HCA Holdings 2012 Annual Report Download - page 81

HCA HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2012 and 2011 (continued)
Salaries and benefits, as a percentage of revenues, were 45.7% in 2012 and 45.3% in 2011. Salaries and
benefits per equivalent admission increased 2.9% in 2012 compared to 2011. Same facility labor rate increases
averaged 1.7% for 2012 compared to 2011. Share-based compensation expense increased from $26 million in
2011 to $56 million in 2012, and we expect the 2013 expense to be at least double the $56 million expense
recorded in 2012.
Supplies, as a percentage of revenues, were 17.3% in 2012 and 17.4% in 2011. Supply costs per equivalent
admission increased 1.2% in 2012 compared to 2011. Supply costs per equivalent admission declined 2.0% for
pharmacy supplies, and increased 1.6% for medical devices and 0.1% for general medical and surgical items in
2012 compared to 2011.
Other operating expenses, as a percentage of revenues, declined to 18.3% in 2012 from 18.5% in 2011.
Other operating expenses are primarily comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome
taxes. Other operating expenses include $234 million and $317 million of indigent care costs in certain Texas
markets during 2012 and 2011, respectively. Provisions for losses related to professional liability risks were
$331 million and $244 million for 2012 and 2011, respectively.
During 2012 and 2011, respectively, we recognized $336 million and $210 million of electronic health
record incentive income related to Medicaid ($89 million and $87 million) and Medicare ($247 million and
$123 million) incentive programs. We recognize income related to Medicare and Medicaid incentive payments
using a gain contingency model that is based upon when our eligible hospitals have demonstrated meaningful use
of certified EHR technology for the applicable period and the cost report information for the full cost report year
that will determine the final calculation of the incentive payment is available.
Equity in earnings of affiliates declined from $258 million for 2011 to $36 million for 2012. Equity in
earnings of affiliates during 2011 related primarily to our Denver, Colorado market joint venture, which effective
November 1, 2011, we began consolidating due to our acquisition of the approximate 40% remaining ownership
interest.
Depreciation and amortization increased, as a percentage of revenues, to 5.1% in 2012 from 4.9% in 2011.
The consolidation of HealthONE for periods subsequent to November 1, 2011 represents $113 million of the
increase in depreciation and amortization. Depreciation expense was $1.673 billion for 2012 and $1.461 billion
for 2011.
Interest expense declined to $1.798 billion for 2012 from $2.037 billion for 2011. The decline in interest
expense was due to a decline in the average interest rate. Our average debt balance was $27.356 billion for 2012
compared to $26.588 billion for 2011. The average interest rate for our long-term debt declined from 7.7% for
2011 to 6.6% for 2012.
Net gains on sales of facilities were $15 million for 2012 and primarily related to the sales of health care
entity investments. Net gains on sales of facilities were $142 million for 2011 and primarily related to the sale of
a hospital facility and other health care entity investments.
During January 2013, a Missouri judge ruled in favor of a nonprofit health foundation in a lawsuit against
HCA. In the case, the plaintiff alleged HCA did not make the full level of capital expenditures and
uncompensated care agreed to in connection with its purchase of hospitals from Health Midwest in 2003. We
recorded $175 million of legal claim costs during the fourth quarter of 2012 related to this ruling.
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