Frank Morgan:

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and our CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take some questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements that are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA is included in today's release. This morning's call is being recorded, and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Mike Marks:

Thank you, Sam, and good morning, everyone. The second quarter showed continued solid performance with strong demand, improved margins and a balanced allocation of capital. Sam reviewed our top line results, so I will cover operating costs in the quarter. Operating costs were well managed, resulting in a margin improvement of 100 basis points to prior year and sequentially through the first quarter. Labor cost has improved 200 basis points from the prior year. And we continue to see good results in contract labor, which declined 25.7% from the prior year and represented 4.8% of total labor costs. Supply costs as a percent of revenues improved 50 basis points from the prior year. On other operating costs as a percent of revenue, they did grow compared to the prior year, but it remained relatively consistent for the past four quarters. We were encouraged that year-over-year same-facility professional fee costs growth moderated to approximately 13% in the second quarter, which compares favorably to the 20% increase we experienced in the first quarter. Adjusted EBITDA was $3.55 billion in the quarter, which represents a 16% increase over the prior year and included a modest benefit from Medicaid supplemental payments. As a management team, we are very pleased with the operational performance of the Company. Now moving to capital allocation. We continue to deploy a balanced strategy of allocating capital for long-term value creation. Cash flow from operations was just under $2 billion in the quarter, which is a decline of $500 million in the prior year, driven by income tax payments and timing of Medicaid supplemental program accruals and cash receipts. Capital expenditures totaled $1.28 billion, and we repurchased $1.37 billion of our outstanding share in the quarter. We also paid about $170 million in dividends. Our debt-to-adjusted EBITDA leverage remains near the low end of our stated guidance range, and we believe we are well positioned from a balance sheet perspective. Finally, in our release this morning, we are updating estimated guidance for 2024. For revenues, our new guidance range is $69.75 billion to $71.75 billion; net income attributable to HCA Healthcare, $5.675 billion to $5.975 billion; adjusted EBITDA, $13.75 billion to $14.25 billion; and diluted earnings per share, $21.60 to $22.80 per share. Based on the strength of our year-to-date results and our revised outlook, we estimate that share repurchases will be around $6 billion in 2024, subject to market conditions. With that, I'll turn the call over to you, Frank, for questions and answers.

Operator:

[Operator Instructions] Our first question comes from A.J. Rice from UBS. Your line is now open.

Mike Marks:

Thank you, A.J., this is Mike. I'll take the supplemental question. I think as you're aware, Medicaid has historically been our most challenging payer, really other than patients without insurances, typically paying us significantly below the cost of carrying for Medicaid patients. Over the last several years, most states in which we operate have implemented or enhanced Medicaid reimbursement through supplemental payment programs. And while these supplemental programs are growing, it is important to put them in context. They can be complex, variable in their impact from quarter-to-quarter and when taken together with historical Medicaid reimbursement are still well short of covering the cost to treat Medicaid patients. We believe it is important to understand this backdrop when discussing these programs. But now to the quarter. In the second quarter, we recognized a year-over-year earnings increase of approximately $125 million related to our Medicaid supplemental payment programs driven primarily by the new program in Nevada and the accrual of the Florida program, which began in the fourth quarter of 2023. To your specific question about the new program in Tennessee, we -- that is with CMS for review, and we do not anticipate financial impact from that program in 2024. If you want to go to the public exchanges. For the quarter, and let me just kind of give commercial volumes in general first and then we'll kind of break out it. But our equivalent admissions for managed care, including our health care exchange volumes were up 12.5% in this quarter versus the prior year quarter. If you take our managed care volumes without health care exchanges, they were up just short of 5% on equivalent admissions. And for health care exchanges, we were up 46% over prior year for the quarter.

Sam Hazen:

So, on the volume, I think as I mentioned and Mike alluded to there, I mean our Medicare volumes were up, I think by 6.5%. So, the volume was supported really across all payer categories. Clearly, the exchange and the enrollment over the last three years or so has become a bigger component of the business but still relatively small in comparison to the other payer classes. But nonetheless, we did see good volume across all payer classes with the Medicaid, I think being the only category that was down.

Operator:

Our next question comes from Ann Hynes from Mizuho Securities. Your line is now open.

Mike Marks:

Sure. Thanks, Ann. Contract labor was down 25.7% this quarter versus prior year quarter. As I noted in my opening comments, contract labor as a percentage of revenue -- I'm sorry, percentage of SWB was at 4.8% in the quarter. This compares to 6.8% in the second quarter of last year and almost 10% at the height of COVID in early 2022. So, we're continuing to see the improvements from all the work we're doing around recruiting and around retention, and that's paying the dividends in contract labor. If you think about kind of wage inflation, wage inflation was stable and kind of continues to run where we expected it to run. So also, we are pleased with our later results for the quarter.

Operator:

Our next question comes from Pito Chickering from Deutsche Bank. Your line is now open.

Mike Marks:

So, we're obviously really pleased with our year-to-date due performance. It kind of sets our thinking about the back half of the year. On the top line, our volume and payer mix for the first six months of this year were better than our original expectations. Solid labor management, as we just talked about, including the contract labor declines also contributed to our thinking around the kind of our results. As we move into the back half of the year, we believe most of these trends should continue. We anticipate volume growth to be in the 4% to 6% range for the year. We expect salary wages and benefits supplies and other operating expenses as a percent of revenue to run mostly where we did June year-to-date. Contract labor as a percentage of salary wage and benefits is projected to be in roughly in the mid-4% range in the back half of 2024. And we do expect professional fee expense growth to the prior year to moderate a bit more in the back half of 2024 as well. Specifically, on Medicaid supplemental payments, as you recall in our original guidance, we anticipate a headwind of $100 million to $200 million from the Medicaid supplemental programs. As we've noted previously, these programs are complex and have a lot of variability quarter-to-quarter. But given that we are now deeper into 2024 and have better visibility into the programs across our states, we now anticipate an approximate $100 million to $200 million tailwind in 2024 from Medicaid supplemental payment programs, most of which occurred in the first half of 2024.

Brian Tanquilut:

Congrats on solid quarter. Maybe, Sam, just as we think about -- you called out Medicaid with the redetermination kind of dragging in volumes a little bit here. But still very, very good performance. So just curious where you stand now as you think about the sustainability of this elevated utilization trend.

Operator:

Our next question comes from Ben Hendrix from RBC Capital Markets. Your line is now open.

Sam Hazen:

Well, this is Sam. Let me speak to our core strategy. And our core strategy is to create sort of a one stock capability within our systems. And by that, I mean, the ability to take care of a patient's need regardless of what their condition happens to be. So we, over time, have built complexity in the services that we've offered. So we've enhanced trauma programs. We've enhanced transplant programs. We've enhanced neonatal services. We've opened up our infrastructure with our transfer centers with helicopters, with ground transportation. We've interacted with the rural community in a way that support health care needs there, which typically tends to be more acute care service requirements than not. And so, all of that has been part and parcel toward our network strategy over the years. I will tell you, again, we had broad-based service growth in trauma in the number of ambulance deliveries that occurred at our hospitals, our cardiac care. Our cardiac surgery was up. So, we had -- neonatal admissions were up. All of these components that I mentioned that are essential to our network strategy saw growth. And so that has naturally lifted the case mix and the acuity of the patients that we serve. The two mid-night rule is actually dilutive when it comes to our case mix on the inpatient side. So, we jumped over the implications of the two midnight rules because those are lower acute patients deserve -- deserving to be in an inpatient status, but none the less than average equity by comparison. So, our quarter suggests that the acuity and the complexity of the services that we offer is even more than what it reports out simply because of the dilutive effect of the two mid-night rule.

Justin Lake:

Sam, wanted to get your view on one of the bigger questions we're all getting from investors heading into the election, which is the potential for exchange disruption should the enhanced subsidies be allowed to expire at the end of 2025. Has the Company run a scenario analysis of what happens to these volumes and hospital economics should those subsidies expire? And if not, maybe you could just share with us what you think happens to those patients in terms of coverage, who might drop from the exchanges? Do they become uninsured? Do you think they move to other payer types? And then if I could just squeeze in a numbers question. Can you tell us what same-store ASC revenue growth was in the quarter?

Mike Marks:

On same-store ASC revenue growth is about 8%.

Whit Mayo:

Sam, you've talked a lot in recent quarters around the efficiencies and the throughput initiatives that you've had in the ER. Any numbers that you can share around any of those productivity gains that puts this in perspective, maybe we see it on the back end with length of stay? And just if you could comment on the commercial growth in the ER this quarter.

Operator:

Our next question comes from Andrew Mok from Barclays. Your line is now open.

Mike Marks:

Yes. So, on the exchange volumes, they're just right at 7% of admissions and ER visits as well for exchange as a percent of total. What was the second question?

Operator:

Our next question comes from Stephen Baxter from Wells Fargo. Your line is now open.

Mike Marks:

If you look at wage inflation, as we kind of came in this year, we were thinking that 2.5% to 3% range, and that stays consistent as we think about where we are here and how we're going to kind of close to the back half of the year. So as -- thinking wage inflation will be fairly steady.

Mike Marks:

So, there were some questions on M&A. Let me just kind of run through that. So, you have $400 million of revenue in new stores. About $250 million of that is from Valesco. The rest are from the acquisitions in Texas, you heard us talk about the Wise Healthcare System acquisition couple of others. And that's the revenue side of that. It was dilutive to earnings, though and about 1% negative impact to EBITDA for the quarter. So, the M&A trends don't really impact or did not really impact our year-over-year EBITDA growth in any material way.

Scott Fidel:

I was hoping to just circle back on the Medicaid supplemental payments. And maybe if you can just sort of talk about how your Medicaid margins have evolved from maybe where they were a couple of years ago to where they are currently inclusive of the Medicaid supplemental payments. I know that you had mentioned how this is really just trying to get the business still on Medicaid back closer to breakeven or maybe not even there yet. So helpful if you could sort of walk us through that? And then just looking out to the elections, there is a level of investor uncertainty around the sustainability of Medicaid supplemental payments, if there was a switch in the White House, although I do think it's notable that we do see many of the states that are sponsoring these payments are from red states. So, it feels like these payments slightly would be quite sustainable. But there is a lot of investor uncertainty around this topic. So, we certainly appreciate your thinking on that.

Operator:

Our next question comes from Jason Cassorla from Citigroup. Your line is now open.

Mike Marks:

We are not really revising our CapEx. As we started the year, we talked about $5.1 billion to $5.2 billion. We think it's still going to generally be in that same range. As noted in our comments, we do expect based on the improved outlook and the updated guidance that we're going to spend about $6 billion in 2024 on share repurchase. So, the bulk of the increase from the improved results would be going towards share repurchase.

Mike Marks:

Sam, let me clarify real quick. I said $5.1 billion to $5.2 billion. It's actually $5.1 billion to $5.3 billion in capital spending for 2024.

Kevin Fischbeck:

It sounds like you believe that the volume and the demand support this volume as a kind of a base for the future. I wanted to see if you could give a little color on the margin side of things. Is this the right way to be thinking about the base when we think about ex year? Is there anything puts or takes that you would point to? I know sometimes when volume comes in stronger than you plan for, maybe there's a little bit more margin leverage than you would expect, and maybe that might moderate or whether you mentioned the timing in the past about some of -- payments. Is there any obvious headwind from timing from this year into next year we should be thinking about as we think about margins and EBITDA sustainability? Is this a good base for thinking about next year's growth?

Operator:

Our next question comes from Ryan Langston from TD Cowen. Your line is now open.

Mike Marks:

Yes. So labor, as we've already said, the biggest driver, if you think about our performance in the first half of the year compared to prior year was this reduction in contract labor. And that kind of comes through all the work we've been doing over the last several years, improving our recruitment activities and really working on retention. On the recruitment side, you've heard us talk about our academic affiliation work, our work around the Galen School of Nursing. And all of that has kind of produced improved supply of nursing into our markets, which has been super beneficial. I do think from a contract labor perspective, we're -- as I noted in my comments, we're down to 4.8% of contract labor as a percentage of salary wages and benefits. And I do think that the go-forward improvement, we'll still have some. We've guided, as you've noted from my comment on guidance that we think we'll run probably in the mid-4 range in the back half of the year. So, there's some improvement in the future. But I think the big move on contract labor from the highs of COVID really have been reflected now and what's to come is more incremental improvement as we continue to work on recruiting and retention. So that would be my -- I don't see anything other than that. It's material related to driving our labor trends. I mean productivity remains good. Wage inflation has been stable especially kind of coming off COVID and into 2024. So, those are the major things that we think about when we think about from now to the back half of the year.

Mike Marks:

And one more comment on labor. The other thing that was very helpful for us in the -- not only in the quarter, but year-to-date is this 2% reduction length of stay. So, if you think about kind of how did we service almost 6% growth in inpatient volume on the admission side, 2% reduction length of stay. Sam mentioned this, we had a percent increase in our bed count from our capital investment program and then our occupancy levels were up 2%. But that 2% drop in length of stay and the ER efficiency that Sam mentioned earlier also supports our labor costs and the efficiency in the way we're managing our labor. So, I wanted to add that as well.

John Ransom:

Great job. Just curious, a question we're getting is, if you look at the back half, do you happen to have the DPP compare of '23 versus '24 in your back half?

John Ransom:

Okay. And if I could just sneak one more. M&A, what is the year-over-year M&A contribution to EBITDA? Because it looks like in your cash flows, M&A has been quite modest, but it looks a little bigger in your table. So, can we kind of -- and was that fully in your guide, the M&A effect when you guided for '24?

Sam Hazen:

And Mike, as it moves through the last half of the year, it gets slightly better. And we're hopeful that by the end of the fourth quarter, it's not dilutive.

Joshua Raskin:

Just getting back to the exchanges. I heard 7% of admissions now are coming from patients with ACA exchange coverage. What does that translate into revenues? And should we assume that those patients carry margins that are typical of the broader commercial population?

Operator:

Our next question comes from Sarah James of Cantor Fitzgerald. Your line is now open.

Sam Hazen:

Again, the volume declines on outpatient surgery are associated with Medicaid declines in that category as well as uninsured self-pay categories. So, both of those categories explained year-to-date, pretty much 100% of volume declines. I mean, there's a thesis inside of our company. It's not proven yet, that patients who migrated from Medicaid into the exchanges through the redetermination process, maybe in a different seasonality category with respect to when they access services. So that's a theory we have. We'll have to see how that plays out as we move through the balance of the year. But I think it's important to understand that the revenue growth -- the service level growth that we've seen in our outpatient surgery business has been solid and produced a pretty good financial outcome for the Company. And if, in fact, our thesis is accurate, it should be better in the second half of the year than the first half of the year. But again, we don't know that for sure. We need to experience this change in our business with this movement from one payer class to the other before we can land on that being the situation.

Operator:

This now concludes our question-and-answer session. I'd now like to hand back over to Mr. Frank Morgan for final remarks. Thank you.

Operator:

Thank you, everyone, for attending today's conference call. You may now disconnect. Have a wonderful day.

Frank Morgan:

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we'll take questions.

Samuel Hazen:

All right. Frank, thank you. Good morning to everybody, and thank you for joining the call. The positive fundamentals we saw in our business this past year continued into the first quarter of 2024. This momentum generated strong financial results that were driven by broad-based volume growth, improved payer mix and solid operating margins. As we look to the rest of the year, we remain encouraged by our performance, the overall backdrop of growing demand for our services and our enhanced stability across our networks to serve our communities.

Frank Morgan:

Thank you, Bill. [Operator Instructions] Operator, you may now give instructions for those who'd like to ask a question.

Albert Rice:

Obviously, the inpatient side of the business was quite strong. I wondered if there were service areas that were particularly strong. Or was there anything else that you can highlight? I know at one point, as you talked about laying out the year, you thought maybe the first half comparisons would be stronger than the back half. I don't know if that's still your view. Any comment along those lines would be interesting as well.

Ann Hynes:

So I know, I think, in your prepared remarks, you talked about how Medicaid redeterminations was having a negative impact on volumes. Can you just quantify what you think the impact was? And then secondly, do you think you had a revenue benefit from the two-midnight rule in the quarter?

Pito Chickering:

Can you talk about the OpEx pressure that you're seeing? Is there any else besides business expenses sort of going in there? And how should we think about OpEx as a percent of revenues using the first quarter as a launchpad? Does that continue to see pressure in 2Q? Does it level off at the back half of the year? And then any quantification of how Valesco is tracking better than expectations?

