Q4 2023 HCA Healthcare Inc Earnings Call
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Unknown Executive: Welcome to the HCA Healthcare fourth quarter 2023 earnings call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank. [inaudible] Good morning, and welcome to everyone on today's call.
Speaker Change: Welcome to the HCA healthcare fourth quarter 2023 earnings Conference call today's call is being recorded.
Speaker Change: At this time for opening remarks, and introductions I would like to turn the call over to Vice President of Investor Relations. Mr. Frank Morgan. Please go ahead Sir.
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 prepared remarks, and then we will take questions.
Unknown Executive: 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're 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
Samuel N. Hazen: On 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.
Unknown Executive: More information on forward-looking statements and these factors is listed in today's press release and in our various SEC files. 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 his family.
Samuel N. Hazen: The 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.
Mornings call is being recorded a replay of the call will be available later today with that I'll now turn the call over to Sam.
Samuel N. Hazen: All right, good morning to everybody, and thank you for joining the call. We finished 2023 better than expected across most dimensions of our business. In the quarter, we experienced strong demand for services across our diversified portfolio of markets, facilities, and service lines. This growth, coupled with improved cost trends, drove solid financial performance in the fourth quarter. Diluted earnings per share excluding gains on sales were $5.90, which represented a 27% increase over the prior year.
Samuel N. Hazen: Alright, good morning to everybody and thank you for joining the call.
Samuel N. Hazen: We finished 2023 better than expected across most dimensions of our business in the quarter, we experienced strong demand for services across our diversified portfolio of markets facilities and service lines. This growth coupled with improved cost trends drove solid financial performance in the fourth quarter.
Sam Hazen: Okay.
Sam Hazen: <unk> earnings per share excluding gains on sale were $5.90, which represented 27% increase over prior year.
Samuel N. Hazen: We are encouraged by these results and believe the operational momentum we have created should position us well for 2024. As mentioned at our recent Investor Day, the staying power of HCA Healthcare was on display again throughout the year. Diluted earnings per share excluding gains and losses on sales and debt retirement for the year grew almost 13% as compared to 2022. As a management team, we pride ourselves on the following. First, owning our realities, whatever they are.
Sam Hazen: We are encouraged by these results and believe the operational momentum we have created should position us well for 2024.
Sam Hazen: As mentioned at our recent Investor day, the staying power of HCA healthcare was on display again throughout the year.
Sam Hazen: Diluted earnings per share, excluding gains and losses on sales of debt retirement for the year grew almost 13% as compared to 2022.
Sam Hazen: As a management team, we pride ourselves on the following first owning our realities whatever they are next making a big company small so we can adjust timely and third being disciplined resource.
Samuel N. Hazen: Next, making a big company small so we can adjust in time. And third, being disciplined in thought, resource allocation, and execution, helping us to accomplish our mission. Once again, I believe our people have impressively demonstrated these traits in the face of new challenges and delivered positive outcomes for our patients, the communities we serve, and our other stakeholders. I often refer to them as can-do people, and again this past year, I think they have proved it.
Sam Hazen: Our resource allocation and execution, helping us to accomplish our mission.
Sam Hazen: Once again I believe our people have impressively demonstrated these trades in the face of new challenges and delivered positive outcomes for our patients the communities, we serve and our other stakeholders.
Sam Hazen: Often refer to them as can do people and again this past year I think they proved it.
Samuel N. Hazen: I want to thank them for their hard work and everything they do for our company. Same facility volumes across the company were strong in the fourth quarter. Admissions grew 3% year over year, and equivalent admissions were up 4%. Emergency Room Visits Group, 2% Inpatient and outpatient surgery volumes increased approximately one percent. Most of our other volume categories, including cardiac procedures and rehab admissions, also had solid growth metrics in the quarter. All domestic divisions had equivalent admissions growth in the quarter.
Sam Hazen: I want to thank them for their hard work and everything they do for our company.
Sam Hazen: Same facility volumes across the company were strong in the fourth quarter admissions grew 3% year over year.
Equivalent admissions were up 4%.
Sam Hazen: Emergency room visits grew 2%.
Sam Hazen: Inpatient and outpatient surgery volumes increased approximately 1%.
Sam Hazen: Most of our other volume categories, including cardiac procedures and rehab admissions had solid growth metrics in the quarter also.
Sam Hazen: All domestic divisions had equivalent admissions growth in the quarter.
Samuel N. Hazen: Additionally, payer mix and acuity levels in the quarter improved year over year. These factors, along with certain enhancements in a couple of states' Medicaid supplemental programs, helped produce same-facilities revenue growth of 11% in the quarter. Bill will provide more detail on revenue in his comment. Operating margins improved in the quarter as we were able to generate solid operating leverage across the company on the increased revenue we produced as compared to the prior year, but even more impressively when compared sequentially to the third quarter.
Sam Hazen: Additionally, payer mix and acuity levels in the quarter improved year over year.
Sam Hazen: These factors along with certain enhancements in a couple of states Medicaid supplemental program helped produce same facility revenue growth of 11% in the quarter.
Sam Hazen: Bill will provide more detail on revenue in his comments.
Sam Hazen: Operating margins improved in the quarter as we were able to generate solid operating leverage across the company on the increased revenue, we produced as compared to the prior year.
Sam Hazen: But even more impressively when compared sequentially to the third quarter.
Samuel N. Hazen: We executed well over the year on our people agenda. In the quarter, we saw further progress on key metrics as evidenced by solid employee engagement results, stable turnover trends, and reductions in contract labor utilization.
William B. Rutherford: We executed well over the year on our people agenda in.
William B. Rutherford: In the quarter, we saw further progress on key metrics as evidenced by solid employee engagement results stable turnover trends and reductions in contract labor utilization.
Samuel N. Hazen: As we have detailed in the past, we have implemented a comprehensive human resources plan. We expect to make further progress on it as we move into 2024. Our plans will remain a top organizational priority with significant investments in workforce development and training, which includes expansions in both Galen College of Nursing and our Centers for Clinical Advancement. With respect to hospital-based physician costs in the quarter, we slowed the rate of growth.
William B. Rutherford: As we have detailed in the past we have implemented a comprehensive human resources plan.
William B. Rutherford: We expect to make further progress on it as we move into 2024.
William B. Rutherford: Our plan will remain our top organizational priority with significant investments in workforce development and training.
William B. Rutherford: Which includes expansions in both Galen college of nursing and our centers for clinical advancement.
William B. Rutherford: With respect to hospital based physician costs in the quarter.
William B. Rutherford: We slowed the rate of growth.
Samuel N. Hazen: As it pertains to Valesco, our physician staffing joint venture, we reduced the operating loss in the fourth quarter more in line with our expectations. As indicated in our investor day, we expect to invest significantly this year in our long-term plan, which we designed to take our company from strength to strength and achieve the growth potential we see in our core business. These investments revolve around three distinct opportunities. The first one includes continued network expansion in facilities, services, and workforce to meet the demand growth that we expect in our markets, while also supporting our efforts to increase market share. In 2024, we have over $2 billion of new capital projects scheduled to come online that will increase capacity. Additionally, we expect to integrate a number of newly acquired hospitals and outpatient facilities that should complement our network.
William B. Rutherford: As it pertains to velazco, our physician staffing joint venture we've reduced the operating loss in the fourth quarter more in line with our expectations.
William B. Rutherford: As indicated in our Investor day, we expect to invest significantly this year in our long term plan, which we designed to take our company from strength to strength and achieved the growth potential we see in our core business.
William B. Rutherford: These investments revolve around three distinct opportunities.
William B. Rutherford: The first one includes continued network expansion in facilities services and workforce to meet the demand growth that we expect in our markets. While also supporting our efforts to increase market share.
William B. Rutherford: In 2024, we have over $2 billion of new capital projects scheduled to come online that will increase capacity. Additionally, we expect to integrate a number of newly acquired hospitals and outpatient facilities that should complement our networks.
