Q4 2019 Earnings Call

Welcome to the H.C. healthcare fourth quarter, two frozen or 19 earnings conference call.

Today's call is being recorded.

It's time for opening remarks, and introductions I would like to turn the call over to Vice President of Investor Relations Mark Kimbrough. Please go ahead Sir.

Kevin. Thank you so much good morning, welcome to everybody on the call today and our webcast.

With me. This morning are served as our CEO , Sam Hazen and bill rather for CFO , which will provide comments on the company results for the fourth quarter.

Before I turn call over to say I'll, let me remind everybody that should todays call contain any forward looking statements.

Based on management's current expectations.

Yes risks uncertainties and other factors may cause actual results could differ materially from those that may be express today.

For information all forward looking statements and these factors are listed in todays press release again and in our various a T SEC filings.

On this morning's call we may reference measures such as adjusted EBITDA and net income attributable to H.C.I. health care inc., excluding gains or losses on facilities, which are non-GAAP financial measures a table, providing supplemental information on adjusted EBITDA and reconciling net income attributable to see.

Health care.

To adjusted EBITDA is included in today's fourth quarter earnings release.

This morning's call is being reported on a replay of the call will be available later today.

Now I'll turn the call over to Sam.

Thank you Mark good morning, and thank you for joining us today.

We finished the year with strong fourth quarter results that were above our expectations solid volume increases strong revenue growth and good expense management drove this quarter's results.

Revenue increased on a year over year basis by 10% to $13.5 billion.

This increase was driven again this quarter by combination of strong same facilities volume growth and a recent acquisitions I.

On a same facilities basis revenue increased by 6%, which was driven by 4.7% growth in inpatient admissions and 5% growth in equivalent admissions.

We saw growth across most service category and broadly across most markets in the company.

Highlight a few additional service category emergency room visits grew 6.7% and total surgeries grew around 2% with roughly equal growth in both the inpatient and outpatient settings.

We have now grown inpatient admissions in 23 consecutive quarters.

This remarkable consistency reflect positive market forces across our diversified portfolio.

Robust growth agenda.

Significant capital spending and strong execution by our people.

The growth in revenue translated into strong earnings for the quarter with diluted earnings per share of $3.09.

Adjusted EBITDA grew 9.2% to over $2.7 billion with adjusted EBITDA margin at 20.3%.

2019 was another successful year for AG health care, the company's results, which improved across most key performance metrics reflected both the steadfast commitment we have to our mission and our disciplined operational culture.

Across our networks, we took care of more than 35 million patients in 2019, a record level of patient volumes.

We spent 4.1 billion in capital expenditures about one half were for routine needs and the balance were investments needed to support our growth agenda.

The strategic investments, we made in our business to expand our network and improve our clinical capabilities make it easier for patients to receive high quality convenient patient care and an AJ health care facility.

As we look to the future we believe the fundamentals in our markets remained strong with growing demand for health care services.

This coupled with the continued improvement in the competitive positioning of our local health care systems gives us confidence as we move into 2020.

Inpatient market share in 2019 grew by 38 basis points as compared to 28 team to over 26%, reflecting the improvement.

As indicated in our earnings release, our board of Directors has authorized an additional share repurchase program for up to $2 billion of the company's outstanding shares.

Additionally, the board increased the quarterly cash dividend by 7.5% to 43 cents per share.

In closing I want to thank our employees and our position for the great work. They do every day to take care of our patients we're proud of their accomplishments.

Together with our employees in physicians, we connect our local networks with a unique enterprise capabilities and scale of ha healthcare to make a difference in that communities we serve.

We believe this approach allows us to improve more lives in more ways and advanced the delivery of healthcare services with that let me turn the call over to Bill for more details on the quarter's results and our guidance for 2020.

Great. Thank you Sam and good morning, everyone I will cover some additional information relating to the fourth quarter results and then briefly discuss our 2020 guidance as Sam mentioned all of our stats for the quarter were solid we were pleased with the quarter and full year results. So let me provide you some additional.

Formation.

During the fourth quarter same facility Medicare admissions increased 4.3% and equivalent admissions increased 5%. This includes both traditional and managed Medicare same facility Medicaid admissions increased 5.1% and equivalent admissions increased 4.6% in the fourth quarter comp.

Fair to the prior year.

Our same facility managed care admissions increased 4.7% and equivalent admissions increased 4.8% in the fourth quarter compared to the prior year.

Our same facility self pay in charity admissions increased 6.8% and equivalent admissions increased 6.5% in the fourth quarter compared to the prior year.

Same facility emergency room visits increased 6.7% in the quarter.

Our level one through three visits increased 8%, while our higher acuity level for Inphi visits increased 5.3% over the prior year.

In addition admissions through the emergency room increased 4.7% over the prior year.

Same facility net revenue per equivalent admission grew 1.1% over the prior year in the quarter.

Our net revenue per equivalent admission growth in the fourth quarter of 2018 of 4.4% was one of the strongest we've seen since 2014.

Also our acuity growth was lower than trend due to our medical admission growth of 5.9%, which outpaced our surgical admission growth of about 2%.

For full year 2019, our same facility net revenue per equivalent admission has grown 2.3%, which is in line with our guidance range for the year.

Our same facility inpatient net revenue grew 6.5% in the quarter and our same facility outpacing that revenue grew 5.8% in the quarter.

