA's fourth-quarter results are better than expected, showing that the bar for earnings expectations is set low regardless of some level of continued fundamental pressure," Wilson wrote two weeks ago. "We believe that this sets up a scenario of little downside risk to HCA's earnings expectations in 2006, with some possibility for upside should things simply prove not as bad as now assumed by consensus estimates.

Wilson currently has an outperform rating on HCA's stock. Her firm manages accounts that own more than 1% of the company's outstanding shares.