Q2 2025 HCA Healthcare Inc Earnings Call
Ladies and gentlemen, welcome to HCA Healthcare. Second quarter 2025 earnings conference call.
Today's call is being recorded.
Speaker Change: At this time for opening remarks, introductions, I would like to turn the call over to vice president of investor relations Mr. Frank Morgan. Please go ahead sir.
Speaker Change: Good morning and welcome to everyone. On today is call with the with me this morning, is our CEO, Sam Hazen and our CFO, Mike marks Sam and Mike will provide some prepared remarks and then we'll take questions.
Sam Hazen: Press release and in our various SEC filings on, this morning's call, we may reference measures such as adjusted Eva, which is a non-gaap financial measure a table, providing supplemental information on adjusted, Evita and reconciling that income attributable to HCA. Healthcare Inc is included in today's release, this morning's call is being reported and a replay of the call will be available later today with that. I'll now turn the call over to Sam. All right. Thank you. Frank and good morning to everybody and thank you for joining the call.
Sam Hazen: The companies financial results for the second quarter were strong with a 24% increase in diluted earnings per share.
Sam Hazen: As adjusted to 6.84.
Sam Hazen: The results, reflected solid Revenue growth of 6.4%, which was driven by greater demand for our services. Improved payer, mix and consistent patient, Acuity levels.
In the quarter, we also experienced a stable operating environment which allowed us to produce better margins because of the team's great start to the year. We increased our guidance for 2025 as reflected in our earnings release this morning.
Sam Hazen: This updated Outlook also reflects the positive demand environment, we expect in our markets, the effectiveness of our strategic initiatives and the momentum we see in our business.
Sam Hazen: During the quarter, we also improved quality outcomes.
Throughput measures in our emergency rooms and patient satisfaction.
Sam Hazen: We believe the HDA way of combining our high quality, local health networks with the capabilities of a national system will continue to reinforce our competitive position.
Sam Hazen: Help us respond effectively to evolving market dynamics and meet the needs of our patients.
Sam Hazen: As a team, we remain Relentless in our Pursuits to innovate using technology.
Find new ways to increase efficiencies and hold ourselves accountable for delivering the results for our stakeholders.
Sam Hazen: I want to thank our colleagues again for their outstanding work and their ongoing Pursuits to deliver on our mission.
Sam Hazen: Now, let me transition to the federal policy environment and the recent passage of the 1. Big beautiful bill act with respect to the Medicaid component. In this act, we believe the adverse impacts over the next few years are manageable
Sam Hazen: This belief is based on the grandfathering, provisions for supplemental programs, which include a number of previously submitted applications for State directed payments.
Sam Hazen: And the timelines for phasing in work requirements and supplemental payment program changes.
Sam Hazen: I will also note that the bifurcation of the policy between expansion and non-expansion States lessons, the expected impact to HCA, Healthcare
Sam Hazen: Approximately 60% of our Medicaid volumes and revenue are in non-expansion states. With respect to the exchange Provisions in the ACT. We do anticipate that some people will lose insurance coverage over the next few years.
Sam Hazen: But we believe our financial resiliency program should offset these effects.
Sam Hazen: We are also mindful of the scheduled expiration of the enhanced premium tax credits. At the end of this year, we continue to Advocate strongly for their extension, but at this point, we do not know what the outcome will be.
Sam Hazen: Recent polling indicates that many Americans. Want them extended many believe they need them for their families and many say, their voting patterns could hinge on their ultimate faith.
Sam Hazen: We are working to develop and execute resiliency programs to offset as much as possible. Any adverse impact should they expire?
Sam Hazen: Let me close with this, regardless of the outcome, with these Federal policies, we are optimistic about the future of HCA. Healthcare our balance sheet is strong. We have an experienced capable and disciplined team and we're appropriate. We will adjust as we can, as we can and continue delivering on our mission with that. I'll turn the call to Mike for more details. Thank you, Sam. And good morning everyone. We are pleased with our second quarter earnings
Mike Marks: Equivalent admissions increased 1.7% for the quarter and 2.3% for the year.
Mike Marks: Medicare crew 3%, which is slightly below our expectation.
Mike Marks: Medicaid was down slightly and self-pay was up. Slightly
Mike Marks: both were below our expectations, and represent our lowest reimbursing payers
However, given the payer mixing Acuity of our patients.
Mike Marks: We had Revenue growth of 6.4%, slightly above top end of our long-term 4 to 6%, guidance.
Mike Marks: Adjusted EBA margin improved, 30 basis, points compared to the prior year Court.
Mike Marks: Salary and benefits along with other operating expenses. Both improved as a percentage of Revenue when compared to the prior year.
Mike Marks: Same facility, contract, labor and proved 1% from the prior year quarter and represented 4.3% of total labor costs in the second quarter of 2025.
Versus 4.6% in second quarter of 2024.
Mike Marks: Supply expense increased slightly as a percentage of Revenue due primarily to increase spending on cardiac related devices.
Mike Marks: Adjusted EBA and the second quarter group, 8.4% over the prior year quarter. And we were pleased that a substantial portion came from core operations.
Mike Marks: Regarding Medicaid, supplemental, payment, programs. As we've said in the past, these programs are complex variable and timing and do not fully cover our costs to treatment patients.
Mike Marks: Considering Medicaid, State, supplemental payments and related provider taxes in isolation.
Mike Marks: We saw an approximate $100 million increase in net benefits in the second quarter of 2025 compared to the prior year quarter.
Mike Marks: Due to Prior period, reconciliation payments, and programs, approval time.