So let me move on the operating expenses, even with a more moderate revenue per equivalent admission growth. Our costs were managed very well our same facility operating expenses per equivalent admission grew just 0.8% in the quarter compared to the prior year and our same facility adjusted EBITDA margins increased 20 basis.

Points in the quarter.

Our same facility labor cost per equivalent admission increased 1.3% in the quarter or same facility average hourly rate grew 2.7% and we continue to see labor productivity improvements.

Same facility supply cost per equivalent admission grew 1.8% over the prior year period.

Same facility other operating expenses per equivalent admission decline, 0.4% compared to the prior year.

So let me take a moment to talk about cash flow in earnings per share.

Cash flow from operations was very strong in the quarter, increasing to 2.5 billion versus 2.175 billion in the fourth quarter of last year.

For the full year 2019 cash flow from operations was 7.6 billion or an increase of 841 million from $6.76 billion last year.

Capital spending for the fourth quarter was 1.274 billion and for the year increased to 4.158 billion.

During the fourth quarter, we paid 272 million to repurchase 2.069 million shares.

During the year, we repurchased 7.949 million shares at a cost of 1.03 billion.

And had 1.24 billion of the 2019 repurchase authorization remaining as of December 30, Onest 2019.

At the ended the quarter, we had 3.2 billion available under our revolving credit facilities and our debt to adjusted EBITDA ratio was 3.42 times.

Earnings per share excluding gains on sale of facilities was $3 in mind sense in the fourth quarter of this year versus $2.99 in the fourth quarter last year.

In the fourth quarter of 2018, we recorded a 67 million or 19 cents per diluted share favorable tax benefit as was noted in our release this morning.

So that I'm, we'll move on into a discussion about our 2020 guidance, we highlighted our 2020 guidance in our earnings release this morning.

We estimate our 2020 consolidated revenues should range between 53.5 billion to 55.5 billion.

We expect adjusted EBITDA to range between 10.25 billion and 10.65 billion.

Within our revenue estimates, we assume same facility equivalent admissions will grow between two and 3% for the year and same facility revenue per equivalent admission to also grow between two and 3% for 2020.

We anticipate same facility operating expense per equivalent admission growth of approximately 2% to 3%.

Our diluted shares are projected to be approximately 342 million shares for the year and earnings per diluted share guidance for 2020 is projected to be between $11 in 30 cents and $12.10.

Relative to other aspects of our guidance.

We anticipate Castro from operations to be between 7.6 billion, an 8 billion.

We anticipate capital spending between $4 billion and 4.2 billion.

We estimate depreciation and amortization to be approximately 2.8 billion and interest expense to be slightly below 1.8 billion.

Our effective tax rate is expected to be approximately 23%.

Sam mentioned in his comments, we also announced an increase of our quarterly dividend from 40 cents to 43 cents per share and authorized an additional 2 billion share repurchase program.

Both of these are a reflection of management's belief in the long term performance of the company.

The confidence we have in the strength of our cash flow and our commitment to a balanced allocation of capital.

That concludes my remarks, let me turn it back over to Mark to open it up for questions and answers all right. Thank you Bill.

Kevin you can now provide instructions of those on the call who wish to ask questions.

Thank you, ladies and gentlemen, if you wish to ask a question at this time. Please signaled by pressing star one on your telephone keypad. Please ensure the mute function on your telephone switched off to allow your signal to reach our equipment again. Please press star one asked the question.

We will take our first question from Peto Chickering of Deutsche Bank. Please go ahead.

Good morning, guys and thanks for taking my questions questions Great quarter here a question for you on Capex.

Capex, that's kind of revenue guidance looks to be about 7.5%.

2020 person, 8.1% in 2018, if you think about Capex over the next two three years cutting capex.

Okay, So drift down.

Well to sell changes seeing level of EBITDA growth.

Or has definitely what does it balancing capex spend versus EBITDA growth. Thanks much.

Okay.

Thank you Peter Thanks, Pete also when we look at capital keeping a relatively flat in our guidance for for 22 Army. We look at as a percentage of our cash flow from operations and with the strength of the cash flow I think this current level of 4 billion to 4.2 billion is a good planning estimate force we continue to see.

Opportunities to deploy capital to facilitate our growth either through capacity expansion or network development or or deepen program capability. So I think as long as we continue to see the growth of our cash flow good capital opportunities nice growth of our returns on invested capital that we think it's an important component.

One of our ability to generate future growth, let me add to that builds CMP, though I think in 2019, we had some early stage capital investment that we knew we are going to have to make with our mission acquisition and our Savannah acquisition and that tended to be earlier in our model and so there.

There was some.

Acceleration in those items and that lifted up our capex is a little bit as a percent of revenue and thats why dial back.

As Bill said, we continue to believe we have opportunities in our existing markets organically to deploy capital and deal with.

Growth opportunities competitive positioning and even capacity constrained in the face of all of these new beds.

That we've added over the years, our occupancy levels continue to go off and so thats really encouraging that are planning and the execution underneath that is occurring at at the levels that we had hoped and so thats, where we are at this particular point with our capital.

Thank you.

We will now go to Frank Morgan of RBC capital markets. Please go ahead.

Good morning.

