1、 Hospital Management 2020 Outlook:Expecting Solid Financial Results,but Political Noise will Continue Healthcare Facilities|Sector Forecast Utilization and Pricing.In 2020,we expect a modest deceleration in hospital vols compared with the 3.2%2019 YTD growth in adj admissions,but we do not expect to
2、 see vols to soften in a significant way.Capital deployment(expansion projects)should continue to benefit HCA and UHS,while rationalized portfolios,and the momentum behind operational improvement initiatives should continue to benefit THC and CYH.An extra day in 1Q19 due to leap year should also be
3、helpful to hospital vols.On pricing,we expect the hospital companies to see a normal level of growth in net revenue per adjusted admission in the 2-3%range,though it could skew higher in the range than the 2.2%YTD in 2019.The Medicare FFS rate updates for 2020 look better than 2019,and we see consis
4、tent trends in the area of commercial reimbursement(including actual rate updates,terms,denials,etc.).HCA Remains Our Top Pick Amongst Providers.As the highest quality hospital company with consistent execution,a deep management bench,high market share in growing urban markets,and continued investme
5、nt in expansion activity,we expect HCA to outperform the broad market in 2019.HCA shares advanced 18.8%during 2019,in-line with the healthcare sector(HCX,+18.7%)but below the S&P 500(+28.9%).The company trades at a multiple of 8.3x 2020 EBITDA(in-line with the group average)and 12.8x 2020 EPS.Our cu
6、rrent estimate for EBITDA growth is 6.0%.On HCAs 3Q19 earnings call,management said it expects growth slightly above that level in 2020(excluding any unannounced acquisitions),providing an opportunity for modest upside to estimates.Our 12 month price target assumes the shares will trade at 8.5x 2021
7、 EBITDA,a 60 bps EV/EBITDA multiple point increase over current levels.UHS and THC Also Rated Outperform.UHS Acute business is benefiting from recent capital deployment and its concentration in fast-growing markets like Las Vegas and Southern California.While UHS Behavioral business has seen modest
8、low single digit growth in recent years,the company has hired a new Division President who expects to offer specific plans for operational improvement in mid-2020.UHS has very modest leverage,creating an opportunity for sizeable capital deployment or incremental share repurchases.Our current estimat
9、e for EBITDA growth is 4.5%(6.5%in Acute and 2.5%in Behavioral),an acceleration over 2019 EBITDA growth of 1.8%(4.6%in Acute and 1.7%in Behavioral).While our Acute segment est for 2020 is a meaningful acceleration over 2019,UHS should have relatively easy EBITDA comps in 1Q19 and 3Q19.Also,by way of
10、 background,UHS is on track to post 7.8%rev growth in its Acute segment for 2019,but struggled to maintain margin.For THC,the hospital business has posted steady operational improvement over the past couple of years,and the Ambulatory business continues to be the companys crown jewel.We are modeling
11、 2020 consolidated rev growth of 3.0%and consolidated EBITDA growth of 4.3%,which could prove conservative.Updating HCA and THC Target Price and Estimates.Our HCA target price is now$169(previously$165),while our THC target price is now$43(previously$36).Risks to our ratings and target prices for al
12、l hospital companies include volume and pricing trends.6 January 2020 Equity Research Americas|United States DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does
13、 and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decis
14、ion.Research Analysts A.J.Rice 212 325 8134 aj.ricecredit- Caleb Harris,CPA 212 325 7458 caleb.harriscredit- Eduardo Ron 212 325 7491 eduardo.roncredit- Alexander Khan 212 325 7714 alexander.khancredit- 6 January 2020 Hospital Management 2 Table of ContentTable of Contents s A Review of 2019 3 2019
15、Events.3 2019 Price Performance.4 Hospital Group Valuations 7 2020 Outlook 9 CS Estimates vs.Consensus.9 Growth Estimates by Company.9 Volumes.10 Pricing.11 Labor Environment and Cost Structure.12 Political and Legal Backdrop.13 2020 Election Cycle 13 Texas v.United States 13 Price Transparency 13 S
16、urprise Billing 13 Medicaid Supplemental Payments Proposal 14 Company-by-Company Summary.14 HCA Healthcare(HCA)Remains Our Top Pick 14 Universal Health Services(UHS)Outperform 15 Tenet Healthcare(THC)Outperform 16 Community Health Systems(CYH)Underperform 18 HCA Healthcare 19 Tenet Healthcare Corpor
17、ation 21 6 January 2020 Hospital Management 3 A Review of 2019A Review of 2019 2019 Events2019 Events During December 2018,a federal judge in Texas ruled that the ACA was unconstitutional.The ruling was promptly appealed and had no immediate impact on healthcare providers.In terms of stock performan