Mike Marks: The new Tennessee directed payment program was approved in late June.
as this is a newly approved program, we did not accrue any benefits from this program in second quarter of 2025 and we will record as we receive caps
Mike Marks: Moving to Capital allocation, we continue to deploy a balanced strategy of allocating capital for long-term value creation.
Mike Marks: Cash flow from operations was 4.2 billion and a quarter.
Mike Marks: Capital allocation in the second quarter of 2025 was 1.2 billion in capital expenditures 2.5 billion, in share, repurchases, and 171 million in dividends.
We were able to defer approximately 850 million in tax payments, to the fourth quarter, due to the IRS, providing relief to Tennessee, taxpayers and aftermath of severe weather in early April.
Our debt to adjusted evida leverage remains in the lower, half of our state and guidance range. And we believe our balance sheet is strong and well positioned for the future.
Sam Hazen: Sam discussed the health policy implications of the 1, big beautiful, bill act.
Mike Marks: I will provide a few more details.
Mike Marks: As it relates to tax policy, this act was positive for HCA, making 100% bonus depreciation, permanent and effective, back to inauguration day which is helpful, given our capital investment program.
Mike Marks: The ACT did not include policies that would have materially increased our tax liability.
Mike Marks: We continue our work to develop and execute resiliency plans to offset as much of any adverse impact as possible.
Mike Marks: From the ACT.
Mike Marks: The potential expiration of the epcs.
Mike Marks: And other administrative actions such as tariffs.
Mike Marks: We will provide more information on our resiliency efforts during our fourth quarter of 2025 earnings call. When we issue our 2026 guidance,
so with that, let me speak to our 2025 guidance as noted in our release this morning, we are updating the full year 2025 guidance as follows
Mike Marks: We expect revenues to range between 74 and 76 billion. We expect net income attributable, to AC Healthcare to range between 6.11 billion and 6.48 billion.
Mike Marks: We expected just at IBA to range between 14.7 billion and 15.3 billion.
We expect the looted earnings per share to range between 2550 and 27 dollars.
Mike Marks: We expect Capital spending to be approximately 5 billion.
We are updating our guidance to project growth and equivalent admissions to be between 2 and 3% for the full year 2025
With the approval of the Tennessee program and with updated information from across our programs. We now anticipate our supplemental payments full year, net benefit to be between flat and 100 million dollars. Favorable year-over-year,
Mike Marks: Action does not include any potential impact in 2025 for the grandfathering of applications under the ACT.
We Believe 1 of the underlying strengths of HCA is our Diversified portfolio of marbles.
The recovery in our facilities impacted by Hurricane Selen and Milton. And third and fourth quarter of 2024 is going better than anticipated.
Mike Marks: However, we have a couple of markets below our expectations that are offsetting some of the better performance in the hurricane affected markets.
Mike Marks: We understand the challenges in these markets and have confidence in the plans in place to address that.
Ultimately the increase in our earnings guidance is equally weighted between the updated net benefit from the state supplemental payment programs.
Mike Marks: And the improvement in our overall, portfolio operational performance, including the hurricane impacted markets.
Frank Morgan: With that, I will turn the call over to Frank for questions.
Frank Morgan: Thank you, Mike. As a reminder, please limit yourself to 1 question so we might give as many as possible in the queue, an opportunity to ask a question. Abby, you may now give instructions to those who would like to ask a question,
Speaker Change: Thank you. If you have dialed in and would like to ask a question. Please press star 1 on your telephone keypad to raise your hand and join the queue.
Frank Morgan: If you would like to withdraw your question, simply press star 1 a second time.
Frank Morgan: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Again, it is star 1. If you'd like to join the queue
And our first question comes from the line of AJ rice with UBS. Your line is open.
Speaker Change: Maybe just asking around the guidance update. So uh, you raised your ibida uh, guidance adjusted Eva down by about 300 million. At the midpoint, I think that's roughly the amount of outperformance. Um,
Speaker Change: That you saw, um, in the scene so far year to date in the first half, just a couple, uh, questions around that. Uh, obviously you now have the Tennessee dpv program. Uh, is that, should we think of that as reflected in this updated Outlook? Um, and then second, I know you're making a modest tweak on the admissions number, um, uh, down, uh, you're not alone in that. You're some of your peers have already reported have done that. Any commentary on what you're seeing in terms of underlying demand, uh, uh, on the volume front.
AJ, good morning. Let's talk about guidance first. So if I think about the million dollar increase in guidance, uh, at midpoint, as I noted in my comments, about half of that is from State supplemental, payment programs, uh, and that does reflect
Speaker Change: The approval of the new Tennessee program. Uh we expect to receive uh start to receiving cash in that here in the back half of the year and and probably a material chunk of that in the third quarter likely.
Speaker Change: Uh, it also reflects in just better visibility as we always have here at midyear about the rest of our programs. So that's about half of the the, the increase.
Speaker Change: You know, if I think about the other half of our guidance, increase, it really relates to our portfolio. And again, as I mentioned in my opening statement, you know, about 150 million of of that increase is related to the portfolio. And I would size that for you as follows.
Speaker Change: It's about a hundred million dollar better uh in our hurricane related markets. And you know, you will recall that we originally guided that to be flat to Prior year. So that's that's a hundred million dollars of it.
We have a couple of markets that are underperforming roughly in the 50 billion dollar range of impact. So those 2 markets are offsetting some of the hurricane Market improvements.
Speaker Change: And then really the the rest of our portfolio is performing better than anticipated. So the net combined effect of of our combined portfolio, including the hurricane markets, really results, uh, in the other half.