A question about the guidance when you think about the high into that range clearly higher than it has been in the past are there any particular things that you could call out that maybe the primary driver to hitting the high end of that growth and I guess, specifically what are you factoring in for the reentry into the network in Las Vegas, and then what about the dish cuts that things have been postponed through.

They have 20, where do you have that in the.

Have you had at factored into guidance for the year. Thanks.

Yes, Frank This is bill let me take that and talk about our guidance overall as you know if you look at the midpoint of our guidance, it's about 6% growth rate at the high point is at 8% and Thats before reflected any adjustment for the payer settlement, we had in 2019, which add roughly about a 1% of those growth rates I think.

Thats consistent with our commentary that we had in the third quarter that we continue to see momentum in the marketplace and that is allowing us to perform from the core operations at the top end of our long term guidance and we think acquisitions will continue to contribute growth for us. We we estimate about 1% a little bit of north of one.

Percent for acquisitions. So when you look at in totality the range accounts for a number of those variables. We continue to see volume opportunities as we see demand and market share capabilities and and I think that six to eight on an as reported basis, you know probably seven to nine when you adjust for the payer settlement is.

Is it good planning range floors.

Yes, Frank already that.

This is Sam with respect to the Las Vegas.

Your way towards year, we do see that particular contract being a material change in our strategic dynamic in that market, but the magnitude of it for the company as a whole is not material in Las Vegas is part of a diversified portfolio inside of eight CA and is very significant market.

For us it is doing incredibly well without this year a contract and we have significant investments going into the market.

That are dealing with the population growth.

Occurring in that market as well as now access to more lives. So we're very excited about it we think it's reflective of the strategic partnerships that we have with our payers and trying to figure out ways to deliver value to them and we're excited about the prospects of.

Being in this year relationship in Las Vegas, and Frank on your dish cuts, we look at that in the context of our overall Medicare rate increases we've talked about before we thinking we're in a variable Medicare rate update two and a half to three we are not forecasting any material Medicaid discussion at this point in time, so I'll just have to wait to see.

Now that dialogue continues.

Going forward.

Thanks, Frank Thanks, Thank you.

Our next question comes from Kevin Fischbeck of Bank of America. Please go ahead.

Okay, Great wanted hey.

Wanted to follow up on the pricing commentary from earlier it sounded like you were saying that most of it you were just kind of.

Mix perspective, you talk a little bit about.

What you're seeing on the commercial side.

Obviously that Petrobras and moving around a lot.

So how did that impact pricing pricing are you getting commercial and then to that suite has any impact either on the volume of the pricing.

Quarter.

Kevin This is Sam.

I think we're in a really good position with our our contracting strategies with the commercial payer marketplace and as we just mentioned we gained access to Sierra in Las Vegas, which opens up more commercial lives for us is a system.

But in general were roughly 85% contracted for 2020 and almost two thirds contracted for 2021 at about a third contracted for 2022 at generally consistent terms across our portfolio.

As it relates to the revenue per unit in the quarter. Our commercial revenue per unit was reflective of sort of the overall trends. It was a underneath maybe our composite and that was do we think to the lower medical book to Bill alluded to and also some outpatient growth in certain areas, which starts to mess with a number a little bit but nonetheless.

Yes, our commercial book is doing about what we thought and we saw great growth in high end services with neonatal services with trauma services with orthopedic services cardiovascular so our approach to delivering high quality complex services is yielding value. It was all.

That a little bit Thats, why we had a little bit more volume in the quarter because of the medical growth that we saw in the fourth quarter and that creates.

Net effect of the numbers, we reported that also affects our costs as bill alluded to and Thats why we were able to create on a per unit basis margin expansion. In addition to.

For the overall growth.

Clip.

Thank you Kevin.

Our next question comes from AJ Rice of Credit Suisse. Please go ahead.

Hi, everybody.

Let me just maybe focus in on your.

Debt to EBITDA is down at 3.4 that sort of towards the low end of the or even maybe slightly below the low end of year, I think three and a half and four and a half target.

If I think about the different buckets of where you can deploy capital you're raising the dividend you re up the buyback, but it's been pretty steady in the one to one and a half billion dollar annual range, you've got you've been doing some tuck ins and then a few larger deals and then.

Steady capital deployment, but I don't know whether some of these deals or what's your comment on Vegas or something it opens up new opportunities. So I guess I'm.

Leading up to asking can you go through each of those buckets and say where the priorities are has there been any evolution on any of that in terms of maybe tuck in deals or the prospects for doing bigger deals or whatever give us an update on that.

Yes, Hey, Jay This is bill let me start Sam can add on so you're right our leverage ratio three four twos the lowest run since before the elbow.

We are fortunate we did financier stronger than originally anticipated. We continue to look at that long term range and give a lot of thought too I think ultimately gives the company incredible amount of flex flexibility needed and we continue to assess all three areas that you talk about first is to continue to evaluate strategic ex acquisitions, we do.

Do expect a couple of smaller acquisitions that are in the pipeline to be completed we did complete the acquisition of Galen School in nursing in January and as you mentioned and we've mentioned before where we are usually evaluating a couple of larger acquisition opportunities at any particular time, it's hard to call exactly when and if they might be completed.

But we have the balance sheet capacity to execute on these if they come to fruition.

