Operating expenses accounted for 80.7% of HCA Holdings’ (HCA) net operating revenues in 3Q14. That’s a decrease of 130 basis points from the 82% share of net operating revenues in 3Q13. In the same time period, competitors Community Health Systems (CYH), LifePoint Hospitals (LPNT), and Tenet Healthcare (THC) respectively spent 86.5%, 86.6%, and 89.1% of their net operating revenues on operating expenses.
The healthcare industry, represented by the Healthcare Select Sector SPDR Fund (XLV), bears extremely large labor costs. Salaries account for more than half of total operating expenses. HCA Holdings, or HCA, spent marginally less on salaries in 3Q14. As a percentage of net revenues, labor costs fell from 46.3% in 3Q13 to 45.7% in 3Q14, as you can see in the chart above. But, the decline is mainly due to stronger company revenues in the same time frame.
Salaries paid to the hospital staff per patient admission increased 1.9% from 3Q13 to 3Q14. A shortage of qualified talent in the medical field coupled with HCA’s aggressive organic growth strategy contributed to higher labor expenses per facility.
Supplies as a percentage of revenue decreased marginally from 17.2% in 3Q13 to 16.7% in 3Q14. Supply costs per admission increased by 0.1% in the same time frame. Supply costs per admission increased 1.0% for medical devices and 3.1% for pharmacy supplies. But these costs fell 0.9% for general medical and surgical items between 3Q13 and 3Q14. For more on this topic, read Exploring HCA Holdings’ operating expenses.
Other expenses as a percentage of revenue decreased from 18.5% in 3Q13 to 18.3% in 3Q14. These expenses include contract services, professional fees, repairs and maintenance, rents, and taxes.