Samuel N. Hazen: The second opportunity includes a robust agenda designed to advance digital capabilities across the company and unlock the embedded value we see in our operations. As high-performing as we are today, we believe there is more operational potential inside our company. With evolving technological tools, we are investing to unlock this value. We believe this initiative, together with our Care Transformation and Innovation Program, will enhance quality, drive further efficiencies through our Financial Resiliency Program, and improve overall operational management capabilities, including integrating a revenue cycle in case management functions better. The third area of opportunity relates to the flexibility we have to use our balance sheet position and strong cash flow production to invest heavily in our business and our people while also allocating capital to our shareholders.
William B. Rutherford: The second opportunity includes a robust agenda designed to advanced digital capabilities across the company and unlock the embedded value we see in our operations.
William B. Rutherford: As high performing as we are today, we believe there is more operational potential inside our company with evolving technical technological tools, we are investing to unlock this value.
William B. Rutherford: We believe this initiative together with our care transformation and innovation program will enhance quality.
William B. Rutherford: Further efficiencies through our financial resiliency program and improve our overall operational management capabilities, including integrating our revenue cycle and case management function better.
The third area of opportunity pertains to the flexibility we have to use our balance sheet position and strong cash flow production to invest heavily in our business and our people while also allocating capital to our shareholders.
Samuel N. Hazen: In 2024, we plan to increase capital spending to over $5 billion and enhance our share repurchase program to around $5 billion. We continue to believe this strategic plan will produce more winning plays for our organization, allowing us to deliver better services for patients, while also creating value for other stakeholders. Let me close with this.
William B. Rutherford: In 2024, we plan to increase capital spending to over $5 billion and enhance our share repurchase program to around $5 billion.
William B. Rutherford: We continue to believe this strategic plan will produce more wedding place for our organization, allowing us to deliver better services for patients while also creating value for other stakeholders.
William B. Rutherford: Let me close with this the constants in our organization consists of three principles <unk>.
Samuel N. Hazen: The constants in our organization consist of three principles: giving our patients what they deserve whenever they need service, partnering with our physicians to deliver high-quality outcomes, and leveraging the distinct elements of HCA Healthcare to improve performance. Our approach to delivering on these core values comes from what we term the HCA way.
Giving our patients what they deserve whenever they need services.
William B. Rutherford: Partnering with our physicians to deliver high quality outcomes and leveraging the distinct elements of HCA healthcare to improve performance.
William B. Rutherford: Our approach to delivering on these core values tons from what we term the HCA way.
Samuel N. Hazen: That is, supporting our local provider systems with value-added enterprise-level capabilities, coupled with disciplined and detail-oriented management teams that relentlessly focus on execution. This operating philosophy has helped us navigate different economic cycles, adapt to changes in the industry, and address challenges such as the COVID pandemic. As we look to the future, we have designed our next generation growth plan to build upon the strengths we have developed over the years and take advantage of the opportunities in front of us. I am proud of HCA Healthcare. I'm even more proud of our people.
William B. Rutherford: That is supporting our local provider systems with value added enterprise level capabilities, coupled with disciplined and detailed oriented management teams that relentlessly focus on execution.
William B. Rutherford: This operating philosophy has helped us navigate different economic cycles adapt to changes in the industry and address challenges such as the Covid pandemic.
As we look to the future. We have designed our next generation growth plan to build upon the strengths. We have developed over the years and take advantage of the opportunities in front of us.
Speaker Change: I am proud of HCA healthcare and I'm, even more proud of our people.
William B. Rutherford: We will move into 2024 and the years ahead with greater purpose, with a renewed agenda to drive sustained growth, and with confidence in our ability to deliver value and positive outcomes for our stakeholders. With that, I'll turn the call over to Bill, and he will discuss in more detail the quarter's results and 2024 guidance. Okay, great. Thank you, Sam. And good morning, everyone.
Speaker Change: We will move into 2024 and the years ahead with greater purpose with a renewed agenda to drive sustained growth and with confidence in our ability to deliver value and positive outcomes for our stakeholders with that I will turn the call to bill and he will discuss in more detail the quarter's results in 2020 for guidance.
Okay, great. Thank you Sam and good morning, everyone.
William B. Rutherford: 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 emissions grew 3.3% over the prior year. Equivalent emissions grew by 4.8%.
William B. Rutherford: We will provide some additional comments on our performance for the quarter and year and then discuss our 2020 for guidance.
William B. Rutherford: We highlighted at our recent Investor day that we're formula combining a strong operational performance with a disciplined and balanced allocation of capital has a long track record of generating value over time.
William B. Rutherford: 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.
William B. Rutherford: We have strong topline growth for the year, our same facility admissions grew three 3% over prior year equivalent admissions grew four 8%.
William B. Rutherford: Emergency room visits grew 4.7%, and total surgical cases were up 2.3%. We maintain 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 the same facility basis. Revenue per Equivalent Emission grew 2.7% on the same facility basis.
William B. Rutherford: Emergency room business grew four 7% and total surgical cases were up two 3%.
William B. Rutherford: We maintained our strong acuity trends with case mix index increasing.
William B. Rutherford: In payer mix improved with managed care and other admissions growing 6% for the full year on a same facility basis.
William B. Rutherford: Revenue per equivalent admission grew two 7% on a same facility basis.
William B. Rutherford: This contributed to same facility revenue growing 7.6% and 7.9% on a consolidated basis for the full year 2023. We couple top line strength with strong management of operating costs. Salaries, Wages, and Benefits as a Percentage of Revenue and Improved 60 Basis, on a consolidated basis compared to the prior year. Contract labor declined 20% for the year and equated to 5.3% of us SWB in the fourth quarter.
William B. Rutherford: This contributed to same facility revenue growing seven 6%.
William B. Rutherford: Seven 9% on a consolidated basis for the full year 2023.
William B. Rutherford: We coupled topline 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.
William B. Rutherford: Contract Labor declined 20% for the year and equated to five 3% of us <unk> in the fourth quarter.
William B. Rutherford: Our teams continued to do a great job managing 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.
William B. Rutherford: Our teams continue to do a great job managing supply costs, which improved 40 basis points as a percentage of revenue for the full year.
William B. Rutherford: And 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.
William B. Rutherford: Sam mentioned, we also saw an improvement in our velazco 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.
William B. Rutherford: The result of this is that we produced solid margins of 19.6% in line with a 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.
William B. Rutherford: The result of this as we produced solid margins of 19, 6% in line with our range of expectations on a consolidated basis and adjusted EBITDA growth of five 5% on an as reported basis for the full year 2023.
William B. Rutherford: So as a management team we are very pleased with the operational performance of the company during the year.
William B. Rutherford: Let me briefly discuss our results in the fourth quarter.
William B. Rutherford: Adjusted EBITDA grew just under 14% in the quarter as compared to the prior year.
William B. Rutherford: This was 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 Program, which 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 off-sum basis. 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.
William B. Rutherford: This was primarily due to strong revenue growth and solid expense management during the quarter.
William B. Rutherford: 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 Pro.
William B. Rutherford: Graham.
Additionally, based on our experience from 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.
William B. Rutherford: 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 velazco joint venture.
William B. Rutherford: In summary, the quarter was the strongest operational performance of the year.
William B. Rutherford: And with the additional benefit from the supplemental programs and the 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, for just under 11% growth. Capital expenditures were just above $4.7 billion for the year, which was in line with our expectations.
William B. Rutherford: And with the additional benefit from the supplemental programs and impact of new divested facilities. We are very pleased with the year over year growth, we were able to produce.
Speaker Change: 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 to 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.
William B. Rutherford: We've purchased approximately $3.8 billion of our outstanding shares and paid approximately $660 million in dividends during the year. Our debt to Adjusted Even-Owned 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 we expect diluted earnings per share to range between $19.70 and $21.20.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We expect revenues to range between $67 75 billion and $72 5 billion.
We expect net income attributable to HCA healthcare to range between $5 2 billion and $5 6 billion.