And also as you mentioned second we continue to evaluate capital investment opportunities that will provide growth we've talked about that earlier either expand capacity expand our network improve our competitive positioning interesting in 2019, we brought on over a thousand new inpatient beds and as Sam mentioned, we're running one of the highest occupancy we've run into.

Quite some time, so we continue to see capital investment opportunities in the market and then third as we mentioned in the release, we do have a new 2 billion dollar share repurchase authorization.

On top of the 1.2 billion remaining on our 2019 authorization and auto program has no specific time limit. There's a lot of factors that influences, our timing and pacing on us and the quarterly dividend. So I think it when I step back we've got a pretty long track record of a balanced and I think.

Disciplined capital approaches we've continued to see acquisition opportunities, we have the capability to do that as we see capital investment opportunities and then manage the balance sheet through the share repurchase program is all part of our or capital strategy.

Hey, Jay thank for here.

Our next question comes from Scott Fidel of Stephens. Please go ahead.

Hi. Thanks. My question is just on not obviously I know you don't give quarterly guidance, but just thinking about the seasonality of EBITDA margins in 2020, and just anything maybe that you'd want to call out if necessary as it relates to.

Sort of workday mix in that and then just also when you started the progression of the the margin realization on some of the acquisitions last year or 2019.

Just in general how how we should think about sort of year over year comps for margins on a quarterly basis over the course of the year next.

Thanks, Scott. This is bill two things on that you're right, we don't give quarterly guidance, but we'll make a quick known remember that our first quarter of 2019 was an extremely strong quarter for us not only from operational performance, but we did record the payer settlement in the first quarter. So that's the only note I would tell you out of it.

Say outside of that our quarterly spread is probably consistent with our recent twin trends. We are pleased with the acquisitions.

And their continued progression we saw that throughout 2019 relative to margins, we talked about before our full year basis. They were running high teens, but we saw those improved throughout the year in the fourth quarter are hovering just above 10%. So we expect those margins to continue to evolve.

Tony Tony and in other in that I would say than that the our normal progression would be what are what are trends have been a just a clarification I think he said high teens are thinking mid high single digits high single digits jumps around that.

Alright, Thanks Scott.

Our next question comes from Ralph Giacobbe of Citi. Please go ahead.

They Ralph.

Hey, good morning. Thanks.

The volume Scott, obviously pop out.

Can you give us a little more in terms of what do you attribute this trend to bulk sort of on the I guess on a macro level and then specific to your initiatives and market then I want to go back to sort of year prepared remarks, and commentary around better competitive positioning hoping to get flushed out a little bit as that's related to sort of your active strategies or is that more reflection of the competitiveness.

I'll be your opinion market, where some of the some of your peers maybe are struggling a little more just some some help on that thanks.

Thank you Raul.

Yeah on your own store.

Yes, I think the first point I would make is we believe and we've said this and we continue to believe it and we're seeing evidence even in 2019 that there is growing demand for health care services in HIV AIDS markets and we're very protective of our portfolio for a reason in part of that is due to the fact that we're trying to pick markets that we believe have off.

Macro trends that are supportive of a growth agenda. So.

Thats number one when you look at the second point I would suggest is that.

We have a model that we believe.

He is very competitive and responsive to the market place in response to those growth opportunities responds to competitive dynamics and really response to our stakeholders our patients are positions and our employees and really the community. So four key stakeholders in the first.

It is really about building out broader and more clinically capable networks.

We've talked about we want our networks to be conveniently located easy for the patient to access and navigate have different price points and then fundamentally our one stop shop as a system with comprehensive service lines. So our patients can obtain all their health care inside of H.C.A. network.

So we've added two facility offerings. This past year, we added with an acquisition of an urgent care center.

We had with a couple of acquisition of ambulatory surgery centers, and Italy developed a number of outpatient facilities, including freestanding emergency rooms urgent care centers physician clinics and so forth. It's we now have more than 2000 sites of care that are connected to our 185 hospitals they would work.

As a system, we still have opportunities to have them work more effectively as a system and create better value for the patient better value for our payers and so forth. The second key part and this is a very important part ha healthcare is a position friendly organization, we have significant leadership talent.

On the physician side, we are fundamentally centered around providing our physician with the tools that are necessary for them to deliver high quality care. So we give them voice.

We create an efficient environment, we make sure they have the clinical specialties and nursing care that are very important to them and we offer them an opportunity that hedge their wagon to a system that can grow and so over the past number of years, we've grown our physicians at about one of the half to 2% per year.

Here again, and 29 came we grew our physicians at 1.5%, adding to that the capabilities and the complement a specialist that we need on top of that.

Our physician engagement in 2019 was that an all time high and so I want to take the opportunity on this call to thank our physicians for what they do for our patients again and thank them for their commitment to age CA and then the last thing I'll tell you that unique about age CA and why we believe we can create competitive advantage is we have deferred.

What's that enterprise capabilities in most of our local competitors, we have scale on the back end with respect to administrative functions that allows us to create a very efficient per patient administrative costs. The second thing we have good investment capabilities built already alluded to the fact that we use our financial resources to.

Support our agenda, our growth agenda, our clinical improvement agenda, and our people agenda. We're we're investing heavily in our people and our clinical improvement and then we're able to leverage it best practices. We have this incredible laboratory of people trying to take care of patients more effectively more efficiently.