Speaker Change: I might mention though just so that um you guys can think through this. Uh as you prepare your your comments but um I think third quarter uh the guidance the the earnings growth will be a little bit lower.
Speaker Change: And fourth quarter is likely going to be a little bit higher uh in terms of growth rate compared to that that midpoint of the guidance and that that's largely related to both the timing of supplemental payment program payments and you know, specifically to 4 quarter. You may recall that we received 1-time payments, uh, fourth quarter of last year that do not repeat.
Speaker Change: Largely going to be in fourth quarter if not entirely, so a couple of notes on that.
So on volume uh let me start and then Sam, please feel free to jump in. I know you will um
The the when I think about our volume uh year to date through June of 2.3 equivalent growth. And I and I compare that to our original 3, to 4%, guidance coming into the year. There are a couple of moving parts that that I would mention.
Speaker Change: The first is that Medicaid, uh, you know, for, for June year to date, Medicaid's down 1.2%, to Prior year, and we originally, uh, believed in built into our Guidance, the notion that Medicaid would flatten out this year, if not even show a bit of growth coming off of the Medicaid rate, determination program.
Speaker Change: And then our self-paid charity volumes are only up 1.5% uh June year to date. Um, and and we had believed originally that they would at least grow at the overall rate of volume growth and, you know, just for context. Our self-pay volumes are up on the 7% and 24 over 23. So, the combined, uh, of Medicaid and self-pay being below. Our expectations, explain about half of the difference of our current year to date, uh, volume growth versus our 3 to 4%, original guidance, and really the other half is Medicare. Um, we originally expected Medicare to grow
Sam Hazen: A bit faster than it is. Although I would note that a 3% growth in Medicare year to date through June is still a period of 5. So those are the 2 main categories of our volume, uh, that are trailing our original expectation of 3 to 4 and Sam. I don't know if that's another just to add a couple of comments here. Uh, Mike because I think context is always important. You know, you look at the headlines on volumetrics is Mike just suggested. Um, there's there's 1 metric where everybody looks at and we get it. But when you start reading through the full story and not just focus on the headlines, you start to see the productive aspects and the qualitative value of the underlying business. For example, we had 14 out of 15 divisions That Grew their admissions, 14 out of 15, domestic divisions, grew their adjusted admissions,
Speaker Change: so,
Speaker Change: Percent.
Speaker Change: Datal volumes up 13%.
Speaker Change: So the details uh in many respects, reflect the power uh of a diversified portfolio of markets and services.
Speaker Change: I think another point for us and this is how we look at it. We've had 16 consecutive quarters.
Speaker Change: Of volume growth.
Speaker Change: And so, that consistency tells us that the network model that we're investing in very heavily, and we're focused around execution on it, allows us to compete effectively, it's allowed us to sustain market, share gains, and we think it adds value for our patients. It adds value for our physicians and we think it adds value for our shareholders. So yeah. The number is 1.7%, but when you look underneath it, the productive and qualitative aspects of it are more impactful uh, than maybe first understood.
Okay, thanks a lot.
Speaker Change: And our next question comes from the line of Anaheim with mizuho. Your line is open.
Hi, good morning, thank you. Can you just provide more details on your resiliency programs? Um, I think the street really at this point, don't doesn't believe that the subsidies will be extended. How much of a headwind? Do you think you can offset in 2026?
Speaker Change: Is any of this benefit embedded in your 2025 guidance, or will it all be incremented to 2026?
Speaker Change: Um, and any other incremental details about what type of cost savings you'll be doing. That'd be great. Thank you.
Speaker Change: So let me, uh, let me kind of summarize our thinking about uh the the 1, big beautiful, bill act, the epcs and, and how, we're thinking about a resiliency program. And then, and as I mentioned in my comments, we will, uh, comment further and provide more details related to this and, and our fourth quarter, 25 Earnest call. When we give guidance for 2026,
Speaker Change: First, let me start with the act itself.
Speaker Change: you know, I do believe that in the near term
Speaker Change: that our finance resiliency program should offset the change Provisions in the app.
Speaker Change: In the longer term. Is it relates to the ACT specifically?
Speaker Change: And state directed payment, reimbursement reforms.
Along with the potential for the approval of the submitted supplemental payment applications. We Believe HCA will be able to generally manage these in tax with our resiliency efforts.
Speaker Change: Without material impact to our long-term guidance.
Speaker Change: Specific to epcs. Uh, at this point we do not know what the outcome will be.
Speaker Change: As noted, we are working to develop our resiliency programs to offset as much as possible. Any adverse impact should they expire?
And again, the potential approval of the grandfathered applications with certainly health.
Speaker Change: Uh, we will comment further as noted, uh, when we do our 2026 guidance, suffice it to say, our our resiliency efforts as we continue to work through them. Uh, and we've been working on them as you as we've talked about over the last year. Uh in a very diligent way, address, both a benchmarking, our corporate uh departments and shared service organizations that gets best practices and finding operational Improvement opportunities.
We are deep in the middle of our field-based, resiliency efforts, many of which we commented on before. Uh, from a link to stay and Improvement opportunities with our case management operations,
Speaker Change: True. Uh, significant opportunities around both our Automation and our digital transformation agendas.
And our labor and Supply related. Resiliency plans are also very, uh, developed and mature.
Speaker Change: uh, we will give more updates on that and when we get to the fourth quarter call, but but hopefully that helps
Speaker Change: Thanks.
Our next question comes from the line of Ben Hendricks with RBC Capital markets. Your line is open.