18、ce,on the first trading day after the ruling(December 17th),HCA shares declined 2.8%and UHS shares declined 2.2%,which was broadly in line with the S&P 500 decline of 2.1%that day.HCA and UHS continued generally to track the overall market for the rest of December 2018,while the levered names(CYH an
19、d THC)underperformed the broad market.On February 1st,HCA closed its sizeable Mission Health acquisition(based in North Carolina).HCA expects this deal to showcase the value that HCA can bring to a health system and the community around that system.Medicare-for-All discussions on the part of the Dem
20、ocratic Presidential candidates exerted pressure on hospital shares in late February and in March,particularly as some polls showed Senator Bernie Sanders leading the Democratic field.However,4Q18 earnings reports showed generally positive trends for the hospital companies with all four covered comp
21、anies beating EBITDA estimates.Initial guidance for 2019 was also in-line or ahead of consensus expectations for all four covered companies.In late March,news flow heavily concentrated on healthcare policy,political rhetoric and even a pair of legal setbacks for the Trump Administration.The White Ho
22、use shifted its legal position in the ACA case(Texas v.United States)from neutrality to arguing that the entire health reform package should be ruled unconstitutional.Two court rulings went against the Trump Administration,with one court striking down Medicaid work requirements for Arkansas and Kent
23、ucky,and another judge striking down Association Health Plans.In early April,UNHs comments on its Q1 conference call related to Medicare-for-All added to investor concern that the chances of a single payer program being implemented was greater than previously thought.On April 23rd,just ahead of the
24、start of hospital earnings season,CMS released its Medicare inpatient reimbursement rate proposal for federal fiscal year 2020.The proposed rate increase was better than expected and included wage index changes that were geared towards improving reimbursement for some rural hospitals.On April 25th,f
25、ormer Vice President Joe Biden formally entered the Democratic Presidential nomination race,immediately being elevated to front-runner status,and his more moderate stance on healthcare reform had the effect of easing concerns in the financial community over M4A.In late April and early May,hospitals
26、reported 1Q19 earnings results.Q1 results were somewhat mixed.HCA had a very strong quarter with double digit core growth and strong contribution from recent acquisitions.THC beat modestly,while UHS and CYH both missed consensus expectations for EBITDA.UHS saw weak pricing on an unfavorable procedur
27、e mix.During late May and early June,healthcare provider stocks were weak as the Senate HELP committee considered a bipartisan healthcare bill that covered surprise billing,prescription drug costs,price transparency,and more.Later in June,President Trump signed an executive order on price transparen
28、cy that kept the ball moving on that topic but left many details to be filled in later.On June 26th,Democratic presidential primary debates kicked off.In early July,polls showed former VP Joe Bidens lead slipping in the Democratic race,which was generally viewed as increasing the likelihood of M4A a
29、nd being negative for the hospital space.In late August,a Monmouth poll showed Joe Biden losing his lead among 2020 Democratic contenders to Senator Elizabeth Warren which hurt share prices of MCOs.6 January 2020 Hospital Management 4 On July 24th,Conifer announced that it would pursue a spin-off of
30、 its Conifer business(revenue cycle management).The spin-off is expected to be completed by the second quarter of 2021.On July 29th,CMS released a solid proposed update to Medicare outpatient reimbursement.However,CMS also used that proposed rule to formally propose price transparency requirements t
31、hat would follow President Trumps executive order.The price transparency proposals included a requirement for hospitals to disclose privately negotiated commercial reimbursement rates,which was strongly opposed by both payers and providers.Hospitals reported 2Q19 earnings in late July and early Augu
32、st.Earnings were mixed again,with UHS,THC,and CYH beating consensus EBITDA expectations and HCA missing consensus expectations.While HCA did not miss the published consensus number by a wide margin,investors had generally expected the company to beat the consensus figure.HCA saw an unfavorable proce
33、dure mix in Q2.UHS,on the other hand,saw a more normalized procedure mix in Q2.In late October and early November,hospitals reported 3Q19 earnings results.HCA and THC beat consensus EBITDA expectations,while CYH missed slightly.UHS missed expectations and lowered full year guidance.The Q3 miss for U
34、HS was primarily due to high operating expenses in the acute segment as the companys very strong revenue growth(SS adjusted admissions growth of 7.4%)exceeded expectations and required expensive resource utilization such as agency labor.HCA noted on its Q3 earnings call that it expected to achieve a