And when we find a solution that we think has application across the company, we will move that solution through our organizational apparatus to our different facility. So that we can create systematic improvement in patient care and efficiency. Examples of that are graduate medical education programs.

Our Sarah Cannon Research Institute I can go down our trauma programs. All of these things are connected to this opportunity for us to leverage and we think that is part of why our competitive positioning has improved and yielded the market share gains that I alluded to so that would be sort of our approach and our belief as we look.

To the future.

Honestly, there's a lot of discussion.

About the healthcare industry, but we think we're uniquely qualified to respond to those.

Dynamics.

In a way that's productive for our.

Organization in really responsive to the market dynamics.

Right right.

Thank you.

Our next question comes from Whit Mayo.

Please go ahead.

Hey, Thanks, maybe I'll just follow up sand on your comments there about your physician strategy is there anything changing with you know your hospital coverage of your outsourcing strategy I know you talked a lot about the evolving physician strategy, but has anything changed as you kind of Mary or physician needs with your cap.

Well strategy this year.

Sort of here you talked about high costs complex surface development trauma et cetera that that just maybe influence how you think about anesthesiology or anything along those lines.

With this is Sam again on hospital based positions, we have a multifaceted approach to hospital based physician.

In critical care Medicine, as an example, inner intensive care units and this has been a part of our our efficiencies that we've talked about in the past.

We have I think the largest.

Intensiveness critical care Medicine group in the country.

They are deployed across a number of our facilities, how we're able to leverage their learnings some of our data to support better critical care management, we're trying to figure out how to use that platform for for advancing Tele medicine in critical care to support rural hospitals into support some of our other facility. That's one example.

The second thing would be on pathophysiology, we have a very large pathology groups that provide pathology services.

Across 88, not in every facility, but a number of facilities and growing the with respect to emergency room and anesthesia in hospital as we have a mixed solution. There we contract largely with outside organizations national organizations in many instances in some local organizations we do.

You have some employment models, there as well, we'll continue to evaluate whether or not it makes sense for us to contract or to employ we have the wherewithal to do both and we work with our contracted providers very effectively to deliver high quality efficient care and respond to the marketplace. So that.

Model is evolving a little bit as you know and as it evolves, we will adjust appropriately but hospital based physicians are a key part of our physician strategy there very important to patient care, they're very important to patient satisfaction, they're very important to the efficiencies that we have and so we have strategic.

<expletive> relationships again locally.

At a national level, and then through our employees model and we will continue to sort that out as the as the years progressed.

Alright, thank you.

Our next question comes from Steve come out of Goldman Sachs. Please go ahead.

Good morning, guys answer the question.

Two quick ones one was on the recently acquired hospitals you know the last around the Medicare Medicare cost report I think but the EBITDA margins and a four wall basis around six or 7% sounds like you're saying high singles, maybe not too different firms just wondering where you think that could go over time and then more about the corridor I was hoping and just get a little bit higher.

Any around the flu the impact that you guys have an estimate on admissions revenue per adjusted admission and EBITDA and maybe tying those comments into revenue per adjusted admission it wouldn't comment on the acuity index were not check out for the corner.

And maybe even same store revenue per adjusted admission for the commercial book on a provided that in the past just help us think about that number there. Thank you very much sites. The thinks they let me try to cover some of those first on the acquisitions as I mentioned earlier at least tempted to that the acquisition for the full year, we're running at the high single digit.

Margin level, we saw those improved throughout the year and hover just over 10 is in the fourth quarter. We think over time, we can get those two are reasonable margin level idle those would be basically in a mid teen range I think all of the acquisitions, we've talked about before we'll take a is a multi year prong for us so so.

Over time, we think we continue to see margin improvement there on the flu. The fleet was mostly in outpatient impact for us during the quarter.

With our emergency room visits we think probably 150 170 basis points growth in that emergency room visits volume that we reported a 6.7 very little effect on our inpatient admissions for the quarter that our best estimate in the quarters as relatively nominal impact on on the flu on our inpatient admissions.

And I don't think had much impact at all if we looked at the other kind of financial statistics, both either on a revenue revenue per unit or an earnings standpoint, more volume standpoint, as we saw activity in our emergency rooms.

Hi, Steve Thank you.

Our next question comes from Stephens Aliquippa of Barclays. Please go ahead.

I would give anymore there Steve.

During January you finalize their acquisition of gear in college of nursing can you speak to the strategic benefit from a partnership like that in terms of building a pipeline of nursing labor to feed into your hospitals is that an area, where we should continue to expect additional investments and secondly can you give us.

Wage trends, you're seeing your end markets, including what's embedded in your 2020 outlook.

Okay when school nursing okay.

Well first of all we're very excited about the the acquisition of the Gaelic School nursing.

Have a tremendous leadership in mark vote.

Number one number to their culture aligns with HC eight culture at a very significant way. So that was part of the appeal. The second thing that we learn where we studied that organization is they have a scalable model and when you connect that scalable model with a unique platform of HC eight we think we can create a nurse.

During school education program that starts to.

Bob.

Scale off across most of our major markets. So where are the final stages of building a multiyear plan to expand Galan school nursing and integrate that component of education with a robust agenda, we have thought for clinical education.

In nursing support for our existing nurses, hopefully, creating both a pipeline in a continuous education cycle inside of H.C.A.. So that our nurses are more capable of delivering high quality care, but also have more opportunities for growth and we think that a winning formula for us.