Speaker Change: Great, thank you very much. Um, uh, appreciate all the color about, you know, Trends in the various pair classes. I was wondering if you could comment a little bit on, uh, commercial volume, you're seeing, or 1 of your peers, talked about waning consumer confidence, uh, driving some weakness in their book, um, but wanted to see what you're seeing and kind of that weighed against any expectation, for a pickup in activity. You know, assuming people are are trying to get procedures done for the end of the year and anticipation of losing uh the enhanced uh premium subsidies. Uh, any thoughts there on on what we can expect through for Q and Commercial. Thanks.
Speaker Change: So I'll give you uh then June year to date. Our men's care and Hicks. Equivalent missions are up 4% over prior year.
Speaker Change: Uh, if you think about how that compares to our expectations coming into the year, it's, it's right there. I mean that that's about what we expected, uh, for as part of our original 3, to 4% guide, I would say that Healthcare exchanges uh, which are up 15.8%, uh, through Junior. Today are a little better than our original expectation. And our commercial, uh, Managed Care book, you know, excluding, uh, the exchanges, which is up just short of a point, uh, to Prior year maybe a little below our original guidance. But uh,
Speaker Change: That that's how we read it. We're pleased with the payer mixed through second quarter Sam. I don't know if you have any comments about consumer know, I don't think we can make any, um, comments. You add about consumer confidence, I think again. Uh, the demand for, uh, Health Care largely, uh, over time, um, appears to have been inelastic. I don't know that. Anything is necessarily changing that. And so, uh, it's, uh, it, it's difficult for us to point to, uh, consumer confidence at least across our portfolio as a driver of activity. Uh, again, we had good commercial growth in a lot of categories. Uh, we, we had declines in areas as Mike mentioned that were government for no pay payer sponsored business. Um, we saw a declines in Pediatrics. We, we can point to a respiratory
Speaker Change: Environment last year that we didn't have this year. That influencer overall, statistic Behavioral Health admissions were down in our company.
Speaker Change: Some of that was because We Shrunk Supply in certain facilities. Uh, again, that doesn't have as good. A payer mix as the rest of our business. Uh, so I think from that standpoint, uh, we're still pretty, uh, you know, confident as we mentioned in the demand, uh, uh, for health care across our markets, and we don't see that being disrupted too much in the, uh, in the short run here. You know, being the only thing I might mention is that this is a pretty tough prior year cost to proper year. And I think everyone realizes that
Last year. You know we we we still have a bit of a deeper impact that's about 50 basis points. Um,
A volume impact. Uh, Medicaid redetermination last year were fueling, you know, big exchange growth last year. You may recall that our exchange, you know, volume growth. Uh, last year was robust over 40%. Kind of an interesting statistic from first quarter to second quarter of 24, our exchange, uh, equivalent emissions increased, uh, 14%
This year from first quarter to second quarter of 25, they're up about 3%. So we still saw growth, uh, sequentially from first quarter to second quarter, but I think prior year just had robust exchange, you know, volume growth, and then just the other thing just to keep in mind when you're thinking about the prior year comp is that the Medicare Advantage to bid. Not rule, did impact admissions in 24 and that has Sunset into 25. So I think the prior year comparison is also a bit of a story here.
Speaker Change: Great. Thank you. Thank you.
Speaker Change: And our next question comes from the line of Brian tank with Jeffrey's. Your line is open.
Speaker Change: Hey, good morning guys. Hey Sam just to follow up with some of these discussions on, I appreciate your comments on the growth rates that you saw with a different regions. But how are we thinking about market share that? You're seeing in the local market? Maybe also in the context of you know, the payers are talking about high utilization rates and um you know that translating to the
Speaker Change: Volume Transit, you're reporting. So just curious, if you're seeing any Dynamics at the local level, you can share with us. Thank you. Yeah, Brian. Thank you. Uh, as I mentioned, you know, we've had sustained market, share, gains and we think we've continued to, um,
Sam Hazen: accomplish that, uh, with the most recent data that we've seen in our market share. Um, if you really sort of, you know, exclude, the behavioral health, uh, given that we put some pressure ourselves. We're we're, we're we're above 28%. And we're, you know, we're we're showing some signs of broad-based market share growth across service lines as well as cross many of our markets. Uh, we do have a few markets as we always do. We have 43 us markets that we focus our our share on and some are doing better than others. But, you know, we're, we're fairly agile in responding to those Dynamics. Um, I mean, there's there's, um, a lot of Investments that we're making in our business. We still have about 5 and a half billion dollars worth of capital that it's in Flight that will add to our Networks.
both with outpatient facilities as well as inpatient capacity where appropriate
Sam Hazen: We think that will continue to produce. Uh, the necessary overall capacity to meet the demands as well as the share gains that we uh, anticipate with our initiatives. So uh, we continue to find ways to, uh, improve what we call the Integrity of our Network and keep patients, uh, inside the system where appropriate for them. And uh, that's an area of focus for us also. Uh, so I'm pretty pleased with how our teams are executing on uh, the ground. So to speak to deliver value for our patients, grow their business and so forth. We recently created, uh, finished our mid-year reviews with all of our divisions. And you know, we're optimistic that their assessments of the markets are continually favorable and, uh, we'll uh, you know, allow us to achieve our objectives as we push forward.
and our next question comes from the line of pedo Chickering with Deutsche Bank, your line is open
Yeah, good morning guys. And thanks for taking my questions. Uh 1 quick clarification and then a real question. Uh clarification on supplemental payments. I believe you raised the annual guidance by about 170 million at the midpoint
Sam Hazen: I believe 1 the first quarter is 80 million ahead. Second quarter was 100 million ahead so just confirming that you were not changing supplemental payment Guidance, the back half of the year. Uh, and then the real question is, do you have any color of how? Many of your Hicks patients have access to employer sponsored health care, but I've chosen Hicks to do the lower cost. I'm just struggling as a look at the millions of jobs created in your States. Uh, and yet the employer sponsored growth is tracking below job growth. Thanks.
