HCA Healthcare, Inc. Q3 FY2024 earnings call

• Heroic efforts of HCA people in responding to two major hurricanes, leveraging enterprise capabilities and showing unwavering dedication. - Third quarter results were strong with solid revenue growth and margin improvement, diluted earnings per share (as adjusted) increased 25% to $4.90, including an estimated $0.15 per share impact from Hurricane Helene. - Details on hurricanes: Hurricane Helene impacted 29 hospitals, estimated to have a $50 million or $0.15 per diluted share impact in Q3; Hurricane Milton impacted over 34 hospitals, with HCA Florida Largo Hospital closed due to damage, anticipating significant repair expenses and revenue loss in Q4. - Volume growth: Inpatient admissions up 4.5%, ER visits up 4.6%, etc., with broad-based growth across markets and service lines. - Network development: By end of 2024, expected to add ~600 inpatient beds and 100 new outpatient facilities, with ~$6 billion of projects under development. - Early thoughts on 2025: Anticipate volume growth of 3%-4% for the year, earnings growth near or slightly above upper end of long-term target ranges for diluted EPS and adjusted EBITDA.

During the third quarter, on a same facilities basis, inpatient admissions grew 4.5% compared to the prior year, adjusted admissions also grew 4.5%, emergency room visits increased 4.6%, inpatient surgeries were up 1.6%. Other volume categories like cardiac procedures, inpatient rehab admissions, and obstetric volumes had solid growth. Outpatient surgery was the only major service category that declined by 2%, but revenue in this service line increased 5% due to acuity and payer mix. Same facilities revenue growth was 7.1%. Revenue contribution across segments showed broad-based growth with Medicare up 5% on equivalent admissions, Medicaid down 8.5% on equivalent admissions, managed care volume excluding exchanges up just short of 4%, exchange volume at 43% growth, and uninsured volumes up 7.2%.

• Reaffirmed 2024 estimated guidance ranges, with results likely in the lower half of ranges due to hurricane impacts. - 2025 volume assumed to grow in the range of 3%-4%. - Earnings outlook for 2025: Strong volume growth assumption coupled with mostly stable operating environment should generate earnings growth near or slightly above upper