Jack O. Bovender, Jr. Chairman and CEO

Vic Campbell Senior Vice President

Mark Kimbrough VP, Investor Relations

JP Morgan Healthcare Conference

January 2004

 

This press release contains forward-looking statements based on current management expectations. Those forward-looking statements include all statements regarding our estimated results of operations in future periods and 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 highly competitive nature of the health care business, (ii) the efforts of insurers, health care providers and others to contain health care costs, (iii) possible changes in the Medicare and Medicaid programs that may impact reimbursements to health care providers and insurers, (iv) the ability to achieve operating and financial targets and achieve expected levels of patient volumes and control the costs of providing services, (v) the possible enactment of Federal or state health care reform, (vi) the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical support personnel, (vii) potential liabilities and other claims that may be asserted against the Company, (viii) fluctuations in the market value of the Company’s common stock, (ix) the Company’s ability to complete the share repurchase program, (x) changes in accounting practices, (xi) changes in general economic conditions, (xii) future divestitures which may result in additional charges, (xiii) changes in revenue mix and the ability to enter into and renew managed care provider arrangements on acceptable terms, (xiv) the availability and terms of capital to fund the expansion of the Company’s business, (xv) changes in business strategy or development plans, (xvi) delays in receiving payments for services provided, (xvii) increases in the amount and risk of collectibility of uninsured accounts and deductibles and co-pay amounts for insured accounts, (xviii) the outcome of pending and any future tax audits and litigation associated with the Company’s tax positions, (xix) 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, (xx) changes in Federal, state or local regulations affecting the health care industry, (xxi) the impact of charity and self-pay discounting care policy changes, (xxii) the ability to successfully integrate the operations of Health Midwest, (xxiii) the ability to develop and implement the financial enterprise resource planning information system within the expected time and cost projections and, upon implementation, to realize the expected benefits and efficiencies, (xxiv) the ability to enter into definitive written agreements with regard to the understanding with attorneys representing the class in the class action litigation and insurance carriers, and obtain court approval thereof; and (xxv) other risk factors detailed from time to time 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.

 

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

 2

HCA

3

HCA is located in 16 of 20 Fastest Growing HCA is located in 16 of 20 Fastest Growing Large US CitiesLarge 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

HCA

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

4

New Market: Midwest DivisionNew Market: Midwest Division

Includes 12 hospitals (1 management contract) & 2 ASC’s

Represents 33% of the total acute care providers in the Kansas City metro area and is the area’s largest health care system

CON in Missouri, No CON in Kansas

$450M capital commitment within 5 years

HCA Midwest Division Hospitals

HCA

5

HCA Annual Environmental ReviewHCA Annual Environmental ReviewKey Findings and ActionsKey Findings and Actions

HCA

• HCA’s core business strategy is sound. The Company’s focus will continue to be on market-leading positions in large, fast-growing urban communities.

• To compete more effectively in the outpatient area, the Company has established a Corporate operational unit focused on outpatient services. HCA anticipates making strategic acquisitions in outpatient services.

• The Company intends to reduce capital expenditures from approximately $2 billion in 2003, to approximately $1.8 billion in 2004 and to approximately $1.6 billion annually thereafter, excluding acquisitions.

• HCA anticipates lowering its target ratio of debt-to-total capitalization from 55 percent to the low 50s or high 40s by mid-to-late 2005.

6

HCA Annual Environmental ReviewHCA Annual Environmental ReviewKey Findings and ActionsKey Findings and Actions

HCA

• The Company’s current $1.5 billion share repurchase program is expected to be completed in a judicious manner, as dictated by market conditions.

• HCA’s Senior Management and Board of Directors are evaluating a change to the Company’s existing dividend policy and expected to announce any changes in the Company’s existing dividend policy in the first quarter of 2004.

• The Company has revised its long-term earnings per share growth target after 2004 from mid-teens to low-double-digits.

7

95

100

105

110

115

120

125

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Socio-Demographics—Age WaveSocio-Demographics—Age WaveDriving Healthcare UtilizationDriving Healthcare Utilization

1.58% CAGR 2003-2012

1.58% CAGR 2003-2012

1.62%3-Year CAGR

Ac

ute

Ca

re U

tili

zati

on

In

de

x(2

00

3=

10

0)

Baby Boomer Impact Accelerates

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%

121

119

117

115

113

112

110

108

106

105

103

102

100

98

97

96

1.4%

1.56%3-Year CAGR

1.59%3-Year CAGR

1.58%3-Year CAGR

HCA

Positive Influence

Hospital Volume Outlook: 3-5 YearsHospital Volume Outlook: 3-5 Years

8

HCA

Negative Influence

• Population

Growth

• Aging

• Technology

• Economy

• Unemployment

• Higher Co-Pays and Deductibles

9

Unemployment TrendsUnemployment TrendsNational Average vs. HCA Key MarketsNational Average vs. HCA Key Markets

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%N

atio

nal

Au

stin

Dal

las

Den

ver

Ft.

Lau

der

dal

e

Ho

ust

on

Las

Veg

as

Mia

mi

Nas

hvi

lle

Ric

hm

on

d

San

Jo

se

Tam

pa-

St.