Thanks Peter, let me start guidance. Um, as we as I noted in my comments.
Sam Hazen: um,
Sam Hazen: About half of our.
Sam Hazen: Increase guidance and midpoint is coming from states of long time. So 150 million increase of our guidance has come in from State, supplemental payments.
Sam Hazen: Year. Um, I would think about it. It is is is this way as you think about kind of the first second half of the Year versus the first half of the year. Um in terms of the the the first half of the year we've had 180 million dollars of supplemental payment, net benefit to year-over-year earnings in the first half. And the second half of the year, we anticipate 130 million decline in net benefits compared to the second half of 2024 and really entirely in the fourth quarter.
Sam Hazen: And so you know, just just as you think about uh the and 5 guidance rate uh in our in our revised Guidance, the second half after considering the the hurricane Market Improvement in fourth quarter and the state supplemental payment.
Uh, decline in the back half of the year. We think that the the second half of the year is growth, rate is roughly comparable to the first half after considering those factors. Um,
Sam Hazen: we do not at this point uh have a good enough insights relative to what percentage of the people who potentially uh would leave the exchanges if
The ETC is expired. That would go back to employee, sponsored Insurance. Other than to say that we believe that there would be a component of those people.
Sam Hazen: Who lose uh, etc's would go back uh to employed sponsored insurance. And as you noted, uh, in in our key statements, especially our non-expansion states uh, given the job growth that we've seen over the last several years, uh, in places like, you know, Florida and Texas. Uh, we believe that would be a component.
Sam Hazen: A little early to probably get insight yet until we know what happens with eptc.
Speaker Change: And our next question comes from the line of which Mayo with Ling Partners. Your line is open.
Uh, hey thanks. Good morning. Um, just wondering if there are any changes that you guys are seeing in MA Behavior or denials anything to call out that's maybe changed versus last year and any, uh, Investments may be that you've made around, uh, documentation or revenue cycle? That's also, uh, changed. Thanks
Speaker Change: So um, just so Medicare Advantage. So a couple of numbers here. So Medicare Advantage now represents 58%
Speaker Change: of our total Medicare admissions that, you know, just 1 note on the, on the 2 midnight rule, that's that seems to to be fully implemented in 2024. We're really not seeing any
Speaker Change: You know, additional movement from observation to inpatient there, you know, as it relates to the payers, uh, with you know we we are not seeing, you know, any significant impact on our results from denial activities.
Speaker Change: Uh, but I think that does reflect the significant work that we have put into our revenue cycle over the last couple of years, you know, to strengthen our organization's management of of denials. Um, I'll mention that, uh, we have over the last year or so, we have initiated uh, several partnership uh, activities with our key Partners, uh, in our key Managed Care, payer partners,
These partnership activities focus on things like digital integration administrative simplification and better management of disputes. Um
I think there's a lot of good work in flight between uh us and our in our payer partners and and uh, hopeful that we can continue to manage through these things. And, and and as we have been in a really, uh, meaningful way, uh, we need them. They need us. And, and I think, um, we have a, a good relationship in flight to work through because these areas
Speaker Change: Thanks.
Speaker Change: And our next question comes from the line of Andrew mock with Barclays. Your line is open.
Hey, good morning, maybe just 1, Quick Info request. Uh, and then a question can you give us the latest quote on ACA revenue and Admissions and maybe just a question on the hurricane performance. Appreciate all the color there but I think the Edwin at least to start the year was 250 million versus last year. Now you're contributing 100 million dollars of the guidance raised the hurricane. So does that mean there's still 150 million of continuing headwinds embedded in the guidance for the back half? And can you give us a sense for how occupancy payer mix and profitability stand in that mission North Carolina market versus pre-hurricane? Thanks.
Uh let me start with that. The exchanges uh about 8% equivalent emissions and just a smidge over 10% on net revenues. For uh the exchanges is is a percentage of total
Speaker Change: To that 250 million were uh lost revenues and a piece of that was additional expenses.
Speaker Change: And I was roughly 640 additional expenses, 40% lost Revenue, so you don't get the Lost Revenue back. Uh, Andrew and clearly, you get you, you, you do get to go year-over-year on the, uh, on the additional expenses for every year. So when we were constructing, our original guidance for the hurricane markets, you know, we we had pretty good confidence and insight that the Largo Hospital would have year-over-year growth in earnings because it reopened on December 1st
and a lot of the impact there was repairs and maintenance expenses to reopen that facility.
Speaker Change: And then in in our North Carolina division, you may recall, we were concerned because we didn't we never closed operations. Uh, but we were concerned about the lingering effects of the hurricane in that market because of, uh, the the broad impact to the population in Western North Carolina.
And so, uh, our best estimates at at the time when we issued, our original guidance, was that we thought that, uh, that the when combined, the hurricane markets would be flat year-over-year, 25 compared to 24
As we've gone through the first 2 quarters, uh, you know, what we've seen is a little better recovery, uh, than our original anticipation. You may recall that in first quarter, uh, the the, the year-over-year impact of those 2 markets was relatively flat.