So the investment requirements to do that are modest they're not significant it's really about getting the right faculty to write administrative leadership and so forth and the team is working on that as we speak but we're very excited about what the education opportunities for the Galen School nursing came due for age CA.

And again that parallels what we're doing with graduate medical education today for physicians inside of HC eight both of these.

Paul If we think provide a tremendous community benefits for our communities and that we're creating a supply caregivers to deal with some challenges that exist on a macro level in many markets as it relates to labor costs in general we're anticipating 2020 to be consistent with what we've seen over the past few.

Years, I think HC eight had been able to respond to market on the dynamics very effectively with our wage and compensation programs.

We've recently enhanced our living wage policy program as an organization to respond to certain dynamics on that fraud, and then with respect to nursing.

I've been able to respond to market dynamics, effectively and keep our wage trends within a level that we think are consistent with.

Surely have guided number one but responsive to what's going on in the market. So we fully.

We anticipate a continuation of the past trends in our model for 2020.

Thanks, so much.

Our next question comes from Josh Raskin Miss from Research. Please go ahead.

Hi, Thanks, and good morning.

Whereas sort of again on the leveraging just push a little bit you guys are below your long term targets, it's sort of three four and if I kind of just run out share buybacks.

At current levels that dividend that you've talked about the share repurchase I'm sorry, the capex guidance that you've given and I know acquisitions are lumpy in difficult to time et cetera, but you'll be closer to three than three and a half by the end of the year. So is there a point, where there's sort of pressure to deploying more capital than I guess is there an opportunity maybe for an accelerator.

Buyback or a special dividend things you guys have spoken about in the past for 2020.

All right. So yeah. This is bill let me try to talk about that always you know I think we're very fortunate to have the ratio where it is ultimately it gives the company I think a lot of flexibility in into the future.

I think that acquisitions, if they materialize could could affect a we think the increase in the share repurchase program. We're anticipating for 2020, we will continue to evaluate that I don't think it puts any pressure towards your question to us It just gives us opportunity.

I think to continue the growth trajectory of HCV, either through acquisitions or capital and share repurchase program I think it will likely be a combination of all three of those as it has been in the past going forward right.

Thank you.

Thanks.

Our next question comes from Michael Newshel of Evercore ISI. Please go ahead.

Thanks, I just want to get your latest view on the price transparency regulation finalized by CMS, how it might influence pairing negotiations and also marketshare and other against any like practical technology challenges to be ready for 2021, there or do you think core challenges are there are just gonna likely to lend us.

This is Sam the up the pricing transparency as we said in the past is a policy that were supportive of as it relates to protecting the patient and so we believe that any transparency policy that supports the patient getting information when they can.

Advance of their care on their co pay deductibles and so forth is something that we can support as it relates to our commercial pricing contract were not supportive of that we don't think it necessarily will accomplish what others are saying it will accomplish a number one that number two we think it is very complicated for.

Patient to discern and would not necessarily accomplish the patient objectives that we think are.

Really the intentions of many People's desire here and then finally, it will be administratively difficult and complicated and a lot of systems Walt.

Have the capability to put those pricing arrangements forward. So that is a factor we don't know exactly how this is the way to shake out there are a couple of approaches that the federal government has pursued and we'll just have to wait and see how it developed I don't anticipate.

Megabit, creating any significant issue for us with respect to contracting we take it just creates like I said confusion with the patient more than anything else ha is positioned we believe well with our networks. We are positioned well, we believe from a pricing standpoint.

Ross most of our markets and we don't anticipate that being a major issue for us. It's just that it does create a lot of confusion.

Thank you Michael Thank you.

Our next question comes from Justin Lake of Wolfe Research. Please go ahead.

Thanks, Good morning, a couple of follow ups for me first I just wanted to.

Yeah see if I can get a little more color on the seasonality of 2020, I know you pointed built to the tough comp in Q1, which I calculated I think like 13% core EBITDA growth. So obviously, a great quarter and then clearly are much easier comp in Q2, where the cure for where the core was close to flat. So it was hoping you might give us some additional.

Color here on the growth for the two quarters basically asking whether you see the growth in Q1, Q2 being only slightly different than the full year directionally or should we think as much as you know maybe flat year over year in Q1 might be a reasonable target just given how strong that comp was it may be gets made up in Q2.

Yeah. Justin This is bill you know that given specific quarterly guidance, because I think if I go back to my earlier comment our historical trends would be our best guide on there and we're always going to be subject to some quarter to quarter fluctuations on there you know if I go back to 2019, what we said at the.

Ended the second quarter is that our year to date results were more reflective of what we thought or trend was going to be and indeed that wasn't the case. So in essence I think you part it's hard to really call one quarter to to the other I think over a couple of quarters. We still think the core fundamentals will be there and and again last.

Last year does pose a couple of difficult comps for both in the first quarter and then and then the second quarter. So attend would look at a more on a year to date basis, and I would quarter by quarter and I think if you can kind of you know normalized through that noise I think our historical trend would be our best guide going forward.

Got it and then Sam if I could just squeeze in a second when you make you talked about the benefit of getting back in network would see or in Vegas, and I'm just hoping if you can give a little more color. There in terms of given how quickly you think the given to physician referral patterns have been in place for a while how quickly do you think those can seems to do.