Benjamin Mayo:

It looks like there's about almost $500 million of revenue that's not in the same-store segment this quarter. You did modest M&A this quarter, less than $100 million, you spent. I mean, is the entirety of the almost $500 million the campuses that you acquired last quarter? Anything I'm missing? I'm just trying to figure out maybe the impact on margins. Because if those don't really have any earnings, that could be maybe like a 60, 70 basis point drag. So if you could help me out there, Bill, that would be helpful.

Operator:

Your next question comes from the line of Brian Tanquilut from Jefferies.

William Rutherford:

Let me start with Valesco. So as we've said in our year-end call, we anticipate the Valesco operations to kind of generate the same amount that we had in '23. But in '23, we had them for 3 quarters. Obviously, we'll have them for 4 quarters in '24. So again, I think that's resulting in some sequential improvement. But I think that's still good guidance for us is to basically be flagged on a full year basis.

Operator:

Your next question is from the line of Ben Hendrix from RBC Capital Markets.

William Rutherford:

Yes, Bill. Let me start with that one. We are very pleased with the mix. We're seeing our overall managed care increase in the 12%, 13% range. That is fueled by health insurance exchanges. Our exchange volume was up close to 50% in the first quarter.

Operator:

Your next question is from the line of Gary Taylor from TD Cowen.

Justin Lake:

Let me add my congrats to Bill on his retirement, really appreciate all your help over the years, bud. So my question was trying to get an update on your expectations for Medicaid, DPP and DSH. You reported the benefit here at $3.9 billion in 2023. I shouldn't say benefit, that's a gross number, I believe.

William Rutherford:

Yes. Justin, let me try. And I think we'll have to get back to you on the '19, I don't have that upfront. But if I reflect back to our year-end discussion, that's still our belief today. First, just level set, these DPP programs are really fundamentally part of our Medicaid reimbursement. There's a lot of them. We have 18 or 19 states have these programs. But a lot of them have some complexity with a lot of variables associated. So use that as a backdrop.

Andrew Mok:

I just wanted to echo congratulations to Bill. I just wanted to follow up on the comments you made on other OpEx. I think the year-over-year comparisons all make sense, given the timing of Valesco. But I'm still confused on the sequential progression from Q4. Because it sounds like Valesco performed better, physician fees moderated.

William Rutherford:

No. I'd say we did have growth in our state supplemental payment expense quarter-by-quarter. As I said in Justin's response, there are certain variables that come on the timing of those. So sequentially, that was up. And the pro fees were up sequentially, it just was up small on there.

Operator:

Your next question comes from the line of Kevin Fischbeck, Bank of America.

Samuel Hazen:

Nothing else to add. Thank you.

Stephen Baxter:

Just to hopefully put a bow on the Medicaid state-directed payment question, can you just remind us, are we at the point now that you're accruing these evenly each quarter in 2024? Is there any lumpiness to kind of keep in mind about the first quarter or the rest of the year?

William Rutherford:

Yes, let me. There is some variability in the timing of when we recognize these. For the most part, programs we've had under a while were on an accrual basis. With new programs, we would typically wait until we get some established history and actually funds starting to flow. So it's a little bit of a mix. But there is some variability that we see as we go year-by-year. Remind people, previous to this year, we were recognizing Florida on an annual lump sum basis. We started accruing. We started a little bit, but we tried to accrue those as much as we can as we got some historical practices.

Operator:

Your next question comes from the line of Jason Cassorla from Citi.

William Rutherford:

Yes, I mean, obviously, as we've talked about over the past year, we've got a lot of initiatives on labor and our teams are executing very well from turnover reductions to recruitment and retention efforts on there. And our core labor trends are in line with our expectations. We said we anticipate wage inflation in that 2.5% to 3% level. And we're starting to -- and we are seeing that. And that's helping to offset, and we continue to be pleased with the contract labor trends. So I would say the core labor trends that we are seeing this year are right in line with our expectations. And the initiatives that we have continue to be underway.

Lance Wilkes:

One follow-up on the labor question. And that's just if you could give any comment on hiring pipeline and if there are any categories where you're seeing either more appetite out there or any sort of constraints. And then my real question was on your comment on folks getting shifted over due to redeterminations and maybe that impacting outpatient surgeries. I was wondering if you're seeing any impacts of that sort of stuff on bad debt or any other things where perhaps the overall backdrop is impacting consumers here.

Operator:

Your next question is from the line of Joshua Raskin from Nephron Research.

Samuel Hazen:

This is Sam. The amount for the quarter is flattish, to your point. And it is timing. We haven't slowed anything down. Some of our construction projects move at different paces than we anticipate at some level. But we expect for the year to be somewhere close to the number that we guided to last quarter, which is somewhere around $5.2 billion or so. So we're investing more in the business than we've ever invested because of the capacity that we need in the network development that we want. And so those efforts continue as we go through the course of this year.

Operator:

Your next question is from the line of Sarah James, Cantor Fitzgerald.

Operator:

Your next question is from the line of Cal Sternick from JPMorgan.

Samuel Hazen:

As far as the volumes, every quarter has calendar effects. And again, as I mentioned previously, we judge the business over a longer period of time to really understand what's working and what's not working. March was a difficult calendar for purposes of elective outpatient business and elective inpatient business simply because we had less working days, business days, and we had the Easter holidays during that time period. So it was clearly softer.

Operator:

And this concludes our Q&A session for today. And I would like to turn the call back over to Frank Morgan for closing remarks.

Operator:

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.

Frank Morgan:

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements that are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Bill Rutherford:

Okay, great. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter and year and then discuss our 2024 guidance. We highlighted at our recent Investor Day that our formula of combining strong operational performance with a disciplined and balanced allocation of capital has a long track record of generating value over time. Our results for 2023 and our guidance for 2024 reflect a continuation of this formula. Sam provided many of our fourth quarter indicators in his comments. So let me take a moment to review some of our results for the full year 2023. We have strong top line growth. For the year, our same facility admissions grew 3.3% over prior year, equivalent admissions grew 4.8%, emergency room business grew 4.7% and total surgical cases were up 2.3%. We maintained our strong acuity trends with case mix index increasing and payer mix improved with managed care and other admissions growing 6% for the full year on a same-facility basis. Revenue per equivalent admission grew 2.7% on a same facility basis. This contributed to same-facility revenue growing 7.6% and 7.9% on a consolidated basis for the full year 2023. We coupled top line strength with strong management of operating costs. Salaries, wages and benefits as a percentage of revenue improved 60 basis points on a consolidated basis compared to prior year. Contract labor declined 20% for the year and equated to 5.3% of those SMEB in the fourth quarter. Our teams continue to do a great job managing the supply costs, which improved 40 basis points as a percentage of revenue for the full year. As we have mentioned throughout the year, we are managing through pressures on professional fees and hospital-based physician costs. But we saw an improvement in the sequential rate of growth in both the third and fourth quarter. Sam mentioned, we also saw an improvement in our Valesco joint venture, which was in line with our expectations. We are confident in our plans to continue working through what we believe are industry-wide pressures in this area. The result of this is we produced solid margins of 19.6% in line with our range of expectations on a consolidated basis and adjusted EBITDA growth of 5.5% on an as reported basis for the full year 2023. So as a management team, we are very pleased with the operational performance of the company during the year. Let me briefly discuss our results in the fourth quarter. Adjusted EBITDA grew just under 14% in the quarter as compared to the prior year. This is primarily due to strong revenue growth and solid expense management during the quarter. In addition to our strong core business trends, we recognized a year-over-year adjusted EBITDA increase of approximately $250 million related to our supplemental payment programs. This includes the new North Carolina program and certain favorable adjustments within the Texas program. Additionally, based on our experience with the program to date, we began accruing the Florida program in the quarter, whereas previously, we had recognized this program on an annual lump sum basis. Our recently acquired entities, as well as facilities divested in the prior year, resulted in about $90 million less adjusted EBITDA in the quarter, with roughly half of this decline from the Valesco joint venture. In summary, the quarter was the strongest operational performance of the year. And with the additional benefit from the supplemental programs and impact of new and divested facilities, we are very pleased with the year-over-year growth we were able to produce. So next let me speak to capital allocation. We deployed a balanced allocation of capital in 2023. For the full year, our cash flow from operations was $9.4 billion compared to $8.5 billion in the prior year or just under 11% growth. Capital expenditures were just above $4.7 billion for the year, which was in line with our expectations. We purchased approximately $3.8 billion of our outstanding shares and paid approximately $660 million of dividends during the year. Our debt-to-adjusted EBITDA leverage remains near the low end of our stated guidance range of three to four times, so we believe we are well positioned going into 2024. And with that, let me speak to our 2024 guidance for a moment. As noted in our release this morning, we are providing full year 2024 guidance as follows. We expect revenues to range between $67.75 billion and $70.25 billion. We expect net income attributable to HCA Healthcare to range between $5.2 billion and $5.6 billion. We expect adjusted EBITDA to range between $12.85 billion and $13.55 billion. And expect diluted earnings per share to range between $19.70 and $21.20. And finally, we expect capital spending to range between $5.1 billion and $5.3 billion. So let me provide a little additional commentary on our guidance. First, let me note the $145 million payer settlement we reported in the first quarter of 2023. Our guidance assumes a growth in equivalent admissions between 3% and 4% and revenue per equivalent admission between 2% and 3%. Regarding state supplemental programs, I want to highlight that these programs are complex and most have multiple attributes that impact the timing and amounts we receive. So this results in some variability of the timing of recognizing the impact of these programs during the year. For 2024, we are anticipating benefit from a new program in Nevada. But based on current assumptions, we expect some modest headwinds when we aggregate the impact of all of these supplemental programs and we believe this could range between $100 million and $200 million for the year. We expect full year margins to be within our historical trends, and cash flow from operations to range between $9.5 billion and $10 billion. Depreciation is estimated to be about $3.2 billion. And interest expense is projected to be around $2 billion. Finally, our fully diluted shares are expected to be around 264 million for the year. Also noted in our release this morning, our Board of Directors has authorized a new $6 billion share repurchase program. This will be in addition to the approximately $300 million remaining on our prior authorization. In addition, our Board declared an increase in our quarterly dividend from $0.60 to $0.66 per share. With that, let me turn the call back over to Sam.

Frank Morgan:

Thank you, Sam. And thank you, Bill. As a reminder, please limit yourself to one question so we might give as many as possible in the queue, an opportunity to ask a question. Greg, you may now give instructions to those who would like to ask a question.

A.J. Rice:

Thanks. Hi, everybody. Best wishes Bill, on the retirement and congratulations to Mike. I just want to ask about volumes because there is obviously some different chatter out there about what's going on. I think coming into the fourth quarter, you guys had said you expected to see a return to normal seasonality. I wonder whether that's what you described, what you saw there? Do you have any updated thoughts on whether we’re seeing a sicker population post-COVID maybe just some pent-up demand for people going back to see the doctors? And then specifically as well on utilization review management, we've talked about that from time to time that health plans are getting more aggressive post-pandemic now about utilization review. There is also a chatter in the last week about maybe there is actually easing around observation status. I wonder if you could tell us a little bit of what you're seeing in that category as well.

Operator:

Okay. Thank you. Our next question comes from the line of Pito Chickering with Deutsche Bank. Caller, please go ahead.

Operator:

Okay. Thank you. Our next question comes from the line of Justin Lake with Wolfe Research. Justin go ahead.

Bill Rutherford:

Yes. Justin, thanks for that. Let’s start with the Medicare volume, as I know that’s been a topic. We have seen some growth in our Medicare Advantage admissions, which were roughly up 10% in the quarter, which is pretty consistent for what we’ve seen throughout the year. And we think probably a combination of conversion from traditional Medicare fee-for-service as well as some of our volume gains and maybe a bit utilization. It’s hard for us to break that down in its entirety on there in terms of our revenue per unit between Medicare Advantage and Medicare has been very consistent through the year as well. So we didn’t see any really step change in the fourth quarter of that material amount. When I think about the two-midnight rule Sam alluded it’s too early for us to judge the impact of this rule. We know it’s got a period to be implemented. We believe ultimately it’s going to benefit our patients. And we think over time could be some moderate positive results for us, but we’ve seen no impact yet. But we believe over time, as we go through 2024, there could be some modest benefits we’ll go through that.

Ben Hendrix:

Hey, thank you very much, and congratulations to Bill and Mike. Just wanted to follow-up on your comment about the $5 billion of capital spending you expect. Just wanted to get an idea of how you’re thinking about allocating that into your inpatient capabilities and higher acuity. And where you think – where do you think – how should we think about that evolving through the year and the impact on case mix as we look into your 2024 guidance? Thank you.

Operator:

Great. Thank you. And our next question comes from the line of Gary Taylor with TD Cowen. Gary, please go ahead.

Bill Rutherford:

Thanks.

Bill Rutherford:

Yes. Gary, this is Bill. Thanks for those comments. Let’s start with DPP. You are correct in my comments. We are expecting overall, when we aggregate all the programs to potentially be a headwind, anywhere between $100 million and $200 million, largely due to settlements that we received this year, we don’t expect to reoccur. And then the Florida beginning accrual had an impact to that. So that’s what’s mostly driving that across our multiple programs. On Valesco, as we mentioned, it came in line with our expectations, which I think last quarter we sized just under $50 million or so a quarter. As we continue to work on multiple improvement initiatives, including further integrating that joint venture into HCA, we expect to see continued improvement going forward. Next year I think Valesco for the full year will equate with about the same amount we recorded this year, but we had nine months this year versus 12 months, obviously in 2024. So we do believe over time there will be continued improvement, and we’re working diligently towards those efforts.

Brian Tanquilut:

Hey, good morning, and Bill, congrats and very successful career at HCA. I guess my question to follow-up on Gary’s, maybe expanding it further to the broader labor outlook. How are you thinking about the opportunity to further reduce spending on both nursing and obviously at Valesco? Or maybe another way to ask it is how are you viewing inflation at the wage level? Thank you.

Operator:

Thank you. And our next question comes from Ann Hynes with Mizuho. Ann, please go ahead.

Bill Rutherford:

Yes. Ann, this is Bill. Let me first clarify our 2% to 3% emission our aggregated revenue per equivalent emission, and then obviously there’s categories underneath it. I would tell you regarding Medicaid redetermination still early. We believe there’s some modest benefit that we’ve seen as patients have migrated from Medicaid into Hicks [ph] and other employer sponsor. I don’t believe that’s material yet. We’ll see how that continues to trend throughout 2024. And I would say we don’t have a material fact – material amount factored into our guidance on that. On the two-midnight rule, as we said earlier, it is really early in that progression. It should be positive for us if it’s implemented as expected. I think it will be positive for patients over time as well, and we’ll just have to see how that plays out. But we don’t have, I’d say, a material adjustment factored into our 2024 numbers for that as well. Our range of guidance, I think accommodates for various outcomes on both of those programs, and we’ll see how that plays out as we go through the first part of the year.

Whit Mayo:

Thanks, and congrats to Bill. I think this might be the second time you’ve retired, so I hope it sticks. But my question really, Sam is I’m curious on any new expense initiatives that you guys have elevated internally as a new strategic focus, anything maybe more creative or imaginative that you’re bringing forth this year to challenge the organization? Thanks.

Operator:

Thanks, Whit. And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin, please go ahead.

Bill Rutherford:

Yes. Kevin, let me start and then Sam can add in. So we're going off our experience, we've seen throughout 2023. And as we said earlier in the comments, we thought there was very strong demand for services in our markets. We think our capital programs and our program initiatives are paying off. Our adjusted emissions this year were 4.8%. You're right. Our guidance next year calls us for three to four expectation on adjusted emissions. That may be a little higher than our two to three historical, but I think we're reading continued strong demand. We saw really strong enrollment in the health insurance exchanges across our states, and that continues to be a favorable development for us. We believe we continue to see strong economic indicators and employments and our access to contract and lives remain well. So I think all of those factors go into play with our expectations for 2024 and is based on kind of our current experience.

Operator:

Thank you. And our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen, please go ahead.