Speaker Change: The second quarter was a bit negative. I mean, there was a decline in earnings year-over-year, it wasn't material at the company level, but it was certainly a bit negative. We think third quarter could be a bit negative as well, and then we see a recovery uh, year-over-year in 4 quarter. But for the full year, uh, that we believe that the hurricane related markets will come in at about a hundred million dollars, uh, better.
Speaker Change: Uh, year-over-year which is again is compared to our original thought of flat so hopefully that helps on the yeah. And Mike, let me add 1 thing. But what we've seen in North Carolina is greater demand than we anticipated. Unfortunately, uh, we've seen the labor market. Get more
Height and that's required us to use more contract labor in North Carolina, to service that demand. And so those are really the 2, big items there. Again, this is still, um, a very short period after the storm. We don't know the long-term effects on uh, Asheville North Carolina in particular and what it means to Economic Development and Tourism and so forth. Uh, but we're really pleased with how our teams have
Speaker Change: Dealt with the, uh, operational requirements. Uh, the patient requirements, uh, with with the, the situation there, uh, and they continue to push on in a very effective way. And we remain a very, uh, bullish about our system in North Carolina, and we continue to, uh, add where we can underneath the rules in that state. Uh, we continue to improve the quality, uh, and we continue to engage with our stakeholders in the very effective way. So we're, we're excited about, uh, the position of Mission Hospital in particular and where it stands, um, and we'll continue to, um, uh, execute on the plan. That's in front of us.
Speaker Change: Great. Thank you.
And our next question comes from the line of Justin lake with wolf research. Your line is open
Justin Lake: Thanks. Good morning. Uh, I'm going to try to get uh at this resiliency stuff and maybe another way without trying to pin you down on it. See you you know is the world looks at your um you know, at what's coming, right? There's going to be a bunch of loss revenue. And when we think about exchanges and these provider taxes, they're certainly very high margin Revenue, right? So if that goes away,
Speaker Change: There's the potential for a big impact, right? I don't think I'm calling you anything. You don't know the, I think the main question I'd love to get from you guys. Here is just, you know, you've done an incredible job over time in different uh operating environments and staying around in 19 to 20% margin.
And is that a reasonable framework? Like look, we're going to lose Revenue, but we're going to stay at, you know, we think with the resiliency efforts, we can keep within that typical margin Target. Is that a reasonable framework to think about the next few years?
Developing our uh, you know, cost plan in order to respond to that. I will tell you this um we have a pattern of owning our realities, whatever they happen to be in finding Pathways forward to accomplish our financial objectives. Our growth objectives, our return on Capital objectives, our quality objectives and I'm confident that we'll we will do that uh, in an appropriate fashion as we push forward. And so we're not ready to give you a margin. Uh, range. We're not ready to give you a revenue. Uh uh implication just yet because it would be inappropriate for us to do that. Until we have greater Clarity on exactly how this lands, where some of these people go, if they do in fact, lose coverage. And uh, and we understand, uh, everybody's concern and desire to want to try to score it, but you got to give us, uh, some sense of time he
Speaker Change: Here, uh, and and and uh and the ability to sort of process it. But when I pull up and I think about who this organization is the people we have on our team, the position we have in the markets that we serve. I'm pretty confident that we'll get to where we need to be.
Speaker Change: Thanks.
Matthew Gilmour: And our next question comes from the line of Matthew Gilmour with KeyBank. Your line is open
Matthew Gilmour: Hey, thanks for the question. Going back to the guidance discussion. There was a comment about um a handful of markets that were underperforming. Can you give us some sense for the drivers of that underperformance? And then the actions that are underway to improve results.
Sam Hazen: Yeah, this is Sam. Uh, we have a 16, uh, Geographic divisions in ha, when you include, uh, the UK, um, we have 15 obviously in the, in the US. Um,
every year we have 1 or 2 of them that aren't accomplishing. What we hope they accomplished for a variety of reasons, you know, certain volumes. Don't materialize as we anticipate competitors. Do something that we, we didn't expect, um, Physicians, have a dynamics that create, uh, you know, flow of business. It, it, it's so variable. So, we have 2 divisions, I'm not going to call them out on this call. Other than to say, we're confident, uh, in our overall positioning, uh, in both of them and what their uh, doing in order to
Sam Hazen: Respond. Uh, these are uh, seasoned leaders, uh, in these hospitals and in these divisions. Uh, there's been some competitive Dynamics in 1 division. That's um, dislocated some of our business, but we're responding to that appropriately.
In the other division, there was a bit of service Mix Change. Uh, nothing structural but it hit us pretty hard in the second quarter and we're reacting to that appropriately with our calls. But we we expect fully that that will recover in the second half of the year. And so this is sort of the normal give and take with what uniquely um I think our Diversified portfolio and again having geography uh differences across the company allowed.
Sam Hazen: Allows us to absorb, uh, 2 divisions that didn't have the performance that we anticipated. And, uh, and that's that's what happened last year. We had a couple of Divisions that did not accomplish their objectives in 24, uh, uh, and we overcame it last year and we're doing it again this year.
Got it. Thank you.
Speaker Change: And our next question comes from the line of Josh Rasin with nefon research. Your line is open
Josh Rasin: Hi thanks. Good morning. Could you provide just a little bit more color on? Maybe surgery. V volumes, both on the inpatient and outpatient side and maybe any changes in Trends. You're seeing around site of care.
so, um,
Josh Rasin: Surgery is a vision.