Speaker Change: We expect adjusted EBITDA to range between $12 85 billion and $13 $5 5 billion in.
Speaker Change: And expect diluted earnings per share to range between $19 70.
Speaker Change: $21 in 2000.
William B. Rutherford: 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 growth in equivalent emissions between 3% and 4% and revenue per equivalent emission between 2% and 3%. Regarding State Supplemental Programs.
Speaker Change: And finally, we expect capital spending to range between $5 1 billion and $5 3 billion.
Speaker Change: So let me provide a little additional commentary on our guidance.
Speaker Change: First let me note the $145 million payer settlement, we recorded in the first quarter of 2023.
Speaker Change: Our guidance assumes a growth in equivalent admissions between 3% and 4% and.
Speaker Change: And revenue per equivalent admission between two and 3%.
Speaker Change: Regarding state supplemental programs.
William B. Rutherford: I want to highlight that these programs are complex, and most have multiple athletes 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're anticipating benefits from a new program in Nevada. So 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 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. The depreciation is estimated to be about $3.2 billion, and interest expense is projected to be around $2 billion.
I want to highlight that these programs are complex and.
Speaker Change: And most have multiple apps reach that impact the timing and amounts we received.
Speaker Change: 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. So.
So based on current assumptions, we expect some modest headwinds when we aggregate the impact of all of the supplemental programs and we believe this could range between 100 $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.
Speaker Change: Depreciation is estimated to be about $3 2 billion in interest expense is projected to be around $2 billion.
William B. Rutherford: Finally, our fully diluted shares are expected to be around $264 million for the year. As also noted in our release this morning, our Board of Directors has authorized a new $6 billion repurchase program. This will be in addition to the approximately $300 million remaining in our prior authorization. In addition, our board declared an increase in our quarterly dividend from $0.60 to $0.60 per share.
Speaker Change: Finally, our fully diluted shares are expected to be around $264 million for the year.
Speaker Change: As also noted in our release this morning, our board of Directors has authorized a new $6 billion share repurchase program. This will be an addition to the approximately $300 million remaining on our prior authorization and.
Speaker Change: In addition, our board declared an increase in our quarterly dividend from <unk> 60.
Speaker Change: To 60 <unk>.
Speaker Change: Per share.
Samuel N. Hazen: With that, let me turn the call back over to Sam. All right, thank you, Bill. As you saw in our press release, Bill Rutherford has decided to retire after 34 years with the company, 10 years as CFO, and he has had a tremendous career with HCA.
Speaker Change: With that let me turn the call back over to Sam Alright.
Samuel N. Hazen: Alright. Thank you Bill as you saw in our press release Bill Rutherford has decided to retire after 34 years with the company 10 years as CFO and Bill has had a tremendous career.
Samuel N. Hazen: With HCA, and then and my communication to our colleagues throughout the company I indicated that as impressive as the results were financially with the company. During his tenure built legacy what the company will be remembered by the many people in the company has positively impacted with his leadership Mentorship and the way embraced our mission.
Samuel N. Hazen: And then, in my communication to our colleagues throughout the company, I indicated that it was impressive as the results were financially successful for the company during his tenure. Bill's legacy with the company will be remembered by the many people in the company who were positively impacted by his leadership, mentorship, and the way he embraced our mission and culture. And so, Bill, congratulations on your retirement, and thank you very much on behalf of the board and the senior team for everything you've done for the organization. Now, part of Bill's legacy is creating a really deep financial team inside our organization. We pride ourselves on having the ability to build talent and then replace talent. And we're fortunate to have Mike Marks as our next CFO. Mike has been with the company for 28 years. He has had various roles, most of which were in the national group as the group CFO for the national group for 10 years.
And culture, and so bill congratulations on your retirement and thank you very much on behalf of the board and the senior team for everything you've done for the organization now part of Bill's legacy is creating a really deep financial team inside our organization, we pride ourselves on having the capability.
Samuel N. Hazen: <unk> to build talent and then replace talent and we're fortunate to have Mike March as our next CFO, Mike has been with the company for 28 years. He has had various roles most of which were in the National group as the group CFO for the National Group for 10 years and then he has been in the senior Vice President and financial.
Samuel N. Hazen: And then he's been in the senior vice president of financial operations role for the last few years. He is a proven HCA executive. He understands and appreciates our culture.
Samuel N. Hazen: <unk> role for the last few years. He is a proven HCA executive he understands and appreciates our culture. He knows how to execute and get get result, and I know he is going to be an exceptional CFO for HCA and I'm eager for many of you to get to meet him. So my congratulations so with that Frank we will go to questions.
Samuel N. Hazen: He knows how to execute and get results, and I know he's going to be an exceptional CFO for HCA. And I'm eager for many of you to get to meet him.
Unknown Executive: So, Mike, congratulations. And with that, Frank, we will go to questions. 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. All right, thank you so much.
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 and Greg you May now give instructions to those who would like to ask a question.
Frank Morgan: Alright. Thank you so much and again at this time, if you would like to ask a question Press Star and then the number one on your telephone keypad once again star one.
Unknown Executive: And again, at this time, if you would like to ask a question, press star and then the number one on your telephone keypad. Once again, star, and we will pause just a moment to compile the key. Okay, looks like our first question comes from the line of AJ Rice with, Caller, please go ahead. Thanks. Hi, everybody.
We will pause just a moment to compile the Q&A roster.
Yeah.
Greg: Okay and it looks like our first question comes from the line of a J rice with UBS caller. Please go ahead.
J Rice: Thanks, Hi, everybody.
Unknown Executive: Best wishes, Bill, on your retirement. I just want to ask about volumes, because there's 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.
Best wishes bill on the retirement and congratulations to Mike.
J Rice: I just wanted 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 which you saw there do you have any updated thoughts on whether we're seeing a sicker population.
Unknown Executive: Do you have any updated thoughts on whether we're seeing a sticker population post COVID, maybe just some pent-up demand for people going back to see the doctors? Specifically, 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's also chatter in the last week about maybe there's actually an easing around the observation status. I wonder if you could tell us. Well, let's see, AJ, Sam has about four questions there. Let me see if I can sort of synthesize them.
J Rice: <unk>.
J Rice: Maybe just some pent up demand for people, who went back to the doctors and then specifically as well on utilization review management.
J Rice: We've talked about that from time to time that health plans are getting more aggressive post pandemic now about utilization review. That's also chatter in the last week about maybe maybe theres 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.
Speaker Change: Let's see a J as Sam has about four questions. There, let me see if I could sort of central <unk>.
Unknown Executive: I will tell you, in our judgment, we had normal seasonality with respect to most categories of our business, and we had indicated last year that we thought seasonality trends had returned in the latter half of 2022. And they continued, in our estimation, into the latter half of 2023 with the natural seasonality that we see in our outpatient areas as well as some of our other surgical areas. For the most part, from the third quarter of this year to the fourth quarter, how that was influenced by new policies and pent-up demand, we can't really determine that, and we don't believe it had a material impact.
Speaker Change: I will tell you from our judgment, we had normal seasonality with respect to most categories of our business.
Speaker Change: And we had indicated last year that we thought seasonality trends had returned in the latter half of 2022 and they continued in our estimation into the latter half of 2023 with the natural seasonality that we see in our outpatient areas as well.
Speaker Change: And some of our other surgical areas.
Speaker Change: For the most part from the third quarter of this year to the fourth quarter, how that was influenced by new policies and pent up demand, we can't really determine that and we don't believe it had a material impact.
Unknown Executive: So, from our standpoint, we've been optimistic that our strategy around our network development, our execution on our quality and patient safety agendas, and then our partnerships with our physicians was going to allow us to continue to grow. We mentioned that at our investor day. And we think that's part and parcel to what's happening with our business as we push through the latter part of the year. I mean, there are always utilization policies and procedures coming from the payers.
Speaker Change: So from our standpoint, we've been optimistic that our our strategy around our network development, our execution on our quality and patient safety agenda, and then our partnerships with our positions was going to allow us to continue to grow we mentioned that at our Investor day.
