Duke Fuqua Desk: Opened New Long Position In HCA

HedgeFundLIVE.com — HCA is the largest non-governmental health system in the U.S., with over $30 billion in revenue in 2010.  Headquartered in Nashville, but reaching across 20 states and Great Britain, it operates 164 hospitals and 106 free-standing surgery centres. On March 10, 2011, HCA returned to the public market after 5 years being private and is currently listed on the NYSE.

HCA is attractive for the following reasons:

  1. With the passage of the US Health Reform Bill, it is expected that there will be expanded coverage and reduction of uninsured patients by approximately 32-34 million people.  This will significantly decrease losses by hospitals from “self-pay” patients, which typically lead to high levels of bad debt.
  2. Hospital M&A activity, primarily with large health systems buying smaller hospitals, has been very strong.  With HCA’s size and resources, it is very possible that HCA becomes larger through acquisitions.  HCA may even get involved with Community Health Systems’ bid for Tenet Healthcare, which are both publicly traded hospital companies.
  3. With stimulus funds accelerating the adoption of healthcare technology in provider networks, HCA, like other hospital operators, are likely to benefit greatly from enhanced efficiency in billing, administrative, and clinical processes.
  4. There is a tremendous shift nationally of private practice physicians who are now being employed by hospital systems due to increasing administrative and financial burdens, and payment regulations favouring larger institutions. HCA is likely to benefit from this trend by having a larger and more talented physician network employed by the company.
  5. HCA has a strong presence in the high-reimbursable services of cardiology and orthopedic surgery.

HCA is unattractive for the following reasons:

  1. HCA has approximately $26 billion of debt post offering and its debt exceeds its assets by more than $12 billion. Even with access to the public market, it may weigh the company down for a while.
  2. There is significant uncertainty in US healthcare payment reform as the system shifts away from the traditional fee-for-service model. Until payment regulations are more clearly defined, the future remains cloudy for hospitals.
  3. Traditionally, IPOs wear off after the initial hype. It is difficult to assess whether the long-term prospects are favourable to HCA as the healthcare reform bill begins to make its largest impact starting around 2014.

When assessing the future outlook of HCA, we believe that the near future holds strong potential for the company. Regulations and technological trends favour large hospital systems and it is likely the company will continue to grow its provider talent base.

HCA’s chief concern is paying off debt but with an expected boost from a larger insured population, and a strong stock performance, they may be able to reduce this debt significantly in the years to come.  Also, its ability to grow through acquisitions represents a key advantage for the company looking forward and will have significant negotiating power with payers and regulators.

HCA Investment Thesis

Given its market position and trends, it would seem that HCA stock is likely to increase over the next several months.

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http://www.hedgefundlive.com/blog/duke-fuqua-desk-opened-new-long-position-in-hca

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