Pet

e

National Average Range:

4.6%-6.6%

200020012002

SeptYTD

2003

Source: US Department of Labor

HCA

10

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1Q 00 2Q 00 3Q 00 4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q03 3Q03

Admissions Rolling 12 mo. Avg

HCA Admissions TrendsHCA Admissions Trends2001 to 3rd Quarter 2003 – Same Facility2001 to 3rd Quarter 2003 – Same Facility

Adjusted for closed SNF/OB Adjusted for closed SNF/OB unitsunits

HCA

11

6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

HCAHCA MarkeMarket Avg.t Avg.

•Medicare admissions to Medicare admissions to HCA facilities increased HCA facilities increased by 15.4%, more than by 15.4%, more than twice the rate of growth twice the rate of growth in the HCA markets in the HCA markets (6.7% on average).(6.7% on average).

•HCA increased its share HCA increased its share of Medicare admissions of Medicare admissions in 14 of 15 markets by in 14 of 15 markets by 114 bps, on average, 114 bps, on average, and increased its and increased its surgical market share by surgical market share by an average of 120 bps.an average of 120 bps.

Source: Data Advantage Corp. and Source: Data Advantage Corp. and UBS WarburgUBS Warburg

HCA Growing Medicare Market ShareHCA Growing Medicare Market ShareGrowth in Medicare Admissions, 1998 - 2001Growth in Medicare Admissions, 1998 - 2001

HCA

15.4%

12

Net Revenue per Adjusted AdmissionNet Revenue per Adjusted Admission2000 to 32000 to 3rdrd Quarter 2003 – Same Facility Quarter 2003 – Same Facility

0%

5%

10%

15%

1Q 00 2Q 00 3Q 00 4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q03 3Q03

NRAA Rolling 12 mo. Avg

HCA

NRAA reflects all payors, pricing, intensity and mix

70% of 2004 contracts completed at average rate increase of approximately 7%

Managed Care ContractingManaged Care Contracting

13

HCA

Pricing and terms consistent with 2003

Recent contracts completed

• Humana GA; TN; San Antonio, TX; IN, KY• CIGNA Richmond and Dallas• Aetna West Florida, Dallas, Houston• BCBS FL 45% of our contracts are now multi-year

agreements

Medicare Bill approved on Nov 25, 2003 provides for full market basket increases for hospital payments in 2004 to 2006

Medicare EnvironmentMedicare Environment

14

HCA

Negative impact of outlier rule changes effective Oct. 1, 2003 – Sept. 30, 2004 currently estimated to be $12 million per month for HCA

Eighteen-month moratorium on new physician-owned “niche” hospitals pending Med Pac study of “whole hospital” loophole related to physician self referrals

SWB down 40 bps (adjusted for HMW

acquisition) to 39.6% of NR through

September 2003

Focused Cost ManagementFocused Cost Management

15

HCA

Contract labor cost per adjusted day is

down 27% from Q1 2003 with nursing

contract labor decreasing approximately

30% Supply costs remain unchanged YTD in the

face of increasing technology and drug

costs as many “supply chain” initiatives

gain momentum

Provision for Doubtful Accounts increased to approximately 10% of NR YTD

Increasing Self-Pay RevenuesIncreasing Self-Pay RevenuesPut Pressure on Bad DebtsPut Pressure on Bad Debts

16

HCA

Increasing self-pay receivables combined with a deterioration in collectibility of this A/R contributed to the need to increase the provision for doubtful accounts

Soft economy/unemployment is a major driver of the escalation of uninsured patients

Bad debt expense in 2004 should moderate with the implementation of the Company’s Charity Care Policy

HCA Provision for Doubtful AccountsHCA Provision for Doubtful AccountsDriven by Increasing Self-Pay A/R and Deteriorating Collectibility of Self-Pay A/RDriven by Increasing Self-Pay A/R and Deteriorating Collectibility of Self-Pay A/R

17

HCA

10%

12%

14%

16%

18%

Dec 31 00 Dec 31 01 Apr 30 02 Aug 31 02 Apr 30 03 Sept 30 0335%

37%

39%

41%

43%

45%

47%

• Approximately $2.7 billion of A/R is self-pay

• HCA has $2.4 billion reserved, or 87% of self-pay A/R, as uncollectible @ Sept. 30, 2003

Self-Pay % of Total A/R

Collectibility of Self-Pay A/R

12%

46%

17%

38%

18

$0.0

$0.5

$1.0

$1.5

$2.0

2000 2001 2002 2003 P 2004 E

RoutineCapital

Facility ExpansionProjects

New &Replacement Facilities

InfrastructureDevelop., IT&S, & Pat. Safety

Billions

Shared Services

$1.2 $1.4 $1.7 $2.0 $1.8

Kansas City

Does not include HMW acquisition but includes capital obligations

HCA Capital ExpendituresHCA Capital ExpendituresHCA

19

Sky Ridge Medical CenterSky Ridge Medical CenterDenver, Colorado ($150M) 104 beds

Opened: August 2003

HCA

20

Capital Regional Medical CenterCapital Regional Medical CenterTallahassee, FL ($100M) 200 beds

Opened: August 2003

HCA

21

Stonecrest Medical CenterStonecrest Medical CenterSmyrna, TN ($96M) 75 beds

Opened: December 2004

HCA

22

HCA is Investing Significantly in Programs forHCA is Investing Significantly in Programs forPatient Safety and Improved Patient OutcomesPatient Safety and Improved Patient Outcomes

HCA

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

23

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

shareholders through share repurchase and/or shareholders through share repurchase and/or dividendsdividends

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….HCA