Speaker Change: And we think thats part and parcel to what's happening with our business as we pushed through the latter part of the year I mean, theres always utilization policies and procedures coming from the payers. There is like I said some changes in certain policies, it's way too early to judge the effect of those.
Unknown Executive: There are, like I said, some changes in certain policies way too early to judge the effect of those. And we are really judging our business and thinking about 2024 optimistically around where the demand for health care is, at least in our market. Okay, thank you. Our next question comes from the line of Pito Chickering with Deutsche Bank. Caller, please go ahead. Hey, good morning, guys.
We are.
Speaker Change: Really judging our business and thinking about 2024 optimistically around where the demand for health care is at least in our markets.
Okay. Thank you. Our next question comes from the line of <unk> Chickering with Deutsche Bank caller. Please go ahead.
Chickering: Hey, good morning, guys.
Unknown Executive: Thanks for taking my questions, and Bill, it was a real pleasure working with you over the years, so thank you very much for all that. Supplemental payments, there's a lot to unpack there, can you explain what the supplemental payments were in 22, 23 versus 24, absolute dollars, and also on the OPEX side, how much the supplemental payment taxes were, again for 22, 23, and 24. Yeah, Pito, let me put it this way
Chickering: Taking my questions and Bill is a real pleasure working with you over over the years. So so thank you very much for all that.
Chickering: On supplemental payments.
Lots of unpack there I guess can you bridge actually what supplemental payments were in 'twenty two 'twenty three versus 24 as absolute dollars and also on the Opex side, how much the subtle discipline payment taxes were again for 'twenty two 'twenty three 'twenty four thanks, so much.
Speaker Change: Yes, let me put it this way I can't give you all of that detail right now as we've talked about we view supplemental team, which is really just part of our overall Medicaid revenue portfolio I think we're up to 17 or 18 states with supplemental payments.
William B. Rutherford: I can't give you all that detail right now, but as we've talked about, you know, we've used supplemental payments as really just part of our overall Medicaid revenue portfolio. I think we're up to 17 or 18 states with supplemental payments programs right now. As I mentioned in my comments, each of these programs has a level of complexity and multiple attributes to it that affect the timing and when we recognize those.
Speaker Change: Programs right now as I mentioned in my comments each of these programs have a level of complexity multiple attributes to it that affect the timing of when we recognize those in the quarter as I mentioned, we did recognize some benefit of the new North Carolina program.
William B. Rutherford: In the quarter, as I mentioned, we did recognize the benefit of the new North Carolina program. That was anticipated. We had a settlement in Texas, and we began accruing Florida accounts for it.
Speaker Change: That was anticipated.
Speaker Change: Settlement and taxes, and we began accruing Florida accounts for it so.
William B. Rutherford: So, you know, we can maybe give you a quarter-by-quarter breakdown offline, but those were the main things that affected us during the fourth quarter. But I will mention, even with the supplemental payment programs, the core operations of the business remain strong. When we look at core revenue growth, as well as revenue per unit growth, we believe the supplemental payments were just added to what was already a strong quarter. Thank you. Our next question comes from the line of Justin Lake. Justin, go ahead.
Speaker Change: We can maybe offline give you a quarter by quarter breakdown, but those were the main things that affected us during during the fourth quarter.
Speaker Change: But we will mentioned even with the supplemental payment programs. The core operations of the business remains strong we look at core revenue growth as well as our revenue per unit growth. We believe the supplemental payments were just added to what was already a strong strong quarter.
Okay.
Speaker Change: Okay. Thank you. Our next question comes from the line of Justin Lake with Wolfe Research Justin go ahead.
Unknown Executive: Thanks, guys. And I'll start off by adding my thanks to Bill. Appreciate all the help over the years, and you'll be missed. And congratulations to Mark and to Mike.
Justin Lake: Thanks, guys ill start off by adding my thanks to Bill I appreciate all the help over the years and youll be missed and congrats to Mike.
Unknown Executive: My question was around Medicare specifically and a couple things. One, you talked about the commercial being strong. We've been hearing Medicare and Medicare Advantage trends have been really strong in the quarter. Can you give us some color on Medicare revenue growth and Medicare volume growth in the quarter? And then specifically, I think, in reference to AJ's question, I think what he was trying to touch on was the impact of the two midnight rule.
Justin Lake: My question was around Medicare specifically in a couple of things one that you talked about commercial being strong we've been hearing Medicare.
Justin Lake: Medicare advantage trends have been specifically really strong in the quarter can you can you give us some color on Medicare revenue growth and Medicare volume growth in the quarter and then specifically I think in reference to <unk> question. I think we're just trying to touch on was the impact of the two midnight rule can you talk about.
Unknown Executive: Can you talk about what's going on there for 2024 and what you think the impact might be? And did you see any early benefits in 2023 as it started ramping up to this? Thanks a lot.
Justin Lake: What's going on there for 2024.
And what you think the impact might be and did you see any early benefits. In 2023 has just started ramping up into that thanks a lot.
William B. Rutherford: Yeah, Justin, thanks. Thanks for that. Let's start with 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 with what we've seen throughout the year. And we think, you know, probably a combination of conversion from traditional Medicare fee-for-service, as well as some of our volume gains and maybe a bit of utilization. It's hard for us to break that down in its entirety on there.
Justin Lake: Yes, Justin Thanks, 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.
Speaker Change: And we think it's probably a combination of conversion from traditional Medicare fee for service as well as some of our volume gains and maybe a bit utilization is hard for us to break that down in its entirety on there in terms of our revenue per unit between Medicare advantage Medicare has been very consistent through the year is.
William B. Rutherford: In terms of our revenue per unit between Medicare Advantage and Medicare, it's 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, as Sammie alluded to, it's too early for us to judge the impact of this rule.
Speaker Change: Well, so we didn't see any any really step change in the fourth quarter of that material amount.
Speaker Change: When when I think about.
Speaker Change: The two midnight rule Sami alluded, it's too early for us to judge the impact of this rule.
William B. Rutherford: We know, you know, it's got a period to be implemented. We believe, ultimately, it's going to benefit our patients. And we think, over time, it could have some moderate positive results for us. But we've seen no impact yet. But we believe, over time, as we go through 24, there could be some modest benefits. Thank you.
No. It's got it appeared 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 no impact yet, but we believe over time as we go through 'twenty four there could be some modest benefit as we go through that.
Speaker Change: Great. Thank you just a reminder, folks again star and the number one on your telephone keypad. If you would like to ask a question.
Unknown Executive: Just a reminder, folks, again, the star and the number one on your telephone keypad. And our next question comes from the line of Ben Hendrix.
Speaker Change: And our next question comes from the line of Ben Hendrix with RBC capital markets go ahead.
Samuel N. Hazen: 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, you know, into your inpatient capabilities and higher acuity. And where do you think we should think about that evolving through the year and the impact on case mix as we look into your 2024 guidance? Thank you. This is Sam.
Ben Hendrix: Okay. 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 I just wanted to get an idea of how youre thinking about allocating that.
Ben Hendrix: Into your inpatient capabilities and higher acuity.
Ben Hendrix: And where you think where do you think how can we can we think about that evolving through the year.
Ben Hendrix: And the impact on case mix.
Ben Hendrix: Looking to your 2024 guidance. Thank you.
Ben Hendrix: Okay.
This is Sam we have been pretty consistent with our allocation over the years between inpatient outpatient and technology.
Samuel N. Hazen: We have been pretty consistent with our allocation over the years between inpatient, outpatient, and technology. And I think 2024 will be somewhat consistent with that. I will tell you, we do have, you know, a large Development Pipeline of New Outpatient Facility that are connected to our capital project. In 2024 and 2025, we'll have quite a few come online, a little bit more than we had in 23 and 22.
Samuel N. Hazen: And I think 2024 will be somewhat consistent with that I will tell you we do have a large.
Samuel N. Hazen: A development pipeline of new outpatient facilities.
That are connected to our capital project in 2024, and 2025 will have.