35、t least 6%total EBITDA growth in 2020,including 5-6%core growth.On November 1st,Senator Warren released her plan to fund Medicare-for-All,which seemed to leave the impression among investors that funding needs for the proposal were so vast that the legislation was unlikely to move forward even if Se
36、nator Warren were to become the next President.In mid-November,Senator Warren suggested that she would not pursue Medicare-for-All until the third year of her administration,which many interpreted to mean that M4A would not be a top priority in a Warren presidency.On November 6th,we upgraded our rat
37、ing of THC shares to Outperform given the companys improving hospital business trends,strong positioning in the ASC business(USPI),and the simplification and clarity that will be produced by spinning off the Conifer business.THC also refinanced debt so that it has no debt maturities until 2022.On No
38、vember 15th,the Trump administration also finalized price transparency rules for hospitals and insurers.The hospital and health insurance industries have remained opposed to the regulations as proposed by the Trump Administration and are pursuing legal action.On December 16th,appropriators released
39、federal spending bills.The legislation did not include some healthcare policies that caused concerns earlier in 2019(i.e.,surprise billing,drug pricing,price transparency,PBM provisions).The legislation did include a delay of Medicaid DSH cuts until May 23,2020,which was a modest positive for the ho
40、spital group.On December 18th,the Fifth Circuit Court of Appeals released its ruling on the ACA case(Texas v.United States),saying that the individual mandate is unconstitutional but that additional analysis must be performed to determine which components of the law are severable from the individual
41、 mandate and which components are not severable.2012019 9 Price PerformancePrice Performance The composite for hospital stocks in our coverage increased by 41.6%during 2019,which outperformed the broader market(as measured by the S&P 500)increase of 28.9%.The hospital average also beat the overall h
42、ealthcare sector(as measured by HCX)increase of 18.7%.The strong hospital group performance was driven by THC(+121.9%).UHS shares(+23.1%)and HCA shares(+18.8%)also performed well during 2019.CYH shares advanced 2.8%during the year.6 January 2020 Hospital Management 5 Figure 1:Price Performance for H
43、ospitals Source:FactSet,Credit Suisse(a)HCA was taken private in 2006 and came public in March 2011;(b)HMA was acquired by CYH on January 27,2014;(c)LPNT merged by RCCH Partners on November 16,2018;(d)QHCs 2016 return is based on April 29 close price of$13.50 per share;(e)VHS was acquired by THC on
44、October 1,2013;(f)Triad was acquired by CYH in 2007.Figure 2:Covered Hospitals vs.S&P 500 Price Performance Source:FactSet,Credit Suisse 2007200820092010201120122013201420152016201720182019CYH0.9%-60.4%144.2%5.0%-53.3%76.2%27.7%37.3%-50.8%-74.4%-23.8%-33.8%2.8%HCAaN/AN/AN/AN/A-26.6%36.9%58.1%53.8%-7
45、.8%9.4%18.7%41.7%18.8%HMAb-71.7%-70.1%306.1%31.2%-22.7%26.5%40.6%N/AN/AN/AN/AN/AN/ALPNTc-11.8%-23.2%42.4%13.0%1.1%1.6%40.0%36.1%2.1%-22.6%-12.3%30.5%N/AQHCdN/AN/AN/AN/AN/AN/AN/AN/AN/A-46.1%-14.2%-53.7%-66.9%THC-27.1%-77.4%368.7%24.1%-23.3%58.2%29.7%20.3%-40.2%-51.0%2.2%13.1%121.9%UHS-7.6%-26.6%62.4%
46、42.4%-10.5%24.4%68.1%36.9%7.4%-11.0%6.6%2.8%23.1%VHSeN/AN/AN/AN/A-43.2%19.9%71.5%N/AN/AN/AN/AN/AN/ATriadf28.8%N/AN/AN/AN/AN/AN/AN/AN/AN/AN/AN/AN/AAvg-14.7%-51.5%184.8%23.1%-25.5%34.8%48.0%36.9%-17.9%-32.6%-3.8%0.1%19.9%Avg ex-QHC-14.7%-51.5%184.8%23.1%-25.5%34.8%48.0%36.9%-17.9%-29.9%-1.7%10.9%41.6%
47、S&P 5003.5%-38.5%23.5%12.8%-0.0%13.4%29.6%11.4%-0.7%9.5%19.4%-6.2%28.9%HCX190.6%-24.5%17.1%0.7%10.2%15.2%38.7%23.3%5.2%-4.4%20.0%4.7%18.7%(10.0%)0.0%10.0%20.0%30.0%40.0%50.0%60.0%Hospital Avg.S&P 5006 January 2020 Hospital Management 6 Figure 3:CYH 2019 Price Performance(+2.8%)Figure 4:HCA 2019 Pric
48、e Performance(+18.8%)Source:FactSet Source:FactSet Figure 5:THC 2019 Price Performance(+121.9%)Figure 6:UHS 2019 Price Performance(+23.1%)Source:FactSet Source:FactSet -60%-40%-20%0%20%40%60%80%100%CYHS&P 500-15%-10%-5%0%5%10%15%20%25%30%35%HCAS&P 500-20%0%20%40%60%80%100%120%140%THCS&P 500-5%0%5%10
49、%15%20%25%30%35%40%UHSS&P 5006 January 2020 Hospital Management 7 Hospital Group ValuationsHospital Group Valuations The hospital group is trading at average 2020E and 2021E EV/EBITDA multiples of 8.3x and 8.0 x,respectively.Figure 7:Hospital Valuations*Current P/E Current EV/EBITDA 2019E 2020E 2021
50、E 2019E 2020E 2021E CYH NM NM NM 8.3x 8.3x 8.1x HCA 14.2x 12.8x 11.7x 8.8x 8.3x 7.9x THC 13.9x 11.9x 9.7x 8.1x 7.9x 7.6x UHS 14.6x 13.2x 12.2x 9.3x 8.9x 8.5x Average 14.2x 12.6x 11.2x 8.6x 8.3x 8.0 x Source:FactSet,Credit Suisse estimates*Based on January 3,2020 closing price Figure 8:Credit Suisse