Bill Rutherford:

So overall, the fourth quarter surgery was a little slower than the year-to-date, and we were talking about that earlier this morning, we did have a more difficult December calendar, even though, we had the same surgical days in total. The way they were allocated created some challenges in our outpatient settings. And we saw outpatient activity not as strong as in the previous two months of the quarter, but at a structural level, there's nothing to suggest that our surgical volume trends are going to change. For the year, we had really solid volume growth in surgeries, and we continue to invest heavily in our programs, both on the outpatient side and supporting our inpatient activity with more acute and complex program offerings. And for the year, our inpatient surgeries were up two and our outpatient surgeries were up 2.5. So a slight migration, if you will, into the outpatient setting. And we think that will be generally consistent as we push into 2024, we do have a number of ambulatory surgery centers that have opened or will open in 2024. We've made a few acquisitions in certain markets with ambulatory surgery centers, and we continue to invest in our hospital operating suites as well as improve our processes just as we are improving our emergency room processes with our revitalization program. And we think that will continue to be a value add for our patients and for our physicians and help us with our volume pursuits. So that's how we're judging the surgical space. If you look at cardiac underneath that, our cardiac volumes continue to grow very robust and are actually growing in the mid-single digits. And we think, again, that's reflective of our overall program development, expansion into new service lines underneath cardiac and responding again to our patient needs and physician needs in ways that we believe are productive for our organization.

Jason Cassorla:

Yes, great. Thanks for taking my question and best of luck in your retirement, Bill. I just wanted to follow-up on the professional fee environment. You noted there was some deceleration in professional fee spent growth, if I heard that correctly. But maybe what is your expectation for physician costs or professional fees growth embedded within 2024 guidance. And then on Valesco, it sounds like from your comments, Bill, that Valesco would generate $150 million of negative EBITDA next year versus the $200 million or so headwind for 2023. Is that a fair way to look at it or any other color that would be great? Thanks.

Operator:

Great. Thanks, Jason. And our next question comes from Scott Fidel with Stephens. Scott, please go ahead.

Sam Hazen:

This is Sam. It's interesting. I'm just looking at a trend line here, and I don't have it beyond this time period. But in 2019, this is a composite view of Medicare. So it has both Medicare and Medicare Advantage. Our Medicare admissions grew 2.6%. You throw out 2020 and 2021 grew 2.1%, 2022 grew 3.4% and 2023 grew 4%. So is there acceleration on our trend? Yes. Obviously, there's aging baby boomers in the mix there, number one. Number two, we think we're taking out market share, so to judge overall utilization patterns around that is really difficult for us. There's population growth in our markets. When you look at adjusted admissions on the same combination payer class, again

Sarah James:

Congratulations on the retirement, Bill.

Sarah James:

You guys said that the impact of the two-midnight rule ramps through the year. So it ramp as opposed to flipping a switch, what are the mechanics of that stage implementation? Is it retaining your staff? Or is it assuming some delay in benefit from claims denials and getting the payers on board? And then when would it be fully ramped? Are you talking midyear exiting 2024? And is there anything that HCA can do to pull that forward?

Operator:

Thanks, Sarah. And our next question comes from Lance Wilkes with Bernstein. Lance, please go ahead.

Sam Hazen:

This is Sam again. Thank you for the question. We finished the year roughly. I don't have the exact average here at 90% acceptance rate. In other words we weren't able to take roughly 10% of the patients who were referred to us through our transfer centers and such. That improved throughout the year as we went from maybe the mid- to high- in the first part of the year, to a little better than that in the second half of the year. We're still below where we were in 2019. But what we have seen is more patients coming through our transfer centers and other patient navigation program that we did in 2019. So we feel good about the inflow if you will. We are still at times in situations where all of our capacity is not open and available, and that's what generates these situations where we can't receive the patients that are coming through these navigation programs and transfer centers. We think that will continue to get better in 2024 as we have capital coming online, as our hiring patterns continue to improve. Our turnover as I mentioned in my commentary has also improved. We've been very intentional in trying to create a great environment for our people with good leadership; resource capabilities and just overall trading to support the efforts so that they can be successful in what they do. And we think that will help us push through 2024 and hopefully have more capacity available and be able to receive the patients that want to get into our system.

Josh Raskin:

Hi. Thanks. Good morning. I'll thank Bill and congratulate him on the retirement, and congrats to Mike as well. Could you speak to the increase in CapEx guidance again, this has been a multiyear trend for guidance? And maybe how returns on CapEx have trended? I'm just curious if there's more mix to outpatient, is that actually improving returns or are you getting to a point where the returns are coming in a little bit lower for the incremental project as you sort of continue to go down the list? Thanks.

Sam Hazen:

Yes. And the only thing I would say, and Bill alluded to this, our outpatient platform tends to be short cycle returns. We get a real efficient sort of capital allocation with outpatient facilities. And then on the hospital side, we are a hospital-centric health system. And as we invest in our hospitals, those are long-lived assets and they have a longer cycle to them with respect to returns, but they're critically important to the overall value that our outpatient facilities can generate for our system in the sense that we're able to navigate the patient further into the health care system if they need more acute care offerings. So we have to look at it in both manners. I think to Bill's point, we have had strong returns, a pattern of strong returns, we have occupancy on our inpatient hospital side in the low-70% which is a pretty high occupancy level up over where it was pre-pandemic even with the additional beds that we've added. So we think the network model that we highlighted for you all at the Investor Day is working and is complemented by the outpatient facilities integrated with the hospital system in a manner that produces really positive enterprise returns for our company.

Cal Sternick:

Yes. Thanks for squeezing me in, and I'll add my congratulations to Bill as well. So two follow-ups. First, on the redeterminations, it sounds like that's a slight benefit to the 2024 guide but not really material yet. Just wanted to clarify if this does develop better than you're anticipating? Is it something you think could be material to 2024? Or is the upside more annualized in 2025 after the redeterminations are completed? And then my other question was on the quarter itself. So one of the payers called out higher COVID inpatient costs per case. Can you talk about the COVID acuity levels that you saw in the quarter and whether that developed consistently with what you've seen in the past?

Operator:

Great. Thanks, all. And that does conclude our question-and-answer session. I would now like to turn it over to Frank for closing remarks. Frank, the floor is yours.

Operator:

And ladies and gentlemen, that does conclude today's call. Thank you all for joining, and you may now disconnect.

Frank Morgan:

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded, and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Bill Rutherford :

Great. Thank you, Sam, and good morning everyone. I will provide some additional comments on our performance for the quarter. Consolidated net revenue increased 8.3% to $16.21 billion from $14.97 billion in the prior year period. This was driven by 4.5% growth in equivalent admission and 3.6% increase in revenue per equivalent admission. Same facility revenues grew 7.9%. As Sam mentioned in his comments, the Valesco joint venture had a negative impact of approximately $100 million on the company's adjusted EBITDA in the quarter as well on a year-to-date basis. A portion of the third quarter results was due to revising our revenue estimates from the second quarter as we began to see claims being paid. This result was not what we were expecting, as we are experiencing revenue shortfalls compared to what we originally modeled. The Valesco operating results had a negative impact on adjusted EBITDA margins of approximately 80 basis points in the quarter and 40 basis points on a year-to-date basis. Going forward, we anticipate the loss from this venture to approximate $50 million a quarter. We are working diligently on multiple efforts to address these results, including making programming adjustments where necessary, deploying efforts to reduce the cost structure, and working with payers for more appropriate reimbursement. As we have discussed previously, we have seen subsidy requests increase from contracted hospital-based providers. Professional fee expense for contracted providers have grown approximately 20% on a year-to-date basis, although we are encouraged the rate of growth of these payments slowed in the third quarter as compared to the second quarter. In addition to the mitigation strategies discussed above, we continue to assess other operational adjustments within our cost resiliency programs to help offset some of the impact from these issues. Let me speak to some cash flow and capital allocation metrics. Our cash flow from operations was $2.48 billion in the quarter. Capital spending was $1.15 billion. We paid about $160 million of dividends and repurchased $1.14 billion of our stock during the quarter. Our debt-to-adjusted EBITDA leverage ratio remains near the low end of our stated range of 3x to 4x. As noted in our release this morning, we are updating our full year 2023 guidance as follows. We expect revenues to range between $63.5 billion and $64.5 billion. We expect net income attributable to HCA Healthcare to range between $4.94 billion and $5.13 billion. We expect adjusted EBITDA to range between $12.3 and $12.6 billion, and diluted earnings per share to range between $17.80 and $18.50. We expect capital spending to approximate $4.7 billion for the year. Before we open it up for questions, I'd like to provide some commentary on our year-to-date performance. We believe our core business metrics remain solid. Year-to-date, our same facility emissions have grown 3.3%. Equivalent emissions have grown 5.1%. Non-COVID admissions have grown 7.5% over prior year on a year-to-date basis. Same facility ER visits have grown 5.7%. Inpatient surgeries have grown 2.3%, and outpatient surgeries are up 3.1%, all on a year-to-date basis. These volume metrics have outpaced our original expectations going into the year. Our payer mix trends remain favorable. Same facility managed care admissions increasing 5.3%, and Medicare admissions increasing 4.3% on a year-to-date basis. Medicaid and uninsured admissions are slightly down from the prior year on a year-to-date basis. Our case mix index has held and increased slightly over prior year, and our same facility revenues have increased 6.4% on a year-to-date basis. Our same facility labor costs and supply costs are below prior year as a percentage of revenue. Through a focused and diligent effort, our operating teams have done an incredible job of addressing the contract labor pressures we had last year. On a year-to-date basis, our contract labor expense is down 18% or over 300 million from the prior year. We have confidence that a similar focused and diligent effort will help address the current physician cost pressures over time. Lastly, when we look at our current adjusted EBITDA guidance for 2023, we think there are several notable items to consider. We discussed in our year-end call in January, COVID support payments, the out-of-period Texas waiver payment, and the 340B impact from 2022, which all totaled approximately $500 million. And when you consider the $145 million payer settlement we recorded in the first quarter of this year, as we take all of that into account, we are pleased with the growth rate we've been able to achieve. In addition, our diluted earnings per share, excluding losses on sale of facilities and losses on retirement of debt has grown 7.2% year-to-date. So I wanted to take a moment to put this quarter in some perspective. So with that, we look forward to your questions and I'll turn the call over to Frank to open it up.

Operator:

Thank you. [Operator Instructions]. Our first question comes from Kevin Fischbeck with Bank of America. Your line is open.

Sam Hazen :

Kevin, this is Sam. It’s our belief that demand for healthcare remains strong and will remain strong into the future. Just given the population trends that we see in our market, the aging of the baby boomers, as well as chronic conditions. I know though there's been a lot of concern about GLP-1 and so forth. We think it's way too early for any of that to have an impact on demand in the near term or even the intermediate term. And so from that standpoint, we're really encouraged by what we see from a demand standpoint. Our overall competitive positioning, we believe continues to be strong. It's indicated within our market share trends vis-a-vis where we were pre-pandemic, and so we're encouraged by that. We continue to have resources we believe, to continue investing in our company appropriately, and positioning our agenda with the necessary resources to accomplish our objectives. And so from our standpoint, economies remain strong across our portfolio, and we believe that supports some of the payer mix trends that we've seen. So we're reasonably optimistic here that the overall top line metrics that you are seeing have durability.

A.J. Rice:

Hi, everybody. Obviously, as you went through, strong results, obviously the focus on this professional fee challenge. I know coming out of the second quarter, you were I think, thinking it would step down in Q3 and Q4. Now it sounds like if anything, it probably stepped up a little bit. I'm trying to understand, what was the variance in the quarter relative to previous expectations? Was it $50 million? It sounds like even in the quarter there's some catch up from Q2. So maybe it's a significantly bigger number as a negative. And then is the right way to think about Q4 and into next year, a $50 million quarterly run rate that you're assuming discontinues, and therefore you've got to pick up in ‘24, one more $50 million adverse comparison. Hopefully that makes sense. And if I could squeeze in, just thinking about this quarter, the DPP payment from Florida, was that in line with what you thought or was that the net benefit a little better?

A.J. Rice:

Anything on the Florida?

A.J. Rice:

Okay. All right. Thanks so much.

Ben Hendrix :

Thank you very much. Excluding Florida DPP from both quarters, EBITDA margin appears to have declined by about 180 basis points year-over-year, suggesting close to $300 million total headwind. If Valesco is $100 million of that, how would you characterize the remaining $200 million or so that brings us short of the 3Q 2022 margin? You mentioned the higher subsidy requests and maybe DPP in other quarters or in other regions other than Florida. But is there anything else to call out there that would weigh on margin? Thanks.

Sam Hazen:

I think, Bill, just to add a point to that, our same facility operating margins, which did include those elements Bill spoke to, were actually in line with our internal expectations. So I think from the standpoint of a little bit of pressure, we anticipated some pressure, but it was reflected again in the overall performance of our same facility. So most of this lands on the Valesco challenge with respect to the revenue and the earnings associated with that venture.

Operator:

Our next question is from Gary Taylor with T.D. Cowan. Your line is open.

Sam Hazen:

Well Gary, this is Sam, and Bill can jump in here. We believe again that our core business, our hospital-centric core business is performing well. I mean, our volumes were broad-based. Every division in our company had admission growth, had adjusted admission growth. Every service category in our business offerings had growth except for OB. Our obstetrics volumes, mainly births were down slightly, pediatric was down slightly, and our behavioral was down because we made some capacity adjustments, and not because demand is shrinking in behavioral. Just because we needed capacity that we felt might be more productive. So across geography and across service lines, really solid performance. On the labor front, we were investing in the quarter in our labor agenda at the same time as making improvements. And what I mean by that, we have invested heavily in new graduate training programs. We've done that throughout the year. That actually created a little bit of a headwind in the quarter and throughout the year for us. We think that will help us as we push into the fourth quarter and on into ‘24, with making adjustments to our labor agenda. We've invested in our Galen College of Nursing facilities, as well as our other clinical education. So we're investing in our agenda for the long-term prospects that all of these initiatives represent. Bill spoke to the revenue yield. I think the revenue yield from acuity, payer mix, and pricing is positive. So I mentioned that our same-stores results were in line with our expectation. I think the second thing that's important here Gary, is that we pride ourselves on making adjustments if we have a variance and I am confident in our teams. I'm confident in who we are as an organization. And we've proven it over time that we can make adjustments and find solutions to really complex problems. And so we've got one. It's not what we anticipated. But again, we had the necessary requirements to consolidate a business that was struggling and somewhat distressed, but very important to our offerings in the community. So I think as we work through it, as we gain a better understanding of it, we will be able to make adjustments and get the proper reimbursement we need from the payers for the services that we're now providing. And so, fortunately, our balance sheet remains strong as Bill alluded to, and our ability to invest in our agenda to maintain our positioning and execute on our agenda remains strong. So when I pull up and provide some context here, I'm encouraged by what I see in the quarter and for the year and what that portends for the company as we push into the future.

Gary Taylor:

Thank you.

Ann Hynes :

Hi, good morning. I know you don't want to provide 2024 guidance now, but is there any major headwinds and tailwinds that you want to call out before heading into the event? And to that degree, I know Nevada is introducing a UPL program. Do you have any sense what that incremental benefit will be next year? Thanks.

Ann Hynes :

All right, thanks.

Whit Mayo:

Hey, thanks. Good morning. Sam, can you maybe just go back and elaborate on the ER revitalization program. How Valesco plays into that and exactly where you are in the evolution of that program and any tangible progress that you expect to see in 2024? Thanks.

Whit Mayo:

Thanks.

Brian Tanquilut:

Hey, good morning guys. Sam, it seems like you have an idea of what needs to be done at Valesco. But maybe going down to the nuts and bolts of it, as we think about the fact that you employ these docs now, it sounds like this is more of a revenue issue. So is that just a matter of tacking them onto the HCA contract or what needs to be done there? Maybe just for Bill, and kind of related to this, if you can give us the contribution of Valesco to revenue per same-store admin. Thanks.

Bill Rutherford:

200 programs.

Bill Rutherford:

Brian, to your revenue numbers, Valesco revenue is just under $400 million year-to-date, about $380 million on a year-to-date basis.

Stephen Baxter :

Yes, hi thanks. I appreciate all the commentary on the professional fees and the growth slowing in the third quarter. So it does still seem like a pretty challenging environment out there for those firms. And as we do some checks, hearing and anesthesia in particular remains a pressure point. Is this something that you think you can manage closer to flat going forward or is this just becoming part of the new norm around something that you'll need to offset as you think about the puts and takes for 2024? Thank you.