Samuel N. Hazen: Quite a few come online a little bit more than we had at 'twenty three and 'twenty two.
Samuel N. Hazen: We do have some new hospitals in a few markets that will come online, and we're starting to invest in other markets. So I think when we look at the volume of beds and so forth coming on in 24, it's about the same as 23. If I remember correctly, and then our ER capacity is growing consistently. So we're pretty consistent in our allocation of capital. It's not disproportionately oriented to any one category of our business.
Samuel N. Hazen: We do have some new hospitals in a few markets that will come online and.
Samuel N. Hazen: And we're starting to invest in and in other markets. So I think when we look at.
Samuel N. Hazen: The volume of beds, and so forth coming on in 'twenty four it's about the same as 2003.
Samuel N. Hazen: If I remember correctly and then our ER capacity is growing consistently so we're pretty consistent in our allocation of capital it's not disproportionately oriented to any one category of our business and we think again that approach has yielded really strong returns it's allowed us.
Samuel N. Hazen: And we think, again, that approach has yielded really strong returns. It's allowed us to meet the demand expectations that exist in the market. And it's also responded to our physicians in a way that created the capacity or allowed for the clinical technology that they need to practice their medicine. So we're stepping it up because we have a growing occupancy on the inpatient side, and then we have opportunities in the outpatient side to expand our networks further in these fast-growing communities. That's pretty much the snapshot of it, but it's generally consistent from an allocation standpoint to prior years. Great, thank you. And our next question comes from the line of Gary Taylor. Gary, please. Hi, good morning.
Samuel N. Hazen: To meet the demand expectations that exist in the market and it's also responded to our physicians in a way.
Samuel N. Hazen: <unk> created the capacity or <unk>.
Samuel N. Hazen: <unk> for the clinical technology that they need to practice their medicine. So we're staffing it up because we have a growing occupancy.
Samuel N. Hazen: On the inpatient side and then we have opportunities in the outpatient side to expand our networks further in these fast growing communities that's pretty much the.
The snapshot of it.
Samuel N. Hazen: But its generally consistent from an allocation standpoint to prior years.
Samuel N. Hazen: Great. Thank you and our next question comes from the line of Gary Taylor with TD, Kevin Gary. Please go ahead.
Gary Taylor: Hi, good morning.
Unknown Executive: Um, one clarification and then I'll ask my real question. I just want to make sure I understood what Bill Seddon said. Congratulations to Bill, by the way. You were walking through the net Medicaid DPP EBITDA outlook for 2024, and I think you said, overall, you're expecting that dollars to come down 100 to 200 million. I want to make sure I had that correct. And then my real question was just, you talked about stemming the Lesko Operating losses sequentially to more in line with what you originally thought, which I think means maybe bringing that down to sort of break even in the quarter, and I was just hoping you could share with us a little bit about how operational you are. Transcription by Trans-Expert at Fiverr.com: Yeah, Gary, this is Bill.
Gary Taylor: One clarification and then I'll ask my real question I, just want to make sure I understood what.
Gary Taylor: Bill said and.
Gary Taylor: Congrats to bill by the way.
Gary Taylor: Thanks, Hugh you were walking through the net Medicaid DPP.
Gary Taylor: EBITDA.
Gary Taylor: Look for 24, and I think you said overall you're expecting that.
Gary Taylor: Dollars to come down $100 million to $200 million on to make sure I had that correct and then my real question was just you talked about stemming the let's go.
Operating losses sequentially to more in line with what you originally thought which I think means maybe brings it down to sort of breakeven in the quarter and I was just hoping you could share with us a little bit about how operationally you pulled that off.
Gary Taylor: Yes, Gary this is bill thanks for those comments to start with DTP, you're correct. In my comments, we are expecting overall, when we aggregate all of the programs to potentially be a headwind anywhere between 100 200 million largely due to settlements that we received this year, we don't expect to reoccur and in the Florida, beginning an accrual.
William B. Rutherford: Thanks for those comments. Let's start with DPP. You're correct in my comments. We are expecting, overall, when we aggregate all the programs, to potentially be a headwind, anywhere between $100 and $200 million. Largely due to settlements that we received this year, we don't expect it to reoccur. And then the Florida beginning accrual had an impact on that. So that's what's mostly driving that across our multiple programs. On Belasco, as we mentioned, it came in line with our expectations, which I think last quarter we sized at 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 Belasco, 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 that over time we'll be seeing continued improvement, and we're working diligently towards those outcomes. Thank you. And our next question comes from the line of Brian Tanquilut, with, Ryan, please.
Gary Taylor: <unk> had an impact to that so that's what's mostly driving that occur.
Gary Taylor: Across our multiple programs on velazco 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.
Gary Taylor: Next year, I think velazco for the full year will equate with about the same amount. We recorded this year, but we had nine months of 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.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Brian <unk> with Jefferies. Brian. Please go ahead.
Unknown Executive: Hey, good morning, and Bill, congrats on a very successful career at HCA. I guess my question is to follow up on Gary's, you know, maybe expanding it further to the broader labor outlook. How are you thinking about, you know, the opportunity to further reduce spending on both nursing and, obviously, at Zalesco? Or maybe another way to ask it is, how are you viewing inflation at the wage level? Thank you.
Brian: Hey, good morning, and Bill Congrats on a very successful career at HCA.
Brian: So my question to follow up on Gary's, maybe expanding and further to the broader labor outlook. How are you thinking about the.
Brian: The opportunity to further reduce spending on both nursing and obviously in for Wesco or maybe another way of asking is how are you viewing inflation at the wage level. Thank you.
William B. Rutherford: Well, I think we've proven that teams have managed through that very well during the inflationary period we experienced. I think going forward, we expect to move back into kind of normal trends, which is generally two and a half to three percent of wage inflation going forward. And then we believe there's continued improvement in contract labor to be achieved, and we have plans to execute that throughout twenty twenty four on professional fees. We have a number of initiatives with teams working on them to not only further integrate them into our operations but to continue to figure out, you know, adjustments to those programs for professional fees. I've talked to them we have seen a decline in the sequential rate of growth, so we're a bit encouraged with that as we go into twenty-four. We would expect those sequential declines to continue. And we're working hard on multiple initiatives, whether it be revenue enhancements, program adjustments, or looking at opportunities to internalize some of those programs. Thank you. And our next question comes from Ann Hynes with Mizzou Hope. Ann, please go. Good morning, thank you, and I also want to congratulate Bill on his retirement.
Speaker Change: Well I think we've proven teams have managed through that very well during the inflationary period, we experienced I think going forward, we expect to move back into kind of the normal trends, which is generally two 5% to 3% wage inflation going forward and we believe there is continued improvement in contract labor to be achieved and we have plans.
Speaker Change: To execute that throughout 2024 on the professional fees and velazco, we have a number of initiatives with teams working on that to not only further integrate into our operations, but to continue to figure out adjustments to those programs. Our professional fees I've talked to we have seen a decline in.
Speaker Change: The sequential rate of growth. So we're a bit encouraged with that as we go into 'twenty four we would expect those sequential declines to continue.
Speaker Change: And we're working hard through multiple initiatives, whether it be revenue enhancements program adjustments or are looking at opportunities to internalize some of those programs.
Speaker Change: Thank you and our next question comes from Ann Hynes with Mizuho. Please go ahead.
Ann Hynes: Good morning. Thank you I also want to congratulate Phil on his retirement.
William B. Rutherford: I just have a couple of follow-ups just on the managed care pricing yield assumptions for 2024, which are up two to 3%, which looks a little conservative given the two midnight rule. And when you look at Medicaid determinations, the growth in the health exchange in your states is very strong. So in your guidance, do you embed any benefit from the two midnight midnight rule or kind of the shift from Medicaid potentially to commercial? And then, secondly, if you can just maybe give us some more detail about how the two midnight rule could impact you, maybe a percent of our emissions or maybe kind of a differential between revenue per emit would be great. Thanks. Yeah, and this is Bill. Let me first clarify. Our 2 to 3% mission is our aggregated revenue per coolant emission. And then, obviously, there are categories underneath it.
