Resolved that shareholders of HCA Healthcare Inc. (“HCA” or the “Company”) request that the Compensation Committee of the board of directors publish a report (at reasonable expense and omitting confidential and propriety information) analyzing the feasibility of increasing the impact of the Company’s performance on quality metrics on the senior executive compensation arrangements described in HCA’s annual proxy materials.

Supporting Statement

According to HCA’s most recent proxy statement, the core philosophy of its executive compensation programs is “to support the Company’s primary objective of providing the highest quality health care to our patients, while making a positive impact on the communities in which we operate and enhancing the long-term value of the Company to our stockholders.” The annual incentive program, the Performance Excellence Program (“PEP), “is intended to reward named executive officers for annual financial and quality performance."1

Providing high-quality care, HCA’s “primary objective,” seems to share equal billing with financial performance in HCA’s compensation design. Emphasizing quality, and rewarding executives for quality performance, is in shareholders’ interest because high quality promotes long-term value creation. However, the formula used for PEP awards is strongly weighted toward short-term financial performance

In 2019, 80% of the PEP award for named executive officers (“NEOs”) was based on a single financial metric, earnings before interest, taxes, depreciation and amortization (“EBITDA”). Although HCA ostensibly based the remaining 20% on quality metrics, performance on those metrics can be modified by EBITDA performance. If EBITDA performance exceeds the target level, each individual quality of care metric which qualifies for 100% payout is multiplied by the EBITDA payout percentage. What’s more, if EBITDA is less than 90% of target, no payment is made on the quality portion of the PEP.

In 2019, HCA achieved target for only three of nine quality metrics. But the EBITDA multiplier amplified performance on those three metrics, boosting CEO William Hazen’s bonus for 2019, which topped $4 million, by over $100,000.

Using financial results to amplify performance on certain safety metrics has the effect of reducing the impact of subpar performance on other safety metrics. The quality metrics that were not amplified in 2019 because performance fell short include: inpatient experience, which is the most heavily weighted quality metric; measure of sepsis care management and measure of elective early delivery, which are both “core measures;” and measures of three hospital-acquired infections. We are particularly concerned about this impact because the target levels for two of the infections were set below the 50th percentile nationally, which is unambitious.

Accordingly, we believe it is advisable for the Compensation Committee to explore changes to the compensation arrangements for HCA’s NEOs that would increase the impact of quality performance. This Proposal gives the Compensation Committee total discretion to identify potential new metrics, adjust the weighting of existing metrics, or decouple quality and financial metrics, and to analyze the feasibility of incorporating any of those features.

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