Sam Hazen:

I think Bill alluded to this in his commentary earlier about the pressures we saw with contract labor, nurse shortages, capacity management and so forth. And I would submit that we've worked our way through that reasonably well, and we still believe there are opportunities for us to make strides forward on that agenda. We're going to learn from that how we managed that timely, aggressively, and responsibly, and I think apply those same learnings to the situation we have here, and get to an answer that makes sense for the company. And so I'm confident, as I've said, that we have the mindset and the wherewithal to work through these and get us to a reasonable solution.

Pito Chickering :

Hey, good morning, guys. There are a lot of moving parts in the margin this quarter, but if you normalize for Florida DPP and the $50 million from prior period in Valesco, and look at the implied fourth quarter margin ramp, it looks higher than normal sequential margin improvement for the fourth quarter. So can you help bridge us or what are the key drivers to get to that implied guidance for margin for 4Q?

Pito Chickering :

All right, thanks so much.

Operator:

Our next question comes from Cal Sternick with J.P. Morgan. Your line is open.

Bill Rutherford:

Yes, I mean, so right now as I said, probably $50 million a quarter, but we're working diligently to mitigate that. And as we go through the next couple of quarters and into ‘24, we'll continue to update our progress on that. We view the primary issue as revenue shortfalls, and that's what we're working through. There are maybe some cost adjustments we can make, but I think it's primarily a revenue approach that we're going to take to try to turn the results around. And I just have to put -- it's $50 million a quarter, and we have confidence that we've dealt with similar issues in the past, and we'll work through that, but it's primarily a revenue challenge that we'll get through. I did mention it earlier, but with our increased position, we now manage the revenue cycle all the way through. So I think that puts us in a much better position to assess and address some of these revenue trends. So we have the revenue cycle functions from contracting to coding to billing and collections. And so we think we're in a reasonably good position to be able to at least assess those trends and then come up with appropriate actions to respond to it.

Jason Cassorla:

Great, thanks. I guess with surgeries up about 1% in the quarter, a little bit better on the inpatient side. I wanted to ask about trends within service lines, and the comp was a little bit difficult this quarter, but anything to call out there? And then Sam, it sounds like from your comments, you're not seeing any impact in GLP-1’s and you don't expect much there, but just making sure we caught that right. And if you have any other thoughts on potential impacts to underlying demand or trends on the line, it'll be helpful. Thanks.

Operator:

Our next question comes from Scott Fidel with Stephens. Your line is open.

Sam Hazen:

The market for labor has normalized in very material ways compared to where it was a year to year and a half ago. And we're seeing it in our cost per hour as a company, which is really lined up with the expectations we've had for the year. And we've seen stabilization across the elements of our compensation programs and so forth. There are some minimum wage laws out in California that has a very de-minimis impact on our company. Most of our compensation was already in line with that. We have very few issues with that. Unionization across the country beyond the healthcare industry is an issue as everybody understands. But we have been successful in pushing through those issues organizationally and have landed in a spot that we think is not going to put too much pressure on our business in the near term. And so that's where we are. Obviously the markets changed. They are dynamic, and we have to adjust to those. But we're seeing positive signs with respect to turnover, with respect to hiring, and even the number of new students who are populating our Galen College of Nursing programs is very encouraging, suggesting that there's a sufficient pipeline of new nurses who want to be educated and go into the workforce. So we're pretty encouraged by the macros that we're seeing. There are obviously issues that we have to pay attention to, and we are, but we're reasonably encouraged with our overall agenda as it relates to our people and the efforts that we have in place.

Jamie Perse :

Hey, thank you. Good morning. Just a bigger picture question for you guys. You've talked about longer term margins, 19% to 20% being a fairly sustainable range for you. A lot of moving parts right now. So just at a high level, is there anything you see in the business right now that can take you off of that trajectory more permanently and just your level of confidence in getting back to that margin rate and sustaining it going forward? Thank you.

Operator:

Our next question comes from John Ransom with Raymond James. Your line is open.

Bill Rutherford:

Yes John, I alluded to this in my comments. We did make some revisions to our revenue estimates in the third quarter. In the second quarter, it's still new. We were putting providers on new contracts billing. We had not received a lot of claims being paid as claims started to be adjudicated and paid. So I think it's better to look at that on a year-to-date basis on there. It's roughly $200 million a quarter, somewhere around that neighborhood. It’s kind of what we think the model will be going forward. Again, it may fall on either side of that, but I think it's best to look at the year-to-date. We understand the third quarter drop, but it was really just because we had no history on there and as claims started to be paid, we were able to revise that. So that's why it's $100 million EBITDA for the quarter. It was about the same year-to-date. It's kind of tied into our $50 million going forward.

Bill Rutherford:

Yes, if you want to think very broadly, that would be pretty consistent.

Bill Rutherford:

Yeah.

Justin Lake :

Thanks. Good morning. I'm going to pile on with this physician stuff. So just, I've never seen a business kind of be off this far from like you guys are obviously very, very good at what you do. I know this is a new business, but to be $50 million of revenue on a $250 million baseline, 20%. So I just the like, can you triple click on that for me and just say like, what did you think was going on versus what is? And then the, for – when you gave your headwinds, tailwinds for next year, the only headwind you talked about was that payment, which makes sense. But you've given some numbers around the subsidy costs right, the physician costs that run through other operating. And they do seem like they've been a pretty big drag on margins. My estimate is somewhere around $300 million bucks, give or take year-over-year, versus kind of revenue growth. Are you assuming that that's not going to grow at anywhere close to that pace next year or do you think you could like – and therefore it's not another $300 million headwind next year? Or are you just assuming that we can offset it? And so, we kind of grow normally ex-$145 million. Thanks.

Operator:

Our next question comes from Sarah James with Cantor Fitzgerald. Your line is open.

Bill Rutherford:

Yeah. So, as you know, we don't comment on the current quarter. We've made, I think, several comments on the core business trends we're seeing with really strong volume, reasonable pricing, the core operating expenses of the company are doing well in labor market supplies. I think as a broad brush, it would be our expectation those trends generally continue going forward. We don't see anything from a macro perspective changing that. But again, too early and we're not commenting on kind of inter-quarter, early quarter activities. But as I said, and Sam mentioned in his comments, we're pleased with the core fundamentals that we're seeing. Good demand in the market. We're positioned very well, and our same facility operations is going pretty well. Unfortunately, we are dealing with the Valesco integrations and we'll overcome that. But I think you could reasonably expect that our core trends that we've seen year-to-date should for the most part continue at a reasonable pace.

Operator:

Our next question comes from Joshua Raskin with Nephron Research. Your line is open.

Sam Hazen:

Yes. Yes, so it's hard to attribute the shortfall in any one area. As I said, we were operating on maybe some incomplete historical data as our model is, and probably an array of other issues that potential other hospital providers are experiencing. And so, yes, we've got a number of initiatives that we're going to try to address that we've talked about. We can continue to see – we prefer to be an in-network providers to avoid the out of – the surprise billing and that IVR process. And so we're working with our payers diligently to be in-network and to get reasonable rates going forward, and that's going to be part of our action plan.

Sam Hazen :

Brianna, I think we're done, if you want to close the queue.

Frank Morgan:

Brianna, thank you so much for your help today, and thanks to everyone for joining on the call. I'm around this afternoon if I can answer any additional questions you might have. Have a great day.

Frank Morgan:

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn it over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA is included in today's press release. This morning's call is being recorded, and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Bill Rutherford:

Great. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter. Consolidated net revenue increased 7% to $15.86 billion from $14.82 billion in the prior year period. This was driven by 4% growth in equivalent admissions and 2.9% increase in revenue per equivalent admission. We remain pleased with our team's management of operating costs even with the backdrop of inflation. Our consolidated adjusted EBITDA margin was 19.3% in the quarter. During the quarter, we completed our transaction to acquire a majority stake in the Valesco joint venture and we are now consolidating the operations of this venture. This reduced our consolidated margins approximately 30 basis points in the quarter. We believe this transaction not only mitigates business risk with the Envision bankruptcy proceedings but will also further support alignment between our hospital-based physicians and our hospital care teams on improving quality, patient satisfaction and efficiencies. When you consider this transaction and the $145 million payer settlement we recognized last quarter, our adjusted EBITDA margins have remained consistent between the first and second quarters. So let me speak to some cash flow and capital allocation metrics as they remain a key part of our long-term growth and value creation strategies. Our cash flow from operations increased $845 million in the quarter from $1.63 billion in the prior year to $2.475 billion this year. Capital spending was just over $1.2 billion. We paid $164 million in dividends and repurchased $915 million of our stock during the quarter. Our debt to adjusted EBITDA leverage ratio remains near the low end of our stated leverage range of 3 times to 4 times. As noted in our release this morning, we are updating our full year 2023 guidance as follows

Operator:

[Operator Instructions] And your first question comes from A.J. Rice with Credit Suisse.

Sam Hazen:

As I mentioned in my comments, our volume growth was broad-based across our divisions. I think we had 13 out of 16 divisions in the company that had admission growth and adjusted admission growth. We clearly have some divisions that don't perform the same pretty much every quarter, but it was fairly broad-based across top line metrics, admissions, adjusted admissions, payer mix improvements and so forth. So a fairly consistent performance. We did have a couple of divisions that struggled, but one was isolated in Florida. The other one was isolated more out west in the Midwest. And so for the most part, we were really pleased with the overall performance that we had across the geographies of the company. And it's interesting, I was looking at something yesterday. We have, from an admission standpoint, almost 72% of our hospitals have greater than 2% admission growth for the year. And this includes a little bit of pressure from COVID in the first part of the year from a comparison standpoint. We have very significant performance from the surgery standpoint as well, where almost 50% of our hospitals have inpatient surgery growth above 2%. So really consistent portfolio performance that speaks to the strength of our markets, I think the competitive positioning of our facilities and then the ongoing network development and physician development that we have as part of our core strategy.

Ben Hendrix:

With regard to your updated guidance, can you provide some more color on what you're assuming for SWB, supplies and other operating expense, particularly professional fees through the second half versus what you've seen thus far this year? And then anything to call out that would alter typical cadence through the second half?

Operator:

The next question comes from Whit Mayo with Leerink Partners.

Bill Rutherford:

Yes. I mean, we're pleased with the labor environment. We did mention our contract labor is down 20% versus the prior year. It's improved as well sequentially between Q2 and Q1. Our hiring metrics are up, turnover is down. And I think that portends good things for us going through the balance of the year. We mentioned before, our contract labor cost as a percentage of our SWB was under 7%. I think it was 6.8% in the quarter. So again, I think we're pleased with that. Especially as we go through the summer months, some of our hires get through kind of their orientation process. And then we get into the balance of the year, we would expect some continued improvement.

Gary Taylor:

Just two quick ones for me. Bill, I might have missed it, but I know often you kind of run through some of the managed care metrics on admissions -- adjusted admission and surgeries, I wondering if you could rattle off a few of those for us? And then secondly, I just want to make sure I understood on the Envision joint venture, I think we were thinking that was maybe roughly $250 million of revenue. But do all the expenses lie in the SWB line? Is that where those reside down to kind of a roughly EBITDA breakeven?

Operator:

And your next question will come from Justin Lake with Wolfe Research.

Bill Rutherford:

Yes. Justin, nothing specific I will call out. I mean, obviously when we do year-over-year comparisons, COVID was still an impact for us. We had roughly $40 million of COVID support payments last year that we don't have this year. Our COVID admissions were 3% of total last year, roughly 1%. So that's still influencing a little bit on the revenue line. On our volume projections for the balance of the year, I think we'll be largely consistent. We've seen thus far, our year-to-date admissions same facility are about 3.3%. I would think for the full year, we hover around 3% as well for the balance of the year. Our adjusted admissions year-to-date are 5.6%. I would think by the time we finish full year, it's still 5% to 6% adjusted admissions. So I think the volume trends we would expect in the second half of the year will be pretty consistent with what we've seen in the first half of the year.

Phil Chickering:

As I look at the implied revenue raise and EBITDA raise at the back half of the year, I'm trying to understand the flow-through of how much revenue raises should flow through into EBITDA upside. So how is it tracking in sort of 2023 versus sort of pre-COVID years?

Sam Hazen:

Yes. And Bill, let me add a point here. I think it's a relevant point. Obviously, we've dealt with a fairly unprecedented labor market over the last 3 years or so. And we do believe, as Bill indicated earlier, it's moderating. We've also dealt with sort of an unprecedented hospital-based physician dynamic at a macro level. And if you just take a snapshot of where we are 6 months into this year versus where we were pre-pandemic when neither of these macro forces were in place, we've actually increased our margins by comparison to 2019. So I think it's sort of a testament to the ability of the company to adjust operationally to dynamics and continue to move forward with our strategy. As we've mentioned before, we think our competitive positioning has improved compared to where we were pre-pandemic. Our market share has also improved during that time period. So we continue to believe that the company has the wherewithal to adjust to these factors, continue to move ahead in a very positive way and generate the results that we all want.

Ann Hynes:

I know it's early, but do you have any observations on how Medicaid determinations is impacting your business? I know one of your bigger states, Texas, started early. It sounds like it's been a little bit messy. So any early observations? And can you remind us if you have anything from the KB determinations in your guidance? And do you think this process is going to be an overall positive or negative for HCA?

Operator:

And the next question comes from Kevin Fischbeck with Bank of America.

Sam Hazen:

Kevin, this is Sam. Let me give you sort of the backdrop, we think, of what exists for us with respect to volume. And this is more of a general commentary. I'll let Bill sort of reconcile the back half of the year to the first half of the year with numbers, I'm not sure I can do that at this particular point in time. As we said before, and we continue to believe this we feel that within our markets, there's unique attributes that are driving solid demand for health care services. Population growth continues to be strong in Texas and Florida, in Utah, Nevada, South Carolina, pretty much Tennessee. Across the board, we're experiencing population growth within our markets. The second point is we're investing very significantly in our strategy and our positioning within these communities so that we can respond to our patient needs, put our facilities in the best position to grow. And we think that's going to help us sustain market share growth as we move forward. What we're seeing is that our overall volume assumptions are supported by acuity. Acuity has maintained, some of that strategic, some of that, I think, is the dynamics that exist within the markets. And then the second support mechanism that's in place, and we view this positively, is the payer mix dynamic. We have seen throughout the first half of the year, commercial admissions outpaced our total admissions. Again, we think that's reflective of a strong economy and job positioning that a lot of people have in our communities as well as the exchanges. And so we think those will continue on into the last half of this year. And we're optimistic that those will continue on into the future, at least in the near term. So Bill, you can maybe try to reconcile…

Sam Hazen:

Yes. And Bill, if I can add one thing. With respect to our investments in our networks. We have, at this particular juncture, the largest pipeline of projects that are in motion, including our outpatient development components which are very robust as well as other inpatient and facility needs there. So our pipeline from an organic standpoint as far as capital that we will see hit the market in latter '23, '24, early '25 is more robust than we've seen in pretty much recent years.

Brian Tanquilut:

Bill, you touched on the impact of Envision being a 30 basis point drag. I know there's some -- a lot of noise happening with American Physician Partners and just stuff moving around the physician staffing. So as we think about that drag, is there opportunity to bring that up? Or is that like a more structural thing where you've had to bring in in-house capabilities for physician staffing?

Operator:

And the next question comes from Lance Wilkes with Bernstein.

Sam Hazen:

This is Sam. We have a growing digital agenda in our company, and I'm very excited about what the prospects are for us around that. We are investing in a new clinical system, which we think is going to allow us to move information to the cloud more efficiently, and a matter of fact, move standard data sets into the cloud so that we can then use big data even more effectively and infuse that back into the care process. We will couple our digital agenda with something we're calling care transformation innovation. And inside of that, we believe we have opportunities to improve care processes, eliminate a lot of the variation that exists today in our company, create better quality and, at the same time, more efficiencies. Artificial Intelligence, we believe, will play a huge part in that. It's way early for us to know exactly what that will be and how that will influence our agenda, but we're encouraged about the prospects for it. We are partnering with some very sophisticated companies to help us push through this in ways that I think will accelerate our agenda and inform it with more expertise than what we have internally. So we're excited about what this can yield for us as we push into our next life cycle, if you will. And we'll wait to see what Artificial Intelligence, in fact, can do. But we view it as a positive potential for us in a very significant way.

Andrew Mok:

I just wanted to follow up on the pricing discussion maybe from a different angle. Revenue per outpatient equivalent looks, like it was down about 1% in the quarter, which seems to be weighing on strong inpatient pricing up 6%. Can you help us understand the pricing and mix trends across your outpatient platform that are causing that unit revenue metric to blend down this year?