Ann Hynes: I just have a couple of follow ups just on the managed care pricing yield assumptions for 2024, which is up 2% to 3%.
Ann Hynes: It looks a little conservative given that two midnight rule and when you look at Medicaid determinations.
Ann Hynes: And then the health exchange in your states are very strong so in your guidance to you embed any benefit from the two midnight midnight rule or kind of the shift from Medicaid potentially two on commercial.
Ann Hynes: And then secondly, if you can just maybe give us somewhat detail about how the two midnight will could impact you maybe a percent of our missions or maybe kind of a differential between revenue per admit would be great. Thanks.
Ann Hynes: Dan. This is bill let me first clarify our 2% to 3%, Michigan is our aggregated revenue per equivalent admission and then obviously there's categories underneath it.
William B. Rutherford: I would tell you regarding Medicaid redetermination is still early. We believe there's some modest benefit that we've seen as patients have migrated from Medicaid into HICS and other employer-sponsored plans, but I don't believe that's material yet.
William B. Rutherford: I would tell you regarding Medicaid Redetermination is still early we believe there is some modest benefit that we've seen as patients have migrated from Medicaid into.
William B. Rutherford: Hicks and other employer sponsor I don't believe that's material, yes, we'll see how that continues to trend throughout 2024, and I would say, we don't have a material.
William B. Rutherford: We'll see how that continues to trend throughout 2024. And I would say we don't have a material fact not factored into our guidance. On the two-midnight rule, you know, as we said earlier, it is really early in that progression.
William B. Rutherford: In fact, our material not factored into our guidance on that on the two midnight rule as we said earlier it is really early.
William B. Rutherford: In that progression it should be positive for us if it's implemented as expected I think will be positive for patients over time as well and we will just have to see how that plays out but we don't have I'd say a material adjustment factored into our 24 numbers for that as well our range of guidance I think accommodates for.
William B. Rutherford: 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 24 numbers for that as well. Our range of guidance, I think, accommodates for, you know, various outcomes on both of those programs, and we'll see how that plays out as we go through the first part. Great, thank you.
William B. Rutherford: Various outcomes on both of those programs.
William B. Rutherford: And we'll see how that plays out as we go through the first part of the year.
William B. Rutherford: Okay.
Great. Thank you and just one more reminder, star one on your telephone keypad. If you would like to ask a question and our next question comes from Whit Mayo with Leerink partners. Please go ahead.
Unknown Executive: And just one more reminder, press one on your telephone keypad. And our next question comes from Whit Mayo with Lear, Inc. Partners. Whit
Whit Mayo: Thanks, and congrats to Bill I think this might be the second time, you've retired so I hope it sticks.
Samuel N. Hazen: My question really, Sam, is I'm curious about any new expenses, http://TheBusinessProfessor.com, Elevated internally. Well. At our investor day, Mike Marks presented our financial resiliency program, and it's got different components to it. There is, you know, more sophisticated integration of our revenue cycle that includes our case management initiative, which I will highlight here. Our case management initiative is to make sure that our patients get into the right setting in the right timeline and free up capacity where appropriate, and so forth. This past year, we had early stage success with that. Our length of stay was down, and our case mix was modestly higher.
Whit Mayo: But Mike My question really Sam is I'm curious on any new expense initiatives that you guys have elevated internally as a as a new strategic focus anything maybe more creative or imaginative that youre, bringing forth. This year to challenge the organization. Thanks.
Speaker Change: Okay well.
Speaker Change: At our Investor day.
Speaker Change: Mike Mark presented our financial Resiliency program, and it's got different components to it there's more sophisticated integration of our revenue cycle that includes our case management initiative, which I will highlight here. Our case management initiative is to make sure that our patients get into the right setting in the right timeline.
Speaker Change: And free up capacity where appropriate.
And so forth this past year, we had.
Speaker Change: Early stage success with that our length of stay was down and our case mix was modestly up so when you put the two together it's a good start for us with respect to our case management initiative.
Samuel N. Hazen: So when you put the two together, it's a good start for us with respect to our case management initiative, which is important on multiple fronts. It allows us to allocate our nurse staffing more effectively to more acute patients and so forth. We will continue to invest in that initiative as we bring in more technology, more structure to our teams, and better processes for benchmarking. The second thing I would highlight is with respect to what we're calling our internal benchmarking initiative. We have incredible opportunities to compare more deeply within our organization, whether it's on the variable cost side with respect to what we Allocate and Distribute to our Facilities or on Fixed Costs, and both of those categories are getting a lot more benchmarking under Mike's leadership, and we're finding opportunities to rethink how we organize our cost structure, how So I'm excited about the prospects there.
Speaker Change: It is important on multiple fronts. It allows us to allocate our nurse staffing more effectively to more acute patients.
Speaker Change: So for US we will continue to invest in that initiative as we bring on more technology more structure to our teams and better process and benchmarking.
Speaker Change: Second thing I would highlight is with respect to what we're calling our internal benchmarking initiative, we have incredible.
Speaker Change: Opportunities to compare more deeply into our organization whether its on the variable cost side with respect to what we.
Speaker Change: Allocate and distribute to our facilities.
Speaker Change: Our on fixed cost in both of those categories are getting a lot more benchmarking under Mike's leadership, and we're finding opportunities to rethink how we organize our cost structure, how we leverage our process improvement, how we use technology and <unk>.
Speaker Change: Automation in those areas to improve.
Speaker Change: Processes and variable cost so I'm excited about the prospects there as I mentioned in my commentary, we had a very successful.
Samuel N. Hazen: As I mentioned in my commentary, we had a very successful transition from the third quarter to the fourth quarter with respect to what we call clearance operating leverage, and our operating leverage, from the third quarter to the fourth quarter, was the best I'd seen in my experiences with the company. And I think part of that, not all of that, is due to some of these initiatives and the transparency we have around our efforts to improve efficiencies, improve clinical outcomes for our patients, and so forth. So those are two things I would highlight.
Speaker Change: <unk> from the third quarter to the fourth quarter with respect to what we call <unk>.
Speaker Change: Clearance operating leverage in our operating leverage.
The third quarter to the fourth quarter was the best I've seen in my experiences with the company and I think part of that not all of that is due to some of these initiatives and the transparency we have around our efforts to improve.
Speaker Change: Improve efficiencies improved clinical outcomes for our patients and so forth. So those are two things I would highlight obviously our technology.
Samuel N. Hazen: Obviously, our technology agenda and our care transformation is a longer-term effort with respect to improved outcomes across different dimensions of our business. And we've had some modest success there in the short run, but we're really banking on those programs giving us long-term value. So those are just a couple of highlights.
Speaker Change: Gender and our care transformation is a longer run effort with respect to improved outcomes across different dimensions of our business and we've had some modest success there in the short run, but we're really banking on those programs, giving us long term value. So those are just a couple of highlights.
Speaker Change: I will tell you our teams culturally are disciplined and as I mentioned that discipline creates opportunities for us to find better ways to do things for all of our stakeholders and that mindset is something that we carry forward from one year to the next and we'll carry.
Samuel N. Hazen: I will tell you our teams are culturally disciplined. And as I mentioned, that discipline creates opportunities for us to find better ways to do things for all of our stakeholders. And that mindset is something that we carry forward from one year to the next, and we'll carry that on into 24, on into 25, and so forth. And we think it's an essential ingredient for health system success.
Speaker Change: That out into 'twenty four on into 'twenty, five and so forth and we think it's an essential ingredient for a health system success, and I'm pretty proud of our teams and how they embraced that and how they execute on the initiatives to make that happen.
Unknown Executive: And I'm pretty proud of our teams and how they embrace that and how they execute on the initiatives to make that happen. And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin, please go ahead.
Speaker Change: Yeah.
Thanks Whit.
Speaker Change: And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin. Please go ahead.