Speaker Change: Continuation of kind of our past stories here. Uh Josh. I mean I would note that on the pure case, count standpoint. We were down Point 6% for the quarter, which is you know the better than our most recent Trends and still is almost entirely driven by Medicaid and self-pay and a, and a bit of a drop in lower Acuity cases.
Speaker Change: You know, almost 8% so all 4 categories of our outpatient book uh that we track performed well. Uh the inpatient surgery is is very similar story on parex and
and the biggest impact was a drop in Medicaid cases on the impatient side. So inpatient surgeries on the same facility basis or relatively flat uh in the quarter and it's pretty much payer mix on Medicaid drip.
Speaker Change: Perfect. Thanks.
Speaker Change: Our next question comes from the line of Sarah James with Cantor Fitzgerald, your line is open.
Thank you. Can you talk about how commercial exchange and self-pay compare historically on fee schedule and revenue, collection rates, and to the degree, we see some shifting in volume to self-pay in the future. Is there anything that your team can do on the revenue collection strategy, side to improve collection rates on self-pay?
Speaker Change: Wait, so, so let me let me kind of double click on uh patient collections, a bit here. Um, when I think about
Uh the patient portion or the patient balance that's owed under our commercial contracts.
Speaker Change: You know, the first thing that we track is, you know, this idea of what do we typically see on an annual basis in terms of the increase in the average patient balance, uh owed, you know, over many years we've seen, you know, kind of mid single digit increases annually on the amount patients owe uh, as part of their kind of overall commercial increase. Uh,
Speaker Change: Uh and then in recent quarters, we've seen that a little higher and and that's been influenced by the healthcare exchanges. Where patients do tend to have a little bit higher patient responsibilities compared to traditional commercial
Speaker Change: Uh, it regarding collectibility of those amounts owed. We generally maintained our historical levels of collections uh, on patient balances on our traditional commercial population.
Speaker Change: The healthcare exchange population, the rate of collections of bit lower than on the traditional, uh, side the traditional commercial side. But overall, uh, you know, we had not seen yet, any significant impact on the collectibility of our patients receivables.
Speaker Change: Uh, in the aggregate.
So that that's kind of an update on what we're seeing relative to Patient collection.
But, are you able to give us a comparison to what that looks like versus self-pay? Uh, so for the uninsured population that self pays, how much of a Delta is there on collection rates or, or the fee schedule charged? We, uh, we, we collect very little
Speaker Change: Cash from the truly uninsured populations there. Really the the what you see with truly uninsured is you get a little bit of a pickup on fish?
Speaker Change: There is not any material collections that would, that would fall into a material zone for the company on the uninsured population.
Speaker Change: and most uninsured patients in our company qualify for either our charity, um, programs or uh, significantly reduced amounts due to uh, our
Patient protection policy. So there there's not a lot of Revenue produced for uninsured patients. Yeah.
Speaker Change: Thank you.
And our next question comes from the line of Ryan Langston with TD Cowen, your line is open
Thanks. Can you give us an update on the uh commercial Contracting percentages? Over the next couple of years? I guess, in terms of what's already negotiated and what's still kind of hanging out there and then on capex, we've heard from several larger nonprofits that the outlook's very uncertain. They're taking a pretty cautious approach, maybe in some cases cutting budgets, I guess, is there a scenario where you see that in your markets and actually ramp up Capital spending to try to capture some of that market share maybe longer term, thanks.
So, our Managed Care Contracting uh today. Uh, what? Yeah, we're largely done for 25.
Speaker Change: For 26, we're about 80% contracted again achieving. Um,
The targets that we had established for each of those contracts and we're about a third of the way through 27 again achieving um the targets that uh we had assigned to those specific contracts. So we're pleased with
Ative uh, friction and costs for both them and US, creating a better experience for our patients, in a better experience for their members and even our physicians who participate in the process. So that's where we are on the, on the Managed Care side. And I'm, um, I'm I'm, I'm pleased with our position uh, at this particular juncture with respect to Capital expenditures. You know, the company is continuing to operate uh, on the inpatient side at at at north of 70% occupancy. Maybe 73 74% occupancy year to date. Uh we have uh as I mentioned, 5 and a half billion dollars worth of capital that has been approved and is in the pipeline uh under construction.
Speaker Change: And should come online later this year next year and on, in to 27, uh, and we continue to see opportunities for us to add to our networks. Uh, as I mentioned, I think we're, uh, today, I don't know close to 2700, uh, facilities in our company. Uh, we continue to add facilities, both through Greenfield projects as well as Acquisitions where we can, uh, and we will look for those as well, uh, as it relates to competitive Dynamics. Uh, we do think, um, you know, there are opportunities for us to accelerate investments in certain situations and put ourselves in a better position, uh, to achieve our objectives and we will
Speaker Change: Sort through those in the normal course. Uh but I don't see anything necessarily uh positioning uh a rapid acceleration in our spending to accomplish that.
Speaker Change: Okay, thank you.
Speaker Change: You're welcome.
Speaker Change: And our next question comes from the line of Kevin fishbach with Bank of America. Your line is open.
Kevin fishbach: Okay, great thanks. Um, I just wanted to go back to um,
Speaker Change: Kind of think about the exchange.
Speaker Change: Subsidy expiration. Um, you know, there's a few dynamic in there, I guess 1 is, can you just remind us what your exchange Revenue? What is the percent of total back in 2019? Before you know, these enhanced subsidies were
Speaker Change: In place. Um and and I guess is there any reason to think that that wouldn't drop back down to that level? And you mentioned that there was
Speaker Change: Uh the potential that that might drop as many of those people might show up on Commercial. Can you is there any way to kind of go back and look and see, you know, historically, if there was a shift out of commercial, what exchange grew and maybe help quantify, you know what what that looks like. Thanks.