Sam Hazen:

Yes. And Bill, just the second quarter overall outpatient revenue growth was actually up over the first quarter. So we are seeing some acceleration. There's a lot of moving parts, as Bill just alluded to, to outpatient revenues between physician, clinics, urgent care, all the way up to outpatient cardiology procedures, which tend to be our highest reimbursed type of procedures. And so the mix of that can influence the outpatient. We tend to look at it in the aggregate. And for the most part, our aggregate revenue growth has been stronger in the second quarter than it was in the first quarter. And then within sort of the pricing elements, we continue to get the targeted price increases that we want in both our inpatient and our outpatient businesses. So it's more, to Bill's point, sort of the mix and the mixture of all of the different components in a way that has produced solid growth for us.

Calvin Sternick:

I wanted to ask about the commercial rate cycle. I think last quarter, you said you guys are about 2/3 of the way through 2024 and about 1/4 of the way through 2025. Can you give us an update on the progress and how those rate discussions are evolving?

Operator:

And the next question comes from Scott Fidel with Stephens.

Bill Rutherford:

Yes, let me try to take both of those. I think as we maybe mentioned in the past, as you think about authorization and medical necessity reviews, those activities have picked up again as -- during the COVID period of time, those have eased a little bit. But we still see a lot of friction, if you will, as you go through that effort. We work with our payers to try to resolve those appropriately, make sure that we defend our positions where necessary. But there is a level of activity that both us and the payers have to devote to try to smooth through that process. But we tend to be able to work our way through it. On the CapEx, I think it's simply reflective of the opportunities we see in the market to continue to deploy capital for growth. Fortunately, we continue to see really strong cash flow to be able to support that CapEx. And again, I think it's reflective of the growth opportunities we see in the market.

Operator:

The next question comes from Jason Cassorla with Citi Group.

Sam Hazen:

Yes. This is Sam. Thank you for that question. As I mentioned, we have invested very heavily in our people agenda over the past few years. We've increased our capacity within our recruiting function. Our recruiting efforts are yielding strong hiring, and we believe that will continue on into the latter half of the year. Our retention efforts with respect to responding to our employees' needs so that they have the necessary resources and tools to be effective in their day-to-day jobs, we're getting better at that. That's helping turnover. Turnover is approaching pre-pandemic levels, especially in the nursing area. We are a few points above pre-pandemic. But if you annualize the second quarter turnover, it would suggest less than that. So we're encouraged by that, and we do believe we have opportunities to continue improvement in that area. With contract labor, as Bill mentioned, we expect to see improvements as we move through the last half of the year. And then I'm very excited about our workforce development initiatives. We continue to invest heavily in Galen College of Nursing. They're expanding each quarter, it seems, into new markets and establishing new relationships and new opportunities for people and for our company. And then we're also investing in our -- what we're calling our Centers for Clinical Advancement, which is our ongoing clinical education for our people so that they can upskill their capabilities and competencies and put them in a position to either deliver better care or grow in their own individual career. So what inning are we in? We're in the middle innings in some of the areas. And so we will wait to see how the latter half of the year plays out. But all in all, I think tremendous results. We're very competitive, we believe, across the organization with our compensation and benefit programs. And as I mentioned earlier, we've been able to navigate through these difficult periods and maintain margins. I think our labor costs -- again, if you just look at 2019 as a proxy, our labor cost in 2023 are below as a percent of revenue 2019. And again, that's in the very -- in the face of a very difficult labor market.

Jamie Perse:

Can you comment on seasonality expectations for the third quarter? Anything beyond normal seasonality from a headwind or tailwind perspective that we should be thinking about? And I think normally, revenue is down slightly and EBITDA down maybe mid-single digits to high single digits. Is that the right way to be thinking about the third quarter? And anything in July that's informing that? And then there was an earlier question on backlog that may not have been fully answered. I'd love your thoughts on that as well.

Operator:

And the next question will come from Steven Valiquette. Your line is open.

Sam Hazen:

Well, this is Sam. Bill indicated that we're 70% contracted on '24 around our targeted escalation objective. Labor costs, as you mentioned, are moderating some. Yes, there's still inflationary pressures underneath it, as one would expect. Now we have physician cost pressures with respect to pro fees. And our belief is that, that will have to be paid for by someone. And so that will become a new factor in our thinking and our justification for appropriate price increases. So our cost are not just one category. We have multiple categories, as you can see on the income statement. And all of that factors into our considerations when we're negotiating.

Joshua Raskin:

Were there any meaningful differences in the payer mix on the outpatient side, an obvious focus on Medicare and specifically Medicare Advantage volumes. And are you seeing anything in the Medicare market that would support higher levels of demand than we saw last quarter or the quarter before, anything that you feel like is inflecting?

Sam Hazen:

I would say, Bill, just to put a little bit of color on the outpatient. Our commercial outpatient revenue growth is clearly outpacing our Medicare outpatient revenue growth. Some of the adjusted admissions are influenced by some of the calculations, if you will. But we are seeing really solid commercial outpatient revenue growth, again, influenced by the ER, influenced by surgeries, which are represented by roughly 50% to 55% commercial. So good growth there. And all of that yields solid commercial revenue growth.

Frank Morgan:

Bailey, thank you so much for your help today. Thanks, everyone, for joining our call. I hope you have a wonderful rest of your week. And I'm around this afternoon if we can answer any additional questions you might have. Thank you very much. Have a great day.

Frank Morgan:

Good morning and welcome to everyone on today’s call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we will take a few questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements that are based on management’s current expectations. Numerous risks and uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today’s press release and in our various SEC filings. On this morning’s call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today’s release. This morning’s call is being recorded and a replay of the call will be available later today. With that, I will now turn the call over to Sam.

Bill Rutherford:

Great. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter. Adjusted EBITDA for the quarter was $3.17 billion, as compared to $2.94 billion in the prior year. As noted in our release, in the first quarter of this year, we recorded an increase in revenues of $145 million related to resolving certain disputed claims with a commercial payer that covered a six-year period. In the prior year quarter, we recorded an additional $244 million of revenues and $90 million of expenses that related to the Texas directed payment program for an earlier period. I will also note, as it relates to prior year comparisons, we still were experiencing high level of COVID volumes in the first quarter of 2022. COVID admissions accounted for 9.7% of admissions last year, compared to about 3% this year. In addition, in the prior year quarter, we recognized approximately $190 million of COVID-related support payments versus about $30 million in this year's first quarter. Sam highlighted our positive volume metrics in the quarter and this was coupled with good payer mix and case mix trends. Same facility managed care and other admissions grew 4.2% during the quarter, when compared to the prior year and non-COVID managed care admissions grew 11.3% versus the prior year. Non-COVID case mix improved just under 1%, as compared to both prior year and sequentially from the fourth quarter. This contributed to our non-COVID inpatient revenue per admission increasing 2.2%, as compared to the first quarter of last year. We remain pleased with our team's management of operating cost even with the backdrop of higher inflation. Our consolidated adjusted EBITDA margin was 20.3% in the quarter. Labor cost as a percentage of revenue improved both sequentially and when compared to the prior year and our supply costs continue to trend favorably as well. We have discussed previously other operating expenses have been subject to some inflationary cost pressures and increased approximately 20 basis points as a percentage of revenue, when compared to the prior year. So let me speak to some cash flow and capital allocation metrics as they remain a key part of our long-term growth and value creation strategies. Our cash flow from operations increased $458 million in the quarter from $1.35 billion in the prior year to $1.8 billion this year. Capital spending was just under $1.2 billion. We paid $175 million in dividends and repurchased just under $850 million of our stock during the quarter. Our debt-to-adjusted EBITDA leverage ratio remains near the low end of our stated leverage range of 3 times to 4 times. As noted in our release this morning, we are updating our full-year 2023 guidance as follows. We expect revenues to range between $62.5 billion and $64.5 billion. We expect net income attributable to HCA Healthcare to range between $4.75 billion and $5.16 billion. We expect full-year adjusted EBITDA to range between $12.1 billion and $12.7 billion. And we expect full-year diluted earnings per share to range between $17.25 and $18.55. And lastly, we expect capital spending to approximate $4.6 billion during the year. I will mention that our updated capital spending guidance is based on opportunities we believe exist to continue to invest growth agenda, and it also considers some land acquisitions we are planning for future development. In addition, we are seeing some inflationary increases in construction costs that we have factored into our guidance as well. Finally, I will mention, in early April, we closed on a transaction to increase our ownership interest in the Valesco joint venture with Envision. We will consolidate this venture, beginning in the second quarter and expect the venture will generate approximately $1 billion of annual revenues with no material impact to adjusted EBITDA. So with that, I'll turn the call over to Frank, and we'll open it up for Q&A. We look forward to your questions.

Operator:

[Operator Instructions] And your first question comes from the line of A.J. Rice from Credit Suisse. Your line is open.

Bill Rutherford:

Yes. A.J., this is Bill. I'll start and then Sam can add in. I think as we said in our comments, we believe there is momentum that we're seeing in the market. We saw that late ‘22, but we are fortunate that continued into the first quarter. We continue to see good volume expectations in the market. You saw our same-store admissions. Our non-COVID volume was pretty robust, emergency room activity remains busy. So we feel reasonably positive on our volume outlook that we've given. Our revenue per unit, we're pleased with. We're pleased with the payer mix trends in acuity and case mix. They are stable and maintained in the levels that we anticipated. And then on the cost side, we believe the teams have managed cost very well. We knew that labor improved throughout ‘22. Obviously, first quarter of last year was a high mark -- high watermark for us in labor, so we're pleased with where it is today. We hope there's continued improvement to be made, especially around the utilization of contract labor. And so generally, we're feeling pretty good about the cost metrics. There are some inflationary cost trends we're seeing, as I mentioned in other operating that tends to show itself around our professional fees and some of those fixed-cost items that we don't have as much input over. But generally speaking, we think our revised guidance and our outlook reflects our view for the balance of the year.

Bill Rutherford:

Thanks, A.J.

Whit Mayo:

Hey, thanks. I was just wondering if you guys could unpack some of the growth that you're seeing in outpatient surgeries between the ASCs and HOPD, and maybe comment on any particular pockets of strength or weakness across some of those surgical service lines? And it's kind of a corollary to this question two is just the supply cost look very good even with the surgical growth. So if you could maybe elaborate on that dynamic, that would be helpful. Thanks.

Operator:

And your next question comes from the line of Justin Lake from Wolfe Research. Your line is open.

Bill Rutherford:

Yes. Thanks, Justin. This is Bill. So yes, I'll confirm, our contract labor was down about 20% year-over-year. And again, we'll continue to be pleased with the trends in there. It's really rooted in the fact that our recruitment is up and turnover is down, so a lot of effort in that front. For the quarter, our contract labor was about 7.1% of our SWB. That compares to about 9.5% last year, and we were running mid-7s through the last half of ‘22, so good trends. You know, as a contract labor as a percent of hours was about 10.3%, where this time last year, we were 11.5%, almost 11.6%. So again, continued improvement in that area, really just rooted by a lot of efforts we have in the recruitment and retention. As we go through the year, we hope we'll continue to see favorable trends in that I hope and we can get in that 6.5% to 7% by the time we finish this year. So a lot of the effort continues by the teams to focus on that.

Ben Hendrix:

Thank you. Could you comment a little further on the same-facility revenue per admission and the equivalent admission comps? It looks like maybe lower year-over-year rates in the outpatient volume offset inpatient rate growth. Perhaps you could flush out the dynamics there for the first quarter and how that could play out for the balance of the year. Thank you.

Ben Hendrix:

Just as a quick follow-up. Can you parse out the degree to which your -- the acuity that you're seeing is just kind of normalization in terms of admission patterns versus kind of some of the investments you've made to expand your network capabilities? Thanks.

Sam Hazen:

Yes. And Bill, I think it's important to understand that our acuity or our case-mix index, the composite view of that is holding strong and actually up over 2019 when you consider we've lost a really high case mix component in total joint surgery. So I think that speaks to the underlying acuity mix within our remaining inpatient portfolio. We also had total joint surgery growth when you look at inpatient and outpatient again in the quarter. But nonetheless, those cases are now in the outpatient setting and out of our inpatient mix, but yet, we've been able to sustain a really strong acuity mix in total. And that's due to again, program development as Bill alluded to specific efforts in certain markets and certain facilities to advance their clinical capabilities. And it's yielding what we hoped. Next question?

Gary Taylor:

Hi. Good morning. One of my favorite expressions is when Sam starts talking about EBITDA clearance rates. So I was disappointed not to hear that catchphrase this morning, but otherwise, really solid quarter. My question is about commercial rate cycle. I think with all the moving parts with COVID, even when we see the Q, it's going to be hard to sort of tease out what's happening there. So just wanted to see if you could just update us on how you're doing on your commercial rate renewals. Is there any material activity on off-cycle renewals? Does this $145 million settlement say anything about the environment in terms of how you're positioned with the payers? Or is it just completely sort of a one-off? Thanks.

Operator:

Your next question comes from the line of Pito Chickering from Deutsche Bank. Your line is open.

Sam Hazen:

Peto, this is Sam. I think our overall compensation per hour across all aspects of our workforce are trending where we expected them to trend this year. And we're pleased with the progress. And that's in the face of us making some fairly significant increases over the latter part of ‘22, and we continue to make modest increases in certain market circumstances in ‘23, responding to new data or new understandings around what's happening from one market to the other. As I mentioned on our call, our turnover was down. Our nursing turnover was approaching pre-pandemic levels. We were running about 15% -- 14.5% to 15% in 2018 and 2019. We're running about 17%, when you look at the last six months annualized. So a very good trend happening, and we think it's, again, a factor of the macro trends, some of our specific actions around compensation program efforts to really increase resourcing and capabilities for our nurses and other caregivers. So we're really encouraged by the efforts of our teams, the recruitment metrics that we're seeing and where we are competitively in the market. Will there be a market here or there we have to adjust to as we move through the year? Yes. We believe that's factored into our guidance appropriately, and we should be able to manage through those changes as the year progresses.

Joshua Raskin:

Hi, thanks. Appreciate taking the question. Could you speak to the increase in CapEx guidance for the year? And I'm curious if you accelerated anything specifically in 1Q as that came in a little bit above where we were thinking? I'm specifically interested in the types of projects that are getting funded and especially the ones that have been that weren't contemplated maybe three months ago? And then lastly, I heard real estate purchases. I'm assuming those are for new inpatient hospital facilities over time.

Bill Rutherford:

And Josh, this is Bill. I'll add, we obviously can accommodate that increasing capital within the resources we're generating and within our overall capital allocation philosophies that we have. And we also continue to see really strong returns on invested capital. So we have confidence that these investments will continue to generate growth for us into the future.

Brian Tanquilut:

Hey, good morning. Bill, maybe just a question on how we should be thinking about the moving pieces or considerations for the second quarter? I know you called out the envisioned contribution to revenue and then maybe the New Orleans Hospital. But anything that we should be thinking about just sequentially in year-over-year? Thank you.

Operator:

Your next question comes from the line of Andrew Mok from UBS. Your line is open.

Bill Rutherford:

Yes. Thanks. I mean, obviously, this is an area we continue to pay attention to. We've got a fairly formalized approach inside of the company. We haven't seen any impact yet as those redeterminations are just beginning to occur, but we are keeping very close to state plans. We've also made outreach to our Medicaid patients to help them look at alternative coverage in the event they find themselves displaced to Medicaid. We continue to be encouraged with some of the third-party studies that we read that a relatively high percentage of those individuals potentially qualify for employer-sponsored coverage or through enhanced subsidies coverage within the health insurance marketplace. So we are staying very close to that. We are increasing our efforts to help people identify coverage that are available to them, trying to work with states and other community agencies where necessary to help people land coverage. So too early to be able to quantify what the impact of that may be. But ultimately, I believe when people can find coverage in the exchanges or through their employer. We wouldn't really anticipate any material downside, and hopefully, there could be some upside benefit to that over the long run.

Scott Fidel:

Hi, thanks. Interested if you could talk about how you're thinking about the sustainability of the surgical growth trends over the balance of the year, both in inpatient and outpatient. And interested if -- was there any catch-up just as COVID really diminished in the first quarter? Or do you see those types of growth trends are sustainable over the course of the year?

