HCA Healthcare is one of the largest hospital groups in the United States, with a growing network of outpatient clinics, surgery centres and urgent care sites complementing its hospitals. It is a high-quality business with significant scale, strong local market positions, a disciplined management team and a long history of good execution.

Why investors like HCA? The HCA investment is straightforward: HCA is a scaled, high-quality operator in a structurally-important industry, benefiting from attractive demographic tailwinds.

HCA operates around 189 hospitals and 2,600 outpatient facilities including surgery centres, urgent care clinics and physician practices. This scale matters. HCA sees millions of patients each year, which brings a level of cost efficiency that smaller and not-for-profit hospitals struggle to match. That’s one reason HCA generates industry-leading margins.

It benefits from an ageing population as older patients use more healthcare services. HCA has also focused on faster growing states, like Florida and Texas, where population and employment growth give the company a growth advantage compared to peers. This translates to HCA growing revenue around 5% annually, with further growth from acquisitions. It also has a large share repurchase programme which means its earnings grow 8-12% annually, which we see as attractive for its valuation.

The bonus point: HCA is a quiet AI story. Hospitals are complex, labour-intensive businesses. HCA is now using AI tools to reduce admin burden, improve staffing, free up clinician time and provide efficiency gains, all of which could be meaningful given its scale. Here are three examples:

  • AI-powered nurse handovers. HCA has built a “nurse handover” tool with Google that helps pull together relevant patient information for shift changes. This matters because HCA has ~60k nurse handovers daily. The tool reduces paperwork, improves consistency and gives nurses more time with patients.
  • Ambient clinical documentation. HCA is piloting an ambient-listening AI tool which listens to clinician-patient conversations and generates structured notes, which physicians then review and finalise. This can reduce the time clinicians spend on documentation and improves completeness of the medical record.
  • Timpani for nurse staffing and scheduling. HCA has developed Timpani, an AI-enabled staffing tool to forecast patient demand and match nurse staffing more efficiently. The productivity angle is that better staffing should reduce overtime hours worked, lower reliance on expensive contract labour and improve nurse satisfaction by providing more autonomy by choosing hours that work for them.

But even good businesses need to be reassessed when the market backdrop changes.

HCA’s share price has performed strongly over the past few years. Toward the end of last year, its shares had a particularly strong run given its insulation from tariffs and the drug pricing reform that impacted many other companies in the Healthcare sector.

However, this year several regulatory changes were implemented that could make it harder for HCA to grow its earnings. These include cuts in subsidies; reductions in state funding for low-income insurance programmes; and stricter eligibility requirements for government programmes like Medicaid.

This was one reason we reduced our position earlier in the year, despite still liking HCA’s long-term prospects. Since then, HCA shares have been weaker, as the market has also started to recognise some of the risks. We continue to monitor the valuation and would look for opportunities to add to this high-quality business at the right price, as we believe the long term structural drivers of the business remain intact.