Speaker Change: Hey, Kevin. As we noted in the call, we're going to be
We're not going to really give that kind of detail right now. Pretty difficult to.
Decide that at this point. Uh, so as we get through the balance this year, and we have a better understanding of what happens to epc's,
Speaker Change: And a little better understanding of how we think population will react to what happened. So we'll be in a better position on our fourth quarter, call to address those more details uh at this point. Uh just note again that we're at 8% of volume now uh with a little bit over 10% on revenues.
Speaker Change: Okay, let me just clarify. I did I did I hear you say earlier that you think that between the bill and the expiration of the subsidies over the longer term, you still expect to grow even 4 to 6%. So like a 5 year plus time Horizon, even with the impact of all these things, you'll still grow ibida in that range. That's the expectation.
Speaker Change: No it's a it's a good point. Let let me go back through that just so that it's clear on what we said. So as it relates to the act itself in the near term, we believe that our financial resiliency program should offset the exchange Provisions in the app.
Speaker Change: In the longer term, as it relates to the ACT specifically, with both the delayed start and the phased in nature of these provider, tax and STP reforms.
Speaker Change: Along with the potential of the approval of the submitted supplemental payment application.
We believe ACA will be able to generally manage these impacts with our resiliency efforts without material impacts to our long-term guidance.
Speaker Change: And then regarding the eptc as you know, we do not know what the outcome will be at this point.
But we are working to develop resiliency programs to offset as much as possible. Any adverse impact should they expire?
Speaker Change: And so, we will roll all that together. Kevin has noted, when we comment further, when we issue our 26 guidance on our fourth quarter,
2025.
Speaker Change: Is both the, your actions and the additional sdp approvals combined. That's what, that's what gives you confidence in the 4 to 6.
Speaker Change: Yeah, that I I I'll stand on site.
All right. Thank you.
Speaker Change: And our next question comes from the line of Raj Kumar with Stevens, your line is open.
Thank you for the question. Um, just have 1 on, you know, trying to
frame the 600 800 million of targeted. Um you know savings that you had over the 5 years. When you did that during the investor day just kind of bogey where we're kind of at from the those cost initiatives standpoint given that we're kind of like a year and a half into that 5 year outlook. Uh and maybe if you've identified any additional opportunities to posture the financial resiliency initiatives uh kind of given the policy unknowns that we have over the next couple of years.
So we uh, as we know that in our investor day uh conference at the end of 23.
Speaker Change: We, we've been hard at work as developing our resiliency program.
Really across 3 main categories work, you may recall, you know, from the presentation, the first 1 is around benchmarking.
And and really getting to ground and benchmarking both our corporate and shared service functions against the rest of the 4100 and then helping our facilities. Benchmark, their performance across a series of both operational and cost metrics to help them. Find their biggest opportunities for improvement.
Speaker Change: And then we leverage our best practices to help them identify those opportunities and take action. And so that's, that's benchmarking. A significant efforts in Flight Around both Automation and digital transformation that we, we calm, you know, comment on this before, but our, our digital transformation agenda includes a series of uh, focused areas in our administrative platforms and in our automate operational platforms that, uh, we believe holds significant promise, uh, as we move forward and really third is just continuing to better leverage, our shared service platforms, uh, and we're adding additional functions, over time to uh our shared service platforms, to really drive that that benefit uh scale of standardization and best practices we move forward.
Uh, you know, really since the investor day, uh, meeting and as we've gone through the last 12 to 18 months in light of these potential challenges, we have both accelerated and enhanced these efforts. And so, uh, as we have gone through this year, uh, we've been working very carefully with all of our teammates and colleagues across the company.
To, uh, to ensure that we're identifying our best opportunities and and then take action as we go through the balance this year and into 26 and Beyond. And so that's the that's a quick update of where we are on our resiliency program. And again, as we noted here, during the call, we'll give a more full update on that when we get guidance on our fourth quarter call,
Andy, I think we have time for just 1 more uh question.
Speaker Change: Thank you. Um, so our final question will come from the line of Lance wils with Bernstein. Your line is open.
Lance Wils: Great. Could you talk a little bit about um compensation where you're showing in in labor Supply and talking a little on? Um, overall how you're managing that? So well if there are um outlooks as far as how you're changing the number of employees relative to where you're seeing you with wage inflation and if there are any expectations um that you can give us for contracts and and wage inflation for the second half of the year. Thanks.
You know, as we noted um, and even on the on the first quarter call, but we're seeing a pretty stable labor environment uh Lance uh uh in in our wage, inflations are coming in about where we expected them to be. Um, I think we've noted before, you know, we've seen a pretty significant improvement in our contract labor as a percent of
Is pretty stable. I mean I would note we've talked about this before that the 1 area of our of our Workforce that is still a bit elevated. Uh in in cost pressures is our position cost.
Lance Wils: Uh, our same facility. Uh, professional fees did increase about 10% over prior year, which was about what we expected. So that component of the business we're still dealing with some greater than in place in area levels of cost pressure. But on the, on the pure labor side, I think we're in good shape.
Great, thanks.
Lance Wils: Includes our question and answer.
Lance Wils: Sessions. Why we will now turn the conference back over to Mr. Frank Morgan for closing remarks.
Frank Morgan: Abby, thank you for your help today and thanks to everyone for joining us on the call.
Lance Wils: We hope you have a great weekend and
We're certainly around to answer any follow-up questions. You might have any, thanks.
Lance Wils: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect