HCA Holdings’ unique risks



Key risks

HCA Holdings (HCA) faces a unique combination of risks in addition to industry-specific risks of the hospital industry. Investors are exposed to these risks when they invest in the Health Care Select Sector SPDR ETF (XLV).

Graph 9

Article continues below advertisement

Geographic risk

HCA Holdings earns about 50% of revenues from facilities in Florida and Texas, which have high levels of uninsured populations at 22.1% and 20.1%, respectively. Both states have federally run insurance exchanges. This geographic concentration of earnings exposes the company to risk from sudden changes in the social, regulatory, and economic environment in these markets.

High levels of uninsured people lead to large bad debt expenses for the company. In addition, an ongoing legal proceeding in the Supreme Court of the United States challenged the applicability of subsidies in premiums given to people in states with federally run exchanges.

This will reduce the rate at which uninsured get health insurance. It will also lead to currently insured people losing their coverage, as they are not able to afford the premiums without subsidies. This is expected to impact HCA’s and Community Health Systems (CYH) future earnings.

Legal risk

In 2012, HCA Holdings (HCA) and Tenet Healthcare (THC) were charged with $16.5 million and $42.75 million, respectively, under the False Claims Act violations. The fine on HCA was related to the remuneration paid to Diagnostic Associates of Chattanooga in exchange of patient referrals in 2007.

One of its peers, Davita Healthcare Partners (DAV), a dialysis service provider, was also charged with fine of $389 million under the False Claims Act in 2014. HCA is also embroiled in other cases such as that against Health Care Foundation of Greater Kansas City, where HCA has recorded $252 million legal claim costs.

Reputation risk

An investigation conducted by the Tampa Bay Times revealed that HCA Holdings has been overcharging its patients in the trauma centers or emergency rooms by as much as $40,000. This investigation has affected the company’s reputation and exposes it to further legal risks.


More From Market Realist