Hi volumes DTA, and then talk to any delusion potentially because I know you guys had some better payers.

Paint volumes that have shifted over to you overtime, how much those might shift out and dilute some of that benefit. Thanks.

Well, let me, let me say again Las Vegas is very important markets H, we're making significant investments in a number of our facilities and we continue to look for opportunities to invest.

I think a lot of our medical staff.

Participates in the CR contract and the opportunity to sort of repatriate them for lack of a better term into our facilities is what we're working on.

They generally speaking we believe weekend in early part of the 2020 period start to repatriate some of those position so that it to more efficient for them to take care of their full patient load inside of 88 facilities and we're working on that as we speak.

We're seeing early indications of some of that happening as we expected, but we're obviously at a very busy time.

In the first quarter for for a lot of our facilities. So that creates some challenges, but we'll sort that out over the course of 2020 and hopefully be in a position that we anticipated, but we're excited about it as I mentioned.

When you couple the fact that United and Sierra has a very strong position in Las Vegas, Las Vegas is a growing market and we want to be part of that growth.

With respect to the largest payer in that market. So we see a lot of long term benefit here to H.C.A. as we execute our strategy.

Hi, Thanks, Joe Thanks for all the color.

Our next question comes from Sarah James of Piper Sandler. Please go ahead.

Thanks.

So the stronger trends, even if we take out the full impact is still up about 100 basis points sequentially. How much of that is related to your investments and expanding the trauma program and share gain and then as we think about the kind of virus playing out can you just remind us if there was any impact on the model from size farmers.

And whether that showed up one yeah. Okay. Thanks.

Okay. Thanks.

So our emergency room visits Bill alluded to this were up 6.7% with a with a modest impact coming from the flu.

Our free standing in the merger group platform did grow significantly with the actually above trend it grew north of 20%.

Represents maybe 12% to 14% of our overall eat our traffic, but when I look underneath the IDR business, we continue to grow our Dms volume.

From ground ambulance was up 7%, which is consistent with where we then our trauma programs produced 20% volume growth, which is about consistent where we were for the year. We continue to add comprehensive stroke capabilities to our portfolio of offering that is yielding more traffic for us in our emergency room.

What's important.

I think along the lines that program development is patient satisfaction.

We have seen our operational processing improve throughout the year, we see roughly 9 million plus emergency room visits a year on average we see a patient with a clinician within 11 minutes, our time to discharge has dropped in 2019 as compared to 2018.

And that's yielding both capacity number one but more importantly, it's yielding better patient satisfaction and we think the combination of all of that is driving better performing.

Better growth in allowing us to use the investments that we put forth.

And this particular service category more effectively.

Well this ore zones.

Bars impact on emerged Herlin, our chief Medical Officer.

Right.

Historically sources wearers, which are members of the credit virus families, but far more toxic than the current novel Chronicle Iris does not affect or emergency department volumes.

Alright, Thank you Sarah Thank you.

Our next question comes from Gary Taylor of JP Morgan. Please go ahead.

Hi, Good morning, a two part question. The first was I don't compete at the same store or pay or see a mine this quarter and and laugh I was wondering to get those in the second part was.

We've heard from come from some hospitals about Cardinal recall of some sterile downs in surgical kits and causing a little bit of disruption in the ores and January wondering if you're seeing that and if so do you think you could just backfill whatever that disruption is.

The next few weeks or months, such that the quarterly impact probably in material.

All right, let John thick that last one and then we'll circle back on the city mine.

Morning message on problem here no. We're fortunate that there are other vendors so from the surgical slice you've referenced cements our supply chain how's the pipeline doses not disrupted operations.

That's right Gary on case mix I think as we alluded throughout a couple of comments during the call.

We did see a lower trend or a case Miss case mix growth in the quarter, principally due to that growth the medical emission outpatient surgical admission growth.

Okay. Thank you gear.

Our next question comes from Brian Tanquilut of Jefferies. Please go ahead.

Hey, good morning, guys Congrats mid quarter.

I guess just my last my question would be on total joint replacement rate total needs with CMS improving reimbursement at the beginning of the year. How do you think that changes your strategy and joint replacement and should we be expecting some volume shifting from inpatient outpatient over the next few quarters a few years.

Let me start with this.

Number one in the quarter I think total joints for 88 went up 7% that's pretty consistent with where they were in the first three quarters of the year roughly 15% of our total joint for done on outpatient basis. Some in our hospital seminar able Tory surgery Center, obviously with the new reimbursement protocols, we anticipate a few more.

Todd trade transitioning to that setting our goal is to have a comprehensive orthopedic service line. So that means we're trying to align with the positions in a way that create.

The environment that they want the environment they need for their patients the most efficient environment for the payers in it and so we always dealing with migration patterns as technology advances.

And Thats part of our run rate, we don't anticipate anything happening in 2020, that's going to materially change our trends as a result of one service category, having a bit of migration from one setting to the other we've talked a lot about the diversified portfolio of markets I think it's equally important to talk about the diversified.

Portfolio of services and aka Orthopedics is a very important service line, but it's one of many it represents less than 10% of our overall revenue. It so theres a bit of migration and pattern changes inside of that it does it really upset the larger revenue picture for the company we're excited about.