Sam Hazen:

Yes. And just to add to that, Bill. I think as we continue to increase our staffing capacity, it also affects our surgical capacity, because we do have instances we're not able to open all of our operating rooms as sufficiently as we would prefer also. And so as our labor situation continues to get better, we think that will allow us to open up more surgical capacity, and we believe the demand in the market is still there. So we're encouraged by where we are with our surgical volumes, and we think we have some things that should prop it up, if you will, as we move through the year with our staffing agenda and our human resource strategies.

Lance Wilkes:

Actually, that's a perfect lead into my question. Could you talk a little bit about your outlook for staff growth? And in particular, obviously, you had the shift from temporary to permanent which has been great. Can you talk about how your staff has grown or maybe registered nurse staff or something like that over the last year? And then as you're looking forward, are there any particular impediments to continued levels of growth?

Operator:

Your next question comes from the line of Calvin Sternick from JPMorgan. Your line is open.

Sam Hazen:

Well, hopefully, we get back to pre-pandemic levels. We benchmarked a lot of our metrics against where we were in 2019, so that we can have a comparison of, sort of, more normalized environment. But obviously, our leverage, and as I just mentioned, is very important to our abilities to open up all of our bed capacity and surgical capacity and so forth. Even in our emergency room capacity sometimes can be constrained, because of staffing levels and such. I think it will continue to get better as we went through the first quarter, March was better than January as an example. So that's a positive trend within the quarter. We're hopeful that, that will sustain itself as we move through the balance of the year. And as we look at some of our hiring and the timing of that hiring, that should line up with some continued improvement as we sequentially move through the year. So those are the main things. Some -- we have capital that will come online over the course of the year, as we always do. That will help in certain circumstances. But I think the most important variable is staff and getting sufficient staff into our facilities, allowing us to open up our beds and so forth appropriately.

Steven Valiquette:

Great, thanks. Good morning, everybody. So really one main question here. When looking at some of the hospital-related volume commentary from medical device companies over the past week or two, at least one of them suggested from their view that hospital volumes were the strongest in January and February, then normalized in March. And I know no one really likes questions on the monthly performance. So really just my more high-level question is if you could just comment on whether or not the momentum in your overall operations was generally pretty consistent throughout the quarter? And then also, is the full-year ‘23 guidance increase meant to reflect mainly just the upside witnessed in 1Q? And is the rest of the year outlook is generally unchanged from your prior view? Or should we all expect strong momentum from the first quarter to continue into 2Q? Just kind of an all of thoughts around all that for just the overall operations would be helpful. Thanks.

Operator:

Your next question comes from the line of Jason Cassorla from Citigroup. Your line is open.

Bill Rutherford:

Yes. I mean, as I mentioned in my comments, our non-COVID commercial volume was up a little over 11%. So obviously, that's a stat we're very pleased. We're very pleased with the exchange enrollment. We saw really good enrollment across our states. Some of the publicly released data that you've seen, we've seen exchange enrollment in Florida, up 18%, Texas up close to 30%. And that [Technical Difficulty] pretty well with where we would expect exchange volume to be. Our exchange volume just year-over-year was up, what, 19% or so for the quarter. It's hard to make some of those comparisons pure on the non-exchange because COVID has such an impact on that. But if I back up and look at the non-COVID growth of managed care at 11, it is still pretty strong. And even overall, we were up 4%. So again, we're thinking that there's good payer mix will continue, good demand. We still see basically full employment in most of our markets. So we'll see where that plays out. But we are pleased with the health insurance exchange activity that we're seeing across the markets.

Sarah James:

Thank you. I'm trying to piece together a few of the comments that you made on contract labor. You talked about getting down to about 6.5% to 7% exiting the year. Is that in line with what you've been thinking before? I thought you guys were a little bit lower. And then how do you think about reinvesting the savings of that? So how much is going to wage inflation versus actually increasing headcount? Or is any of it falling to the bottom line as sort of a margin relief?

Operator:

Your next question comes from the line of Stephen Baxter from Wells Fargo. Your line is open.

Sam Hazen:

I'm not sure I understood the second part of that question. But the first part of the question, we're, like I said, running mid-single-digits on our renewed contracts. We were running 3.5 or so prepandemic with our commercial contracting. So it is up a little bit. Again, it's reflective of, I think, the overall inflationary environment that most organizations find themselves. But we think it's a responsible ask and it's been received reasonably well by the payers that we've renewed. What was the second question?

Sam Hazen:

Oh, yes, it is.

Operator:

Your next question comes from the line of Jamie Perse from Goldman Sachs. Your line is open.

Sam Hazen:

We don't see any particular procedural category facing the same type of pressure as total joints did. I think our company is somewhere around 80% of our total joints today are done as an outpatient with 20% done as an inpatient. That was reversed pre-pandemic. So we've absorbed all of that. And it was a headwind with respect to a P&L impact over this time period. The rest of the categories are not as discrete as total joints. And in cardiac, particularly, a large piece of our cardiac volumes today are already in the outpatient setting. And so we don't anticipate anything in that particular category shifting like total joints have shifted. We've seen some shift over time in spine, and that's more incremental than it is holistic like total joints. We've seen some in cardiac over the years. We've seen some with our robotics platform. Those continue, sort of, on the margin. They're not structurally repositioning like total joints did. And so our company has effectively navigated that transition. Again, we have a multifaceted offering for patients and physicians, both in our facilities, outpatient within our facilities, ambulatory surgery centers so forth. And that's -- one of those settings is the right setting for just about every patient. And I think our organization has been able to grow as a result of that multifaceted offering. And our total joints, like I said earlier, are actually up year-over-year and they were up last year, compared to the previous year, so we've seen good growth in our orthopedic programs, and we continue to work with our surgeons and our service line leaders to advance our capabilities as well.

Frank Morgan:

Rob, thank you for your help today, and thanks for everyone for joining the call. We hope you have a great weekend. I'm around this afternoon. If we can answer any additional questions you might have for this. Thank you.

Frank Morgan:

Good morning and welcome to everyone on today’s call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we will take a few questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements that are based on management’s current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today’s press release and in our various SEC filings. On this morning’s call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today’s release. This morning’s call is being recorded and a replay of the call will be available later today. With that, I will now turn the call over to Sam.

Bill Rutherford:

Okay. Thank you, Sam and good morning everyone. I will provide some additional comments on our performance for the quarter and the year then discuss our ‘23 guidance. We finished the year with good volume metrics. Our fourth quarter same facility admissions increased 2.9% over the prior year. For the full year, our same-facility admissions were up 0.5%. Excluding COVID admissions, our same-facility admissions grew 5.4% in the quarter and were up 3.4% for the year. For the full year, COVID admissions accounted for 5.2% of our admissions versus 7.8% in the prior year. Same-facility emergency room visits increased 11.4% in the quarter as compared to the prior year and were up 7.6% for the full year. Our same-facility outpatient surgeries were up slightly in the quarter from the prior year, but increased 5.6% sequentially compared to the third quarter. Same-facility inpatient surgeries were basically flat as compared to the prior year. Both were impacted by 1 less business day in the quarter. Our same-facility revenue per equivalent admission was down 2.6% in the quarter from the prior year as this was influenced by the drop in COVID activity. Sequentially, our non-COVID revenue per equivalent admission increased approximately 3.7% as compared to the third quarter. Our case mix increased just under 2% sequentially from the third quarter and our payer mix remained stable as well. We remain pleased with our team’s management of operating costs even with the backdrop of higher inflation rates. Our consolidated adjusted EBITDA margins were 20.5% in the quarter and right at 20% for the full year. We continue to focus on our labor plans and supporting our teams, while appropriately managing contract labor and premium pay programs. Our total labor cost as a percentage of revenue improved both sequentially and when compared to the prior year. In addition, our supply cost trends have remained very consistent during the year and we are pleased with these results. Other operating expenses have been subject to some inflationary cost pressures when compared to the prior year, but has run fairly consistent as a percent of revenue throughout 2022. Our cash flow and capital allocation are a key part of our long-term growth and value-creation strategies. Our cash flow from operations was $8.5 billion in 2022. Our capital spending was just under $4.4 billion for the year, which was slightly higher than our initial expectations due to some year end real estate and information technology purchases. We paid dividends of about $650 million and we repurchased $7 billion of our outstanding stock during the year. Our debt to adjusted EBITDA leverage ratio was near the low end of our stated leverage range of 3x to 4x. For full year 2022, we realized approximately $1.2 billion in proceeds from sales of facilities and healthcare entities. So, let me speak to our 2023 guidance for a moment. As noted in our release this morning, we are providing full year ‘23 guidance as follows. We expect revenues to range between $61.5 billion and $63.5 billion. We expect net income attributable to HCA Healthcare to range between $4.525 billion and $4.895 billion. We expect full year adjusted EBITDA to range between $11.8 billion and $12.4 billion. We expect full year diluted earnings per share to range between $16.40 and $17.60. And we expect capital spending to approximate $4.3 billion during the year. So, let me provide some additional commentary on our guidance. Our 2023 adjusted EBITDA guidance is impacted by several governmental and policy changes. In 2022, we recognized approximately $280 million in COVID support mainly from DRG add-ons, removal of sequestration cuts and HRSA reimbursement for uninsured COVID patients. We expect very little revenue from these programs in 2023. Also, as discussed in our first quarter release, we recognized $244 million of revenues and $90 million of expenses related to the Texas directed payment program that was for the last 4 months of 2021. This program that started on September 1, ‘21 was not improved until the first quarter of 2022. In addition, we estimate the impact of the 340B related payment reductions to be between $50 million and $100 million. Adjusted for these items, the midpoint of our 2023 adjusted EBITDA guidance would be in the middle of our historical 4% to 6% growth expectations that we have had over time. Within our guidance, we expect our same facility equivalent admissions to grow approximately 2% to 3% and our revenue per equivalent admission to grow approximately 2%. Depreciation is estimated to be about $3.1 billion and interest expense is projected to be around $1.975 billion. Interest expense will be impacted by both higher rates and anticipated draws under our revolving credit facilities. Finally, our fully diluted shares are expected to be about $278 million for the full year and cash flow from operations is estimated to range between $8.5 billion and $9 billion. Also noted in our release this morning, our Board of Directors has authorized a new $3 billion share repurchase program. This will be in addition to the approximate $1.5 billion remaining authorization we had under the previous program at the end of the year. In addition, our Board has declared an increase in our quarterly dividend from $0.56 to $0.60 per share. With that, I will turn the call over to Frank and we will open it up for Q&A.

Operator:

[Operator Instructions] Our first question comes from Justin Lake with Wolfe Research.

Bill Rutherford:

Yes. Justin, this is Bill. Let me start. So as it relates to labor cost, I think as a percentage of revenue, we will keep it on an as-reported basis, flat with where we ran for the full year of this year. We continue to expect improvement in the utilization and cost of contract labor as we go through the balance of the year. And so I think that’s a good output for us. Relative to payer mix, we think payer mix for now will mostly remain stable. We are encouraged with what we are seeing with the enrollment in the health insurance exchanges and we believe the enrollment in our states, are probably a little bit higher than what we see as a nation. And so we think we have contemplated that within the context of our overall range, but we are encouraged with some of the payer mix trends.

A.J. Rice:

Hi, everybody. Thanks for the outlook commentary and so forth. Maybe because you have got about a $600 million range on the EBITDA range you are looking at. Can you maybe talk a little bit about what are some of the swing factors? Do you see those mainly as top line swing factors that would get you to the high or low end or is there expense management, open questions in your mind? And specifically on the labor, you have got quite a bit of a decline in the contract labor from what you spent in ‘22 versus presumably the run-rate for ‘23. How much of that are you baking into the guidance versus how much are you saying you have got to redeploy to support permanent labor?

A.J. Rice:

Okay, thanks.

Gary Taylor:

Hi, good morning. Two quick ones for me. Bill, I know you said contract labor came down again, but I didn’t catch if you disclosed the 4Q number. And then my other one was just also on your comment about the other OpEx line. I mean that’s still a line that on a per adjusted patient day basis is up in the double digits. So any help you can give us on thinking about modeling that for ‘23?

Operator:

Our next question comes from Ben Hendrix with RBC Capital Markets.

Sam Hazen:

This is Sam. Thank you for that. I mean we did, as I mentioned in my prepared comments, had some moments in the quarter where we were unable to receive transfers in or take certain patients into our facilities. And that was actually a little bit elevated over the third quarter. We had roughly, using this as the proxy, approximately 2% of our total admissions we were unable to take through our transfer centers and ahead to find those patients alternative solutions where we could. We were busier in the fourth quarter than we were in the third quarter, so that was part of it. But nonetheless, we still are seeing opportunities for us to improve the throughput through our case management initiatives, as you spoke to, continue to increase the head count in our facilities in order to take care of these patients. And we’re hopeful that those numbers will start to come down a little bit as we push into 2023.

Whit Mayo:

Hey, thanks. Good morning. Sam, I wanted to go back to the long-term plan that you mentioned. You talked about advancing the transformation of care delivery models. Can you maybe elaborate more on that, sort of how that may be playing in the physician strategy, maybe a different view into working with MA plans or anything would be helpful? Thanks.

Operator:

Our next question comes from Pito Chickering with Deutsche Bank.

Bill Rutherford:

So Peter, this is Bill. I think our surgical volume, the most – the thing being pushed out was we had 1 less business day, 1 less surgical day, and so that could account for 1.5 points or 2 of that trend. And I don’t think there is any other trends that we observed in our out-patient or in-patient surgery or call out other than just 1 less operating day. Going forward, I would say that we would anticipate our surgical volume to reflect our longer term trends, which has historically been somewhere around that 2 point growth. And again, there is some variables that fluctuate on that, but that was the issue on the flat surgical volume for Q4, was nothing other than 1 less surgical day.

Kevin Fischbeck:

Great. Thanks. I appreciate you guys breaking out kind of how you thought about the core pricing in the quarter. Is there a way to do that in the 2023 guidance? Obviously, the COVID is a headwind 340B is a headwind, and then how to think about anything else that’s a moving piece there? I just want to understand the core trends in pricing, and then maybe talk a little bit about commercial rate growth of what you’re renegotiating today? Thanks.

Operator:

Our next question comes from Ann Hynes with Mizuho Securities.

Sam Hazen:

Excuse me. So Ann, it’s Sam. We, pre pandemic, were somewhere around 13% or 14% – excuse me, 14% for nursing turnover. We’re on a run rate now 18%, 18.5%. That’s down from mid-20s. We think the industry average is somewhere in the mid to upper 20s right now from what we’ve seen external benchmarks and so forth. So we’re really encouraged by the progress our teams have made. And again, over the last 6 months of the year, we were starting to see improving trends. We believe we have the right initiatives in place to carry some momentum in that area into 2023. The market, as I mentioned, is a bit tenuous still, but we’re encouraged by the investments we’ve made in our recruiting, the investments we’ve made in retention and leadership training and just the – I’ll call it, the hand-to-hand combat that exists in making sure that our employees have the resources on their units that are necessary for them to deliver great care to their patients and for them to be successful in whatever their role is in the company. And we think we’re making progress on pretty much all of those fronts.

Ann Hynes:

Alright. Thanks.

Operator:

Our next question comes from Brian Tanquilut with Jefferies.

Sam Hazen:

So we’ve had a wonderful relationship with Envision over the years, and it continues to be strong across different facilities in our company. A number of years ago, we had made an investment in a co-venture with them that we felt was an opportunity for us to integrate that physician service, mainly in the ER and hospitalist medicine and a few other subspecialty categories within our hospitals as more clinically aligned and so forth. And what we see is an opportunity to further that. And so we are moving to acquire a larger percentage of that co-venture, and we think it will give us a little better visibility in how to achieve better clinical integration to improve quality. We think we can use that platform to improve efficiency within our emergency rooms primarily and even on our med surge floors where our hospitalists work. It will support graduate medical education in some innovative ways, we believe. And then, finally, we think it offers up an opportunity for us to advance our connections to our strategic outreach partners in ways that maybe we don’t necessarily accomplish in the structure we have today. So we are pushing through the final stages of that transaction. I think it’s scheduled to close sometime in the spring. We will take the rest of the year to fully assimilate it, so to speak. And then as we get into 2024, we anticipate being able to execute more effectively on these categories.