Unknown Executive: Great, thanks. And I'll just add my thanks to Bill for your help over the years. I guess I wanted to know, get a little more color from you guys about the volume. We're going to talk about 2 to 3 of the contributing factors for faster growth in 2024. So just wanted to better understand, you know, where that extra growth is coming from. So any color on the service lines or procedures that you think still have room to grow above average? And if there's anything that you expect from a payer mix perspective in 24, is there one type of payer where you think there's a big opportunity for volumes to snap back? Yeah, Kevin, let me start and then Sam can add in.
Kevin Mark Fischbeck: Great. Thanks, and I'll just add my thanks to Bill for your help over the years.
Kevin Mark Fischbeck: I guess I wanted to know I get a little more color from you guys about the volume expectation for 2024, because you guys normally talk about two to three of them contributing for faster growth in 'twenty four so just wanted to better understand.
Where that that extra growth is coming from so any color on the service lines, which procedures that you think you'll have room to grow above average and if theres anything that you would expect from a payor mix perspective in 'twenty forward is there one type of payer where do you think there is a big opportunity for volumes to snap back.
Kevin Mark Fischbeck: Yes.
Yes, Kevin Let me start and then Sam can add in so.
William B. Rutherford: So, you know, we're going off the experience we've seen throughout 23. And as we said earlier in the comments, we think 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%.
Kevin Mark Fischbeck: We're going to have our experience we've seen throughout 'twenty three and as we said earlier in the comments, we thought that was very strong demand for services in our markets. We think our capital programs and our program initiatives are paying off our our adjusted admissions. This year were four 8% Youre right. Our guidance next year causes for three to four.
William B. Rutherford: You're right; our guidance next year calls for a three to four expectation on adjusted emissions that may be a little higher than our two to three historical average, 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 employment, and our access to contracted lives remains well. So I think all of those factors go into play with our expectations for 24 and are based on kind of our current experience. You and our next question come from the line of Stephen Baxter. Stephen, please go ahead.
Kevin Mark Fischbeck: On adjusted admissions that may be a little higher than our two to three historical but I think we're reading continued strong demand.
Kevin Mark Fischbeck: We saw really strong enrollment in the health insurance exchanges across our states.
Kevin Mark Fischbeck: 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 contracted lives remaining well. So I think all of those factors go into play with our expectations for 2004.
Kevin Mark Fischbeck: It was based on kind of our current experience.
Kevin Mark Fischbeck: Great.
Kevin Mark Fischbeck: Thank you and our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen. Please go ahead.
Unknown Executive: Yeah, hi, thanks, and congrats to Bill as well. Was hoping you could talk a little bit about surgical growth in the quarter, whether there are any notable puts or takes there by service line or inpatient versus outpatient. And then I guess the overall growth slowed down a little bit as we got to the back half of the year. So, how are you thinking about surgical growth in 2024 and especially coming up against maybe some of the tougher comparisons that you'll have in the first half of the year? Thank you.
Stephen Baxter: Yeah, Hi, Thanks, and congrats to bill as well I was hoping you could talk a little bit about the surgical growth in the quarter, whether there's any notable puts or takes there by service line or inpatient versus outpatient and then I guess, the overall growth slowed down a little bit as we got to the back half of the year I guess, how are you thinking about surgical growth in 2024.
Stephen Baxter: We're coming up against maybe some of the tougher comparisons that you will have in the first half of the year. Thank you.
Unknown Executive: So, you know, 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 number of surgical days in total. The way they were allocated created some challenges in our outpatient settings, and we saw, you know, 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. You know, for the year, we had really solid volume growth in surgery. And we continue to invest heavily in our programs, both on the outpatient side and to support our inpatient activity with more acute and complex program offerings.
Stephen Baxter: Okay.
Stephen Baxter: 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 at our outpatient settings that we saw outpatient activity not as strong as in the previous.
Stephen Baxter: Two months of the quarter, but at a structural level theres nothing.
Stephen Baxter: To suggest that our surgical volume trends are going to change.
Stephen Baxter: For the year, we had really solid volume growth in surgery, and we continue to invest heavily in our programs both on the outpatient side and supporting our inpatient activity with more.
Stephen Baxter: And complex program offerings and for the year, our inpatient surgeries were up two and our outpatient surgeries were up two and a half so a slight migration if you will into the outpatient setting and we think that will be.
Unknown Executive: And for the year, our inpatient surgeries were up two, and our outpatient surgeries were up two and a half. So, a slight migration, if you will, into the outpatient setting. And we think that will be, you know, 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.
Stephen Baxter: 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.
Stephen Baxter: 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 person.
Unknown Executive: So, that's how we're judging the surgical space. If you look at cardiac under that, our cardiac volumes continue to grow very robustly 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. Excellent. Our next caller, or excuse me, our next question comes from the line of Jason Cassorla with Citigroup. Jason, please go ahead.
Stephen Baxter: Suits. So that's how we're judging the surgical space if you look at cardiac underneath that.
Stephen Baxter: 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.
Stephen Baxter: In responding again to our patient needs and physician needs in ways that we believe are productive for our organization.
Stephen Baxter: Excellent our next caller our excuse me. Our next question comes from the line of Jason Cazorla with Citigroup. Jason. Please go ahead.
Unknown Executive: Yeah, great. Thanks for taking my question and best of luck in your retirement. I just wanted to follow up on the professional fee environment. You noted there was some deceleration in professional fee spending growth, if I heard that correctly, but maybe what is your expectation for position costs or professional fee growth embedded within 24 guidance? And then on Velasco, it sounds like in your comments bill that Velasco would generate $150 million of negative equity even the next year versus the $200 million or so headwind for 2023. I just wonder, is that a fair way to look at it? Or, you know, any other color that would. Yeah, let me add it in, and thanks for that.
Jason Cazorla: Yeah, 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 spend growth if I heard that correctly, but maybe what is your expectation for physician costs professional fees growth embedded within 24 guidance and then on velazco It sounds like.
And your comments bill that velocity will generate $150 million of negative EBIT next year versus the 200 million or so headwind for 'twenty three is that a fair way to look at it or any other color that'd be great. Thanks, Yes, let me add and thanks for that I think the less goes a little lower we're about $150 million in both years.
William B. Rutherford: I think Valesco is a little lower. We're about 150 million in both years. But obviously, in 23, we added nine months versus full month, 12 months next year. So we see a kind of run rate improvement as we go through the quarters during the year. On pro fees, we, as we said, have seen, you know, a decline in the sequential rate of growth. We have multiple initiatives.
Speaker Change: But obviously in 2003, we added nine months versus full month 12 months next year. So we see a kind of a run rate improvement as we go through the quarters during the year.
Speaker Change: On pro fees, we as we have seen a decline in the sequential rate of growth we have multiple initiatives underway embedded in our guidance next years holding that professional fee growth, perhaps to 8% to 10% versus this year, where it's been closer to 15% to 20%. So we are looking for a step change in work.
Confidence in our initiatives.
Speaker Change: The activities, we have to be able to begin to been that two months.
Speaker Change: Great. Thanks, Jason.
Speaker Change: Our next question comes from Scott Fidel with Stephens Scott. Please go ahead.
Scott J. Fidel: Alright, Thanks, and I'll Echo my congrats to bill.
Scott J. Fidel: And then my question is would be curious in terms of how youre thinking about the whole broader debate on just the pent up demand recovery.
Scott J. Fidel: Seniors population.
Scott J. Fidel: And based on all your data and analysis.
Scott J. Fidel: There you think.
Scott J. Fidel: The Medicare utilization.
Scott J. Fidel: Utilization trends are now at this point relative to.
Scott J. Fidel: Sort of pre pandemic levels in returning to the baseline certainly felt like there was some quite a bit about recovery played out in 'twenty three but interested in sort of what inning. You think we may be in that process at this point. Thanks.
Scott J. Fidel: This is Sam you know what'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 or Medicare admissions grew two 6% you throw out 'twenty 'twenty and 2021 grew too.