Some of the technology, that's advanced and orthopedic we're excited about the research opportunities that we have with our positions and we're excited about further alignment of physician groups across the company as it relates to what we're trying to do with orthopedics as a whole we've had success similarly in card.

Neovascular care, where we've been able to use service line capabilities and in a very specialized talent to support different initiatives. We're doing the same in orthopedics and we think it's going to yield value for the company in the future as we continue to align with high quality groups.

Great. Thank you thanks, Brian .

Our next question comes from Peter Costa of Wells Fargo Securities. Please go ahead.

Good morning, this quarter going to.

Looking at your acquisitions I think you said, 1% of your EBITDA growth is coming from the acquisitions is that all of the acquisitions Asheville, Houston Savannah, New Hampshire or is any of those not no longer improving faster than your core operations and then if I'm doing the math right.

Your core operations look like they're improving sort of 6% to 8%.

If we take the seven to nine and back off the 1% for the acquisitions.

Seems like your EBITDA growth from your core operations is growing at a faster rate than your long term guidance and I just want to make sure you want to stay with your same long term guidance of four to six.

Right Yeah. Peter This is bill let me start yes, the acquisitions for 2020 will be about 1% a little bit north.

And that is for our 17 18, and 19 acquisitions going forward on there as we look at the numbers, we see the core hovering around that 6% in any acquisitions being that additional one to drive US you know in that a little bit north of our longer term range that again I think that is consistent.

With the discussion we had at at the end of the third quarter.

And it does not yet include any any projection for acquisitions that have yet to be completed.

Okay sounds hot and.

At this point, we don't see change and kinda that long term guidance going forward.

I think it's important this is Sam I understand that.

We don't stop pushing on any opportunity we have an opportunity in the marketplace. Today I mean, we're going to push through it as as aggressively as we possibly can so I think that's part of the operating culture. This company is to optimize the situation whatever it may be and I mean, we understand the challenge that's out there with our guidance it will.

Working through a period of time, where we've had.

A better growth in maybe we've indicated but I don't think that necessarily puts us in a position yet to change the long term guidance as we get through 2020, if we continue to see patterns that are favorable we will make sure. We inform you all appropriately on our thinking around those patterns and right.

Thanks.

Thank you.

Our next question comes from Matthew Gilmore.

Please go ahead.

Hey, Thanks, I wanted to ask about commercial volumes more specifically, obviously very strong quarter I think one of the strongest quarters, we can recall.

Curious if there's any service line or geography, you'd call out for the quarter and then how are you thinking about the commercial volume trend into 2020.

This is Sam I think what we said is we feel like a number one our portfolio of markets have a lot of positive macro factors that are delivering job growth more people into commercially insured products and that we're seeing that in demand in the second quarter of two.

20 night team, which is the latest quarter, we have for market share data the commercial demand across HIV AIDS markets grew by about 1.3%.

We think we're picking up market share on commercial business as a result of our network.

Vestments in program strategies in physician strategies, and such and that's part of the success.

We are obviously excited as I mentioned about the Las Vegas scenario and we have other efforts in white underway to align with payers. So the commercial side for us as we look forward, we anticipate a demand in that area, maybe 1% to 1.25% overall demand on.

The inpatient side, maybe one and a half to two as we've mentioned in the past.

And we believe again the programs the investment the outreach efforts that we haven't underway I should yield market share gains, but we just need to continue to execute on those basic elements.

Got it thank you.

Alright. Thank you I think it'll get time for one more question.

Our final question comes from Matthew Borsch of BMO capital markets. Please go ahead.

All right I'll try to keep it briefly you split is going to ask.

It is we look ahead he on challenge, we might take something you're obviously the attorney in the economy. My question is if you look back can how you responded to past recessions, what is sort of Dan to take away in terms of your own lessons learned that you responded to quickly not quickly enough.

You know I'm sure you Havent, playing shelf somewhere on I'm, just I guess I'm just asking.

Right.

That's something that is.

In your thinking right now and again got something that can get your planning for great. Thank you Matt.

This is Sam let me, let me start and built in color in some things here I think number one ha has proven.

Over time.

That ability as a large company to make adjustments timely so I'm really proud what our teams do in responding to their routine business dynamics, obviously, if there is a macro.

Dr., where the economy starts to contract a little bit that has implications historically, what we've seen is we tend to lag the economy in general the health care industry tends to lag what's different about the economy of the health care economy today versus previous recessions.

It's the exchange and the ability for individuals who could possibly lose a job going to Cobra for a period of time and then be uninsured today, there's potentially a safety net in many markets where the exchanges in the subsidies connected to that.

Or Medicaid in expanded stage and the support from the Medicaid program for provide a bit of a safety net we haven't determined exactly how to process that yet and that could create a different resiliency. If you will with respect to our ability to navigate a recession, but.

As as a general rule, our teams are constantly evaluating their trends competitors and so forth it making adjustments, but we do have that one big factor out there. That's a new dynamic that we are evaluating and trying to understand but we don't have any experience with it.

Right. Thank you. Thank you.

Matt.

Kevin.

There are no further questions at this time.

Great. Thank you.

Thank you everybody for joining us today I'm, calling on the webcast.

I'm around in the office feel free to give me your color or email me. If you have additional questions. Thanks, so much.

[laughter].

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may know disk.

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HM Okay.

HM.