Stephen Baxter:

Hi, good morning. Just wanted to ask a follow-up on the 2023 guidance, I was hoping you could talk a little bit more specifically about your expectations on inpatient admissions. I guess, first, how are you thinking about where the COVID figure goes in 2023 compared to the 5.2% of admissions in 2022? Any implication being I’d love to hear how you’re thinking about non-COVID admission growth in 2023? Thank you.

Operator:

Our next question comes from Scott Fidel with Stephens.

Bill Rutherford:

Yes. So I don’t know if I have the case mix necessarily. We’ve seen relatively flat, as I recall, on the COVID case mix, right? Our non-COVID mix improved about 2% sequentially from the third quarter to the fourth quarter going forward. Our revenue per equivalent admission was roughly flat for the year-over-year comparisons.

Bill Rutherford:

For non-COVID?

Bill Rutherford:

Yes, that would be embedded in our revenue per equivalent admission of about 2%. And then when you factor out the loss of the revenue items, I think, as I mentioned earlier, that pushes us closer to 3%. And that would be just a combination of all factors of acuity as well as payer mix and pricing trends underneath the...

Operator:

Our next question comes from Calvin Sternick with JPMorgan.

Sam Hazen:

This is Sam. Let me speak to some of our service lines trends. During the pandemic, we felt the emergency room might be disrupted from what our previous beliefs were. And there was new uses of telemedicine alternatives that were being experienced, we thought. What we have seen is just the opposite. The resiliency of the emergency room for communities is even greater than we thought. And the demand there is very strong because our emergency rooms and other people’s emergency rooms are a solution set for people whenever healthcare is needed. So, our trends in the emergency room have been very solid over the course of the year. And when you look at them really without the COVID activity, it’s especially impressive I think. We have seen good volume growth in our orthopedics. Our total joint business for the quarter was up 6%. In many instances, we fully absorbed, we believe, most of the shift over the last 3 years during the pandemic, with the orthopedic business moving from inpatient to outpatient. And in most instances, we believe the large majority of that is behind us. And so we don’t have that as a pressure point like we have had over the past 3 years. But nonetheless, we have grown that business in the face of the site of care shift. We have a very robust pipeline for our emergency rooms, especially our freestanding emergency room platform, a very significant development opportunity there for us across our communities, and we are investing in that. Our urgent care center platform continues to grow. We are up to 260 urgent care centers. We will probably push through 300 in 2023. Our ambulatory surgery center platform continues to grow. Here, again, we have more de novo development inside of our ambulatory surgery center platform than we have had in the past, and we are encouraged by how that fits into our networks in a very productive way. So, we are really pretty excited about our investments in our ambulatory network, our investments in our acuity programs and our higher service lines. And we will continue to – we believe, be well positioned to deal with the growing demand that we see in the market.

Lance Wilkes:

Yes. Could you just talk a little bit about permanent nurses and understand the retention rates are getting better there. Can you talk a little bit about new hirings, what sort of growth you are seeing there? What are maybe some of the drivers of access to nurses there, where are they coming from? And then also, if you could just talk a little bit about, you said the investment spend was pressuring and the long-term plan was pressuring ‘22 a little bit. Can you talk a little bit about how ‘23 might look compared to ‘22 with that? Thanks.

Bill Rutherford:

Yes. This is Bill. On the investments, when you think about the technology investments, the investments we are making in some of the clinical transformation. And I would also say, with the expansion of our nursing schools going forward, probably is somewhere around an incremental investment of $150 million in ‘23 compared to what we ran in ‘22. Lance, we didn’t call that out, but it’s part of a long-term investment we think, that will continue to drive performance and value for us.

Lance Wilkes:

Thanks.

Jason Cassorla:

Great. Thanks for taking the question. I just wanted to ask a bit more on your capital priorities. You have recently divested ownership in some hospitals. But just wondering how you are viewing the M&A backdrop and if you are seeing opportunities to increase your footprint in your current markets or potentially entering into new markets? And then just on share repurchases, you have increased your authorization by $3 billion, you have $4.5 billion rough remaining. It’s just in light of the $7 billion this year. Just curious how you are thinking about share repurchases in the context of your larger capital deployment priorities? Thanks.

Sam Hazen:

For M&A, we have been fairly active in the market with outpatient acquisitions again when they come available, whether it’s urgent care, some freestanding emergency room, some ASC, some physician clinics and so forth. And those are very complementary, synergistic to our network acquisitions, and we will continue to pursue those as they develop. We have not had too many opportunities on hospital acquisitions. Although, recently there was an announced LOI on a hospital just outside of the Dallas-Fort Worth market that we think is synergistic with respect to clinical services and so forth with our system in Dallas-Fort Worth. So, we will continue to look for those. We do have a pipeline of Greenfield hospitals because the acquisition environment is not as robust end market as maybe we would have hoped. So, we need to consider Greenfield projects, and we do have a number of those that are in the works. We have one under construction currently in San Antonio. And I want to say we have seven or eight parcels of land, maybe 10, that are designed for future hospital development when the time is right for us to make those investments.

Steven Valiquette:

Thanks. Good morning everybody. So, just on the surgical volumes, you addressed most of the key questions related to the volumes for both the fourth quarter and the full year ‘23. But just a follow-up on that topic to get, I guess a little bit more. I was just curious whether or not you do see any notable pent-up demand for any surgical cases exiting out of 4Q ‘22 that might be falling at least into the early part of ‘23 for various reasons, just curious any visibility on early ‘23 at this stage? Thanks.

Steven Valiquette:

Okay, great. Thanks.

Jamie Perse:

Thank you. Good morning. Just a follow-up on the commercial reimbursement dynamics, first, can you remind us what percent of contracts have been recently negotiated that will take us back at the higher rate January 1st? And then secondly, can you give us a little bit of color on what the initial bump in those contracts looks like relative to the rate escalators that are locked in place for the next couple of years? Thank you.

Operator:

Our next question comes from Joshua Raskin with Nephron Research.

Bill Rutherford:

Yes. Josh, I don’t think there is anything tempering in the investment at all. I think 4.3% is our expectation. As I mentioned in my comments, we initially expected 4.2%. For ‘22, it came in a little higher because we had some year-end activity that I mentioned around some real estate and some IT. So, I wouldn’t read anything from down to the fourth quarter 4.3%. It’s actually up compared to where our initial expectations are. But as a summary, we still see very good opportunities to deploy capital, we believe, to capture growth opportunities in the marketplace. And we have talked about some of that, whether that would be through our freestanding EDs, whether there is some development of new hospitals, whether it would be expansion of campuses. So, again, I think it’s an important part of our overall capital allocation and I think an important part of our continued long-term focus on growing.

Andrew Mok:

Hi. Good morning. I was hoping you could provide a bit more color on the supply cost trends into 2023. What are the assumptions around unit cost increases versus – what steps did you take to manage inflationary pressure for multiyear contracts? Thanks.

Operator:

Our final question comes from John Ransom with Raymond James.

Bill Rutherford:

How it affects our revenue per unit?

Bill Rutherford:

Well, in theory, will flow through as reduction of our contract labor. And so the margin, if you will, on the contract labor as we replace an individual from a contractor to an employed one is that we will save that margin. And being able to reinvest and what we have been able to do this year is reinvest back into our employee workforce and that’s part of that turnover level. And I think all of that, John, I would say, is incorporated, if you look at the overall labor spend. So, I mean there is a lot of components into that. And as we said, we think we can maintain our labor cost as a percent of revenue where we are finished this year. It’s a function of reducing those premium labor and reinvesting back into our employee workforce and keeping that relatively flat year-over-year. And I think that’s a good result for us and allows us to continue to recognize the important work our employees do for us.

Bill Rutherford:

Thanks John.

Frank Morgan:

Devin, thank you for your help today and thanks to everyone for joining us on this call. We hope you have a great weekend. I am around this afternoon, if I can answer additional questions you might have. Have a great day.

Frank Morgan:

Good morning, and welcome to everyone on today’s call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements that are based on management’s current expectations, numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today’s press release and in our various SEC filings. On this morning’s call, we may refer to measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Inc. is included in today’s release. This morning’s call is being recorded, and a replay of the call will be available later today. With that, I’ll now turn the call over to Sam.

Bill Rutherford:

Thank you, and good morning, everyone. Let me provide some additional comments on the quarter. As Sam mentioned, our results in the third quarter were in line with our expectations. Adjusted EBITDA was $2.902 billion, adjusted EBITDA margin was 19.4%, and diluted earnings per share was $3.93, excluding losses on sale of facilities of $0.02. Our same facility volume levels in the third quarter were generally consistent with our second quarter levels. Our volume trends compared to the prior year reflect the COVID-19 surge we experienced in the prior year. For example, our same facility admissions are down 1.5% when compared to the prior year. COVID admissions were down almost 60% this quarter compared to third quarter of last year, and they represented almost 13% of admissions in Q3 of last year versus 5% of admissions in third quarter of this year. Non-COVID admissions increased 6.9% in the quarter as compared to the prior year and are up 2.7% year-to-date. Acuity and payer mix levels were generally consistent with second quarter levels as well and led to comparable revenue per equivalent admission between the second and third quarter. As mentioned in our release, we recorded approximately $266 million of revenue and $125 million of expenses related to the Florida directed payment program during the quarter. Approval for this program was received in September from CMS for the annual period ending September 30, 2022. In addition, we estimate the impact of Hurricane Ian, which made landfall on the West Coast of Florida on September 28th, was approximately $35 million in the quarter. Our labor costs were generally in line with our expectations. We made market-based wage adjustments for our employee workforce and were able to absorb much of this with a 19% reduction in contract labor as compared to the second quarter. Supply cost trends remained stable, both sequentially and when compared to the prior year. Other operating expenses increased sequentially from the second quarter but this is mostly due to the Florida DPP expenses and some increases in professional fees and utility costs. We remain focused on our resiliency programs that we’ve spoken to in past calls. And overall, our teams are doing a great job responding to the inflationary market dynamics while also identifying efficiency opportunities. Let me transition to discuss some cash flow and balance sheet metrics, which continue to be a strength for HCA Healthcare. Our cash flow from operations was $3.02 billion in the quarter, and capital spending was $1.13 billion. We completed approximately $700 million of share repurchase during the quarter and just under $5.5 billion year-to-date. Our debt to adjusted EBITDA ratio was just above the low end of our stated leverage range, and we had approximately $3.9 billion of available liquidity at the end of the quarter. Lastly, I will mention that our full year 2022 guidance remains unchanged. So, with that, let me turn the call back over to Sam for some quick comments before we go to Q&A.

Frank Morgan:

Thank you, Sam. As a reminder, please limit yourself to one question so that we may give as many as possible in the queue an opportunity to ask a question. Dennis, you may now give instructions to those who would like to ask a question.

A.J. Rice:

Hi, everybody. Thanks for the question. One maybe a technical point. Are you just -- commenting on Hurricane Ian and the impact in the early part of the fourth quarter. And then broader question is around your surgery volumes. You clearly showed good trends inpatient versus a year ago outpatient consistent with what you’ve shown year-to-date. I’m assuming that some of that relates to what was happening last year with the Delta surge. But, can you give us some flavor for where you’re at inpatient-outpatient, and are we sort of back to a normal environment there? It sounds like you think you might see a step-up in the fourth quarter just from a normal seasonal pattern, but any comments there?

Operator:

Your next question is from the line of Pito Chickering with Deutsche Bank. Please go ahead.

Bill Rutherford:

Well, Pito, this is Bill. Let me try. I mean, I think Sam gave you comments on our thinking about top line. And really, the uncertainty remains around inflationary trends. And that’s what we’re looking at. Take the balance of the year, coupled with our experience so far to get some informed judgment as we go into 2023. So, it’s a bit too early to provide too many details. We’re pleased with the continuation of labor agenda. We’re pleased with the continuation of reductions of contract labor. And we’re just going to have to judge the overall inflationary environment as we go into 2023. We think our teams and our resiliency efforts are good countermeasures to that. But that’s what we’re taking a little bit more time to kind of be able to judge that, and we’ll give you a full commentary in January.

Operator:

Your next question is from the line of Ann Hynes with Mizuho Securities. Please go ahead.

Sam Hazen:

I think for -- this is Sam, Ann. I think the 1% to 2% is a little bit lower than maybe historical trends because we will have some COVID admission activity in ‘22 that we don’t think will be as much in ‘23. So, if you normalize for COVID, it’s sort of in the zone of what our historical trends have been. We think outpatient activity would be a little stronger than inpatient activity as it has been historically. But we do see, with the strong markets that we have and with the investments that we’re making in our network that we should be able to achieve those normal trends when you normalize for some of the COVID activity, which we don’t anticipate at the same level next year. So that’s part of the explanation. There’s still a little bit of the influence there from COVID.

Justin Lake:

Thanks. I wanted to ask a couple of questions on 2022. So first, in the -- your update -- you didn’t update guidance. I assume that means that it remained intact. Just curious, given we’re three quarters through, where you think within that guidance range you might end up? And then in the third quarter, to your point, COVID admissions were fluctuated pretty good. I was hoping you might be able to give us a revenue per admission number ex-COVID, just so we can see what the growth is doing ex that big swing in COVID. Thanks a lot.

Justin Lake:

And Bill, that would strip out the Florida revenues as well?

Operator:

Your next question is from the line of Gary Taylor with Cowen. Please go ahead.

Bill Rutherford:

Yes. Hey Gary, this is Bill. Let me address the Florida DPP. We are not anticipating that to be a headwind next year. That is an annual program, have received annual approval. So, we are subject to approval. But, as you might recall, we reported some amounts in the fourth quarter of last year. And with this amount, we would, at this point, anticipate that program will continue, and it’s material for next year, but we’ll continue to evaluate that.

Operator:

Your next question is from the line of Andrew Mok with UBS. Please go ahead.

Bill Rutherford:

Well, I mean, we’ve talked publicly before around the Texas out-of-period amounts that we recorded earlier in the year that related to last year. That was approximately $150 million. And then, we’ve sized the various COVID support payments we received this year that we don’t anticipate to continue around $300 million. And so, those would be the two areas we’ve talked about before. And there is other pluses and minuses, 340B is out there. But those are the two things that I would highlight at this point.

Whit Mayo:

Thanks. I just want to go back to contract labor for a minute. I appreciate the disclosure that it declined 19%. Can you maybe frame that as a percentage of SWB in the third quarter and also maybe what the exit rate is? And also, Bill, your comment on market-based wage adjustments, is there any way to maybe quantify that on an FTE basis or a per hour basis, just to put into perspective the level of inflation that you’re seeing and how different that is maybe from the beginning of the year? Thanks.

Sam Hazen:

Yes. Typically -- Whit, this is Sam. We give our wage increases in the third quarter. It varies a little bit market to market. But that’s when the lion’s share of our increases go through. And we’ve been a little bit active throughout the last year or so with targeted market adjustments here and there throughout the year, but we felt we needed to be a little bit more significant. So, we -- the composite is a little north of 4%. If you look at third quarter to second quarter, as far as average hourly rate increases for our employed forces. Again, that’s just the third quarter to second quarter, and we were able to absorb that inside of our contract labor expense management and yielded again labor cost as a composite flat with the third quarter compared to the second quarter. We still are running with a lot more nurses in contract labor than we did in 2019. So, we have room to go, we believe. We obviously have to execute on our human resource agenda to make that happen. And we’ve invested heavily in our recruitment capabilities, and they’ve done a wonderful job of improving our recruitment processing and really creating a better applicant experience as well as a better management experience for our management teams out there. We have very intentional retention efforts, including compensation and benefits and flexible scheduling and so forth in order to improve retention, and we’re seeing progress there. Our engagement results just came in, very positive. So we’re really encouraged by our abilities to capitalize on modifying our workforce over time. That can change. We understand that, but at this particular juncture, that’s where we are.

Ben Hendrix:

One of your -- your competitor noted an increase in clinicians out on quarantine this quarter, and clearly, they had an impact on agency labor, and you seem to have managed obviously agency labor much better. And I’m wondering what you saw in terms of staff quarantine rates and -- this quarter versus prior? And how were you able to manage that? And if you saw any scheduling delays on the outpatient electives as a result of changing quarantine rates? Thanks.

Operator:

Your next question is from the line of Lance Wilkes with Bernstein. Please go ahead.