Scott J. Fidel: 1% 2022 grew three 4% in 2023 grew 4% so.
Scott J. Fidel: Is there an acceleration on our trend, yes, obviously, theres aging baby boomers and the mix there number one number two we think we're picking up 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.
Scott J. Fidel: Adjusted admissions on the same combination payer class again.
Scott J. Fidel: Three 7% in 2019 <unk> three at 20 147 in 'twenty, two and $5 7 million to 23, so slight acceleration, but a function we believe.
Scott J. Fidel: Aging baby boomers and number of beneficiaries moving into program <unk>.
Scott J. Fidel: Population growth for us and market share gains so it's hard for us to judge underneath that whether or not there is some structural change in utilization.
Scott J. Fidel: That's almost impossible for us to discern with the data that we have.
Scott J. Fidel: Great. Thank you Scott and our next question comes from the line of Sarah James with Cantor Fitzgerald, Sir. Please go ahead.
Sarah E. James: Congratulations on your retirement Bill.
You guys said that the impact of the two midnight rule ramps through the year.
Sarah E. James: As opposed to flipping a switch.
Sarah E. James: The mechanics of that state's implementation is it retraining, our staff or is it assuming some delay and benefit from.
Claims denials and getting the payers on board and then when would it be fully ramped are you talking mid year exiting 2024 and is there anything that HCA continues to pull that forward.
Sarah E. James: Well I mean the rule.
Sarah E. James: It goes in effect January so I think the impacts may ramp over time, it's a notable change for the payers. So were working them very closely on the administration of those plans and making sure it's operating.
Sarah E. James: As prescribed on there and if it does we should see it.
Sarah E. James: Equally throughout the year and so we're working closely on it but it's a pretty big change for the payers and so there might be some administrative.
Sarah E. James: Differences as it gets implemented through the year, but we hope very quickly we'll be able to work our way through that and begin to see some benefit as we go through 2024.
Sarah E. James: Thanks, Sarah and our next question comes from Lance Wilkes with Bernstein Lance. Please go ahead.
Lance Arthur Wilkes: Great and congratulations.
Lance Arthur Wilkes: Bill and Mike.
Lance Arthur Wilkes: Just a little bit about labor supply that youre seeing.
Lance Arthur Wilkes: First.
Lance Arthur Wilkes: In the past couple of quarters ago, I talked about like demand that had been turned away at the hospitals. If you note. If there's still any of that and then who is.
Kind of hiring pipelines and are there particular areas.
Lance Arthur Wilkes: That or more clinical or areas that might be bottlenecks.
Lance Arthur Wilkes: Okay.
Lance Arthur Wilkes: This is Sam again, thank you for the <unk>.
Samuel N. Hazen: Question, we we.
Samuel N. Hazen: We finished the year roughly I don't have the exact average here at 90% acceptance rate in other words, we werent able to take.
Samuel N. Hazen: Roughly 10% of the patients who were referred to us through our transfer centers.
Samuel N. Hazen: Such.
Samuel N. Hazen: That improved throughout the year.
Samuel N. Hazen: We went from maybe the mid to high ease 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.
Samuel N. Hazen: 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.
Samuel N. Hazen: 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 2004, as we have capital coming online as our hiring patterns continue to improve our turnover as I mentioned in my commentary.
Samuel N. Hazen: As also improved we've been very intentional in trying to create.
Samuel N. Hazen: A great environment for our people with good leadership.
Resource capabilities and just overall training to support the effort so that they can be successful in what they do and we think that will help us push through 'twenty, four and hopefully have more capacity available and be able to receive the patients that want to get into our system.
Samuel N. Hazen: Great. Thanks, Lance and our next question comes from the line of Josh Raskin with Nephron Research Josh. Please go ahead.
Joshua Raskin: Hi, Thanks, and good morning all.
Joshua Raskin: Bill and congratulate him on the retirement and congrats to Mike as well.
Joshua Raskin: I can't speak to the increase in Capex guidance again. This has been a multiyear trend for you guys and maybe how returns on Capex a trend and I'm just curious if there's a if theres more mix to outpatient does 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.
Sort of continue to go down the list.
Joshua Raskin: Josh This is bill I'll start on the returns our returns remained very solid and we were in the upper teens returns.
William B. Rutherford: We have a very disciplined process, where we evaluate these projects and we actually do look backs to validate some of our assumptions.
William B. Rutherford: And to me the growth in the capital spending is a reflection of the growth of the opportunities we see to deploy capital to continue that growth. So we're very pleased with the returns on those and I think as Sam mentioned earlier in the Q&A the mix between inpatient and outpatient.
William B. Rutherford: Varies from time to time, but mostly similar we do have some.
William B. Rutherford: Newer outpatient facilities coming on they generally have very good returns and quick returns when they do come online. So I think the capital program.
We're pleased with it's an important component to our growth formula as we've talked about and we're pleased with the overall returns in the area.
Speaker Change: Yes, and the only thing I would say bill.
Alluded to this our outpatient platform tends to be short cycle returns, we get a real.
Speaker Change: Efficient sort of capital allocation with outpatient facilities.
Speaker Change: And then on the hospital side, we are 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 are critically important to the overall value that our outpatient facilities can generate for our system in the sense that we're able to.
Speaker Change: Navigate the patient.
Speaker Change: Further into the health care system, if they need more.
Speaker Change: More acute care offerings. So we have to look at it.
Speaker Change: 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%.
Speaker Change: 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 Investor Day.
Speaker Change: Is working and is complemented by the outpatient facilities integrated.
Speaker Change: With the hospital system in a manner that produces really positive enterprise returns for for our company.
Speaker Change: Great. Thanks, Josh and our final question comes from the line of Cal Sterne <unk> with J P. Morgan. Please go ahead.
Cal Sterne: Yes, Thanks for squeezing me in and I'll add my congratulations to bill as well.
Cal Sterne: Two follow ups first on the Redetermination it sounds like Thats, a slight benefit to the 2020 for guy, but not really material yet.
Speaker Change: I need to clarify.
Cal Sterne: Develop better than you're anticipating is that something you think could be material to 2024 or is the upside more annualized in 2025 after the redetermination or completed.
Cal Sterne: And then my other question was on the quarter itself. So one of the payers called out higher Tobin inpatient cost per case can you talk about the code coded acuity levels that you saw in the quarter and whether that developed consistently with what you've seen in the past.
Cal Sterne: Yes. This is bill let me start with the Medicaid Redetermination I think Youre characteristic is right. We do see some modest benefit in 2024, I have adjusted to be material, yet, but a range of guidance allows for some outcomes on there we started to see some of the effects of those determinations late in 2020.
Cal Sterne: Three we're tracking those very closely we're seeing roughly 30% to 35% of those individuals that were potential lost Medicaid seem to show up with either Hicks our employer sponsored coverage. So that there is some benefit in that we're seeing a decently large number being able to be real.
<unk> in the Medicaid because some were re determined off for technical reasons. So we've been able to manage through that and I think with the conversion into either Hicks or employer sponsored there is some modest benefit.
Cal Sterne: We go through the year and potentially that will continue as we go through 2024, but don't judge it yet to be material at this stage.
Cal Sterne: Regarding co but to be honest, we haven't scope has really been stable for us over the past year.
Cal Sterne: In total our Cobra emissions or roughly 2% of our total emissions I don't really have any data acuity, but I think it's very very stable hasnt really been a material factor in our overall operating results of late.
Cal Sterne: Okay.
Cal Sterne: Yes.
Cal Sterne: Yes.
Cal Sterne: Okay.
Cal Sterne: 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.
Great. Thank you for your help today and thanks to everyone for joining us on the call.
Frank Morgan: Week, and we'll be around this afternoon in the balance of the week. If we can answer any additional questions you might have have a good day.
Speaker Change: And ladies and gentlemen that does conclude today's call. Thank you all for joining and you may now disconnect.
Speaker Change: Yeah.
Okay.
Speaker Change: Today's call. Thank you all for joining and you may now.