Sam Hazen:

Well, we’ve mentioned in the past that we felt the inflationary pressures that we’re incurring on our cost structure are being received reasonably well by the payer community. And that has, in fact, happened. We closed some additional contracts in the third quarter of this year, and they were generally in the target of where we had indicated previously that we expected our new contracts to land, and that was somewhere in the mid-single-digits. So, we are making progress with respect to our renegotiations. As I mentioned, we were already partially negotiated for 2023, and we continue to add to that negotiation in contract completion rate as we move through the third quarter. So, we’re encouraged by the renegotiations that have occurred, and we are about 70% contracted for 2023 and about 45% contracted for 2024, and we’re seeing elevated escalators by comparison to our historical trends on our commercial contract book. As it relates to our competitors, there’s always pockets of negotiations where there’s terminations and so forth. We have not had to terminate any contracts in any significant fashion. We’ve been able to reach agreements that work for us and work for the payers, and we’ll continue to hopefully be able to make that happen. We are working with the payers with respect to making sure that our accounts receivables are handled timely and appropriately with respect to denials and so forth, and we are incorporating that into our discussions in a way that we think will be productive for us and hopefully productive for the payers.

Brian Tanquilut:

Sam, I appreciate you guys providing some insight into next year’s volume expectations. But, as we stare down a recession here, I mean, how are you thinking about the resilience of the business? You guys did fairly well during the last recession, but just some thoughts on that and maybe your thoughts on any differences this time around versus ‘07 to 2012?

Operator:

Your next question is from the line of Kevin Fischbeck with Bank of America. Please go ahead.

Sam Hazen:

Let me make a couple of comments. I do think there is an imbalance between supply of healthcare and demand for healthcare right now, primarily because of some of the labor constraints. And people are being pushed out, they’re being held up. Again, transfers are not happening as we had anticipated. So, there is some influence to that. Anecdotally, we’ve heard from some of our physicians that their clinic practices are starting to recover in ways that maybe earlier in the year, they didn’t recover. So that’s encouraging to us at some level. Obviously, during the comparison of 2019 to today, our total joint business migrated fairly significantly to outpatient activity. When you look at 2019, on the outpatient side against the third quarter of 2022, we think our outpatient activity has grown 5% or 6% over that time period. Our inpatient activity is down a little bit, most of which is explained by the total joint movement. So, we were asking ourselves when you think about it, did that business go away or not. So, I think when you look at our non-COVID admission activity, which year-to-date has grown 3% and grown a little bit more even in the commercial business, it is actually sequentially growing third quarter to second quarter. That gives us encouragement that we’re moving closer to the historical trend. Again, we have a little bit of COVID influence this year because we had activity in the first quarter and a little bit of activity this quarter. But, when we look at non-COVID by itself, we’re encouraged by what we’re seeing. ER visits have rebounded and shown a great deal of resiliency. So, we think it’s migrating closer to the historical trend than not.

Sam Hazen:

Yes, there are always some elements of it. I think that more pronounced one that we’ve seen in a long time.

Scott Fidel:

Question just around, obviously, another one of the sort of uncertain swing factors for 2023 is just around the public health emergency and whether that gets finally pulled back or not. Can you just remind us for HCA again, just what the key impacts or benefits that you’ve been seeing from the PHE would be? And how that would factor into your thinking for next year, would you ultimately see the public health emergency go away? Clearly, return of redeterminations in Medicaid is probably the biggest item, but just any others as well would be helpful. Thanks.

Operator:

Your next question is from the line of Jason Cassorla with Citi. Please go ahead.

Bill Rutherford:

Yes. I’ll start with COVID. We don’t have specific fourth quarter projections. As I said in my comments, we ran about 5% of our admissions in the third quarter. We ran about 3% in the second. So, my intuition says somewhere between those areas might be an area we see in the fourth quarter on there. In terms of flu volumes, again, we haven’t made any specific projections for flu, but clearly, we’re paying attention to the flu volumes that are out there in the anticipation that it might be a busy flu season. But I don’t think that necessarily changes the trajectory of our fourth quarter compared to what we previously thought.

John Ransom:

Hey. Good morning I’m just thinking about sequential labor trends from 3Q to 4Q. And I heard you say you gave the 5% -- 4% [ph] update in 3Q. Does 4Q look flattish if you account for maybe continued reduction in temp labor, or if you hit a plateau in that 7 percentage range that you talked about?

Operator:

Your next question is from the line of Joshua Raskin with Nephron Research. Please go ahead.

Bill Rutherford:

No. This is -- I don’t think there’s anything you should read into that. And in terms of capital returns, we continue to see good projects to deploy capital. We continue to believe our total capital spending this year will hover around $4.2 billion. We’re in the planning stages for next year, but I anticipate it stays materially in that range. And I think that is an indication of the opportunities we continue to see to put capital to work, to meet what will be a growing demand in both, inpatient capacity as well as outpatient and program development. And again, I think with the cash profile of HCA, we’ve got a pretty balanced allocation of capital. The balance sheet is in a great position. I think our share repurchase program this year will hover around $7 billion for the full year. So, again, I think it’s strong allocation of capital. We’re intending to drive reasonable returns going forward.

Bill Rutherford:

Yes. I mean, obviously, each project varies. But when I step up and look at our overall return on invested capital, we’re in the high teens. So, that we’re encouraged by the net effect of all of our investment decisions.

Jamie Perse:

I wanted to see if you could talk about length of stay. It’s still quite elevated versus 2019. What are the key bottlenecks you’re facing, both on inpatient throughput as well as discharge? Do you think those will go away over the course of 2023? And what does that mean in terms of your capacity expansion and also managing costs on a per patient day or per admission basis?

Operator:

Your next question is from the line of Calvin Sternick with JP Morgan. Please go ahead.

Sam Hazen:

Well, we will still have some capacity constraints in the fourth quarter. I’m hopeful that we will relieve some of it with our recruitment agenda and the fact that we’re adding more headcount and opening beds. I think also, as I just mentioned, our case management efforts will create capacity for us as well. So -- but I do anticipate us having some closures here and there with respect to being able to take new patients at certain times. It just unfortunately happened at this at this particular point. And it happened pre-pandemic, but on a much lower level than it is today. As it relates to the ER, we’ve been impressed by how resilient our emergency room services are. We continue to work on our operations and our throughput within our emergency rooms so we can take care of people as they deserve to be taken care of. We’ve added capacity with our overall platform of emergency room offerings inside of our hospitals as well as some of our freestanding facilities, and that’s been important to our outreach in that area. We believe fundamentally that the emergency room is a key ingredient to the healthcare system overall, and it provides a very important 24/7, 365 capability for our communities. And so, we’re still investing, as I mentioned, in our emergency rooms in very selective ways in order to make sure that we have the right supply available for what we believe to be growing demand.

Stephen Baxter:

I wanted to ask about the mix of outpatient revenue in the quarter. It looks like that stepped down a bit more than you might have expected in a typical year. What should we think about as the key drivers of that? I guess, with some distance, does it look like Q2 might have benefited from some pent-up demand? And it doesn’t sound like it based on your comments, but any impact you’d flag from outpatient surgeries moving back to inpatient at least maybe compared to earlier in the year? Thank you.

Operator:

And today’s final question comes from the line of Sarah James with Barclays. Please go ahead.

Sam Hazen:

This is Sam. I’ll answer the last question. Most of our inflators are static. We do have some contracts that have corridors, if you want to call that, or dynamic components to it with respect to inflation. So, most of our 24 will be more of a static inflator that we negotiate on the front end. And so, that’s how most of our contracts are structured.

Sarah James:

Okay. So there’s not a falloff of low acuity non-COVID just from people either worried about the economy or COVID that’s kind of...

Operator:

And at this time, there are no further questions. Please continue with any closing remarks.

Operator:

This concludes the HCA Healthcare third quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect.

Frank Morgan:

Good morning and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we'll take questions. Before I turn the call over to Sam. Let me remind everyone that should today's call contain any forward-looking statements they are based on management's current expectations, numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements, and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measure such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

William Rutherford:

Okay, great. Thank you, Sam, and good morning, everyone. Let me provide some additional comments on the quarter. First, as Sam mentioned, we are pleased with the overall results of the quarter. Our diluted earnings per share was $4.21 in the quarter after excluding the $0.11 from the loss on sale of facilities and $0.20 from the retirement of debt. Adjusted EBITDA was $3.04 billion and adjusted EBITDA margin was 20.5%. Non-COVID. admissions were down 0.6% in the quarter, however, non-COVID managed care admissions were up $0.7% reflecting favorable payer mix. Non-COVID case mix was up slightly from the prior year, maintaining acuity gains we've made and overall our same facility impatient revenue per admission increased 3.3% from the second quarter of last year. In addition, as Sam mentioned, we saw improvement in most all key operating indicators compared to the first quarter, including our labor, supply, and other operating costs on both an adjusted admission and an adjusted patient day basis. We remain focused on our resiliency programs that have highlighted in last quarter’s call, including our staffing and capacity efforts, executing our next generation of shared services and identifying best practices across HCA healthcare through the advancement of our benchmarking and analytic processes. These efforts continue to be an important focus for us as we respond to the current operating environment and we are pleased with the progress in these areas. So let me transition to discuss some cash flow and balance sheet metrics. Our cash flow from operations was $1.63 billion in the quarter. Capital spending was $1.08 billion as compared to $842 million in the prior year period, and we completed just under $2.7 billion of share repurchases during the quarter. Our debt to adjusted EBITDA ratio was just above the low end of our stated leverage range. And we had just over $2.7 billion of available liquidity at the end of the quarter. Lastly, I will mention that our full-year 2022 guidance remains unchanged from what we highlighted last quarter. So with that, I'll turn the call over to Frank, and we'll open it up for Q&A.

Operator:

[Operator Instructions]. Your first question comes from A.J. Rice with Credit Suisse. Your line is open.

Samuel Hazen:

A.J., thank you. This is Sam. I believe when it comes to healthcare demand, our overarching belief is that it's pretty durable, and in somewhat responsive to normal trends over time. Obviously, we're still trying to sort out the implications of COVID in the pandemic, on overall demand and make some judgments. Here again, it's only been really five months since the last surge, when you consider February, March and then through the second quarter. And so we're making some early judgments that we believe there will be normal seasonality trends with respect to how volumes behave over the balance of the year. As it relates to long-term intermediate term demand. Again, we're not seeing anything structural, that would suggest that overall demand is reduced or necessarily increase beyond what its normal trends were. And we think on the inpatient side, healthcare demand, at least in our markets is somewhere between 1% and 2% and a little bit more than that on the outpatient side. So that lines up with our pre-pandemic, but sort of thoughts around overall demand. So that's how we're seeing it. Again, we've seen incredible resiliency in our emergency room, which we were thinking that maybe it disrupted, our emergency room activities actually up. Over 2019, many categories of our business, as I mentioned on the call compared to 2019, have shown a nice, stable response. So we're still trying to sort out a few things with the pandemic and don't necessarily have great insights yet around some of those. But we do feel confident that healthcare demand in general will revert back to normal patterns as we move through the next few years.

Operator:

Our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

William Rutherford:

Yes, Pito, this is Bill. Let me start first with the contract labor. I think, as we discussed last quarter, it was at a peak high in the first quarter really due to the COVID services. And we anticipated to be able to see sequential improvement. And indeed, that's what we saw. We thought it would first start with being able to modify the rates that we were seeing in the market in terms of the average hourly rate, and indeed, we saw that and we were able to execute on that as the quarter went through. We finished with June. We were anticipating when we reset our guidance after the first quarter. And I think over the course of the year, we'll continue to see hopefully reduction in the utilization of that contract labor. And again, we were encouraged by the sequential improvement we saw, we're encouraged by kind of how we ended the quarter in the month of June. So that's pretty much in line with what we anticipated.

Operator:

Our next question comes from Ann Hynes with Mizuho Securities. Your line is open.

Samuel Hazen:

This is Sam, let me speak to inflation. Generally, obviously, we are seeing inflation as we mentioned inside of our labor costs. Again, I just give you an overview of how we think we're managing our way through that. And Bill can speak to some of the specifics on the supply side. Fortunately, in many areas, we have contracts that have terms to them today. So it gives us some protection in the short run. We think protection allows us to reposition some of our pricing as we move through the next few years to reflect more accurately the inflationary pressures that we're seeing and others are seeing in the provider system. We're seeing some early success and recognition by the payers. And we expect the payers to appreciate the overall inflationary environment that the providers are in, but we're seeing some early recognition of that and some renegotiated contract have reflected more escalation in pricing than what we had seen in our past trends. As I mentioned on the last call, we're pretty much contracted for 2022, obviously, but as we look to 2023, we'll start to see some uplift in our contract pricing, reflecting the new contracts. And then on '24, we fully anticipate having a different trend on our pricing as a result of these renegotiations. On our capital costs, we obviously experienced some inflationary pressures there. I don't know that we have visibility at this point to give you any number on any of those we think about 2023. So we'll try to hone in on that a little bit more as we get ready for our guidance in the next year.

Whit Mayo:

Hey, thanks. Bill, the AR days jumped up again this quarter. I'm just trying to understand like what's driving that is that higher payer claim edits, is there any underlying deterioration in collection rates, just anything to put that into context? And if you could sort of describe how that track relative to your expectations, and if I could also just get the -- I don't know if I got the call for FTE number in the quarter. Maybe you shared it, but I missed it. But that'd be helpful. Thanks.

Whit Mayo:

Thanks.

Samuel Hazen:

Gary Taylor.

Gary Taylor:

Hi, can you hear me?

Gary Taylor:

Okay. Just the two parter, both of which you've just touched on a little bit, I just wanted to make sure I understood if you'd provide a little more color. I think we sort of triangulated in the first quarter, somewhere north of $600 million of contract labor spend. And I know that's down and you said it was down you said was in June, but just wondering kind of where that ran for the quarter, just to help us sort of modeling the rest of the year. And then the second parter is with the AR growth and also payables down, you've done $3 billion cash from Ops in the first half in the annual guide is 9% to 9.5%. So, despite the payer edits and so forth, you still feel good about the cash from Ops number for the year?

Operator:

Our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

William Rutherford:

Well, let me make sure I got that, relative to 2023, and kind of the plusses and minuses as we go through the year. Yes, we are anticipating as we go through the balance of this year, kind of the normal course of business has stabilized, as Sam mentioned in his comments, we think we're going to see patterns return to kind of their normal seasonal trend. And so that should give us a good base to grow off of in 2023. It's a little early to be talking about all the variables in 2023. We're going to be approaching our planning process right now. But most of them are no. And I think, as Sam mentioned in his earlier comments, we think fundamentally, there continues to be growing demand for healthcare in our markets. And we're well positioned to serve that. And I think that becomes a nice place to think about 2023 in as we go forward. Relative to commercial pricing, as he said and as we mentioned before, we are having those discussion with the payers, we've had some early success, there's a recognition of the inflationary pressures that providers are seeing. So we'll continue to progress those discussions as we go forward. And hopefully we'll continue to roll those and get to benefit in '23.

Justin Lake:

Thanks. Good morning. Just wanted to follow-up on a couple of numbers questions. First, on COVID, I know you had expected the PHE earlier to expire, like almost in the first half. I think your number was about $150 million of that. Can you give us an updated number there in terms of what's in guidance, then on that total pricing, I know it's early, and you've got some wins there, hopefully. But can you give us an idea of pricing, I think was in a 4% to 5% range historically. Where do you think those contracts shakeout in terms of, as we do get through them, they may shake up the high single-digits or something a little bit lower than that. And that's it for me.

Operator:

Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is open.

Samuel Hazen:

I don't think the decision in Utah necessarily changes our overall outlook, we will continue to look for opportunities that are appropriate in market, most of us tend to be ambulatory oriented, where we're able to add to our networks, just this past quarter, we acquired another urgent care company in our Virginia division. And it's solidified our network capabilities offerings in that particular state, just like we've done previously in Florida. So we'll continue to look for outpatient network development opportunities. A lot of that will be our own Greenfield projects, but it may be some acquisition opportunities here and there. As it relates to markets, clearly, we're interested in new markets, we think we have the organizational capability and the financial capability to create a lot of value in the communities across the country. And hopefully, we will see some opportunities on that front, we're fortunate to be in a position where we have solid organic growth opportunities, given the markets that we serve. And so we will continue to invest in those. I think in general, our capital allocation strategies will remain consistent. We have a very diversified approach to capital allocation. And we all continue to use that model for delivering shareholder value as well as making sure our networks are sufficiently developed with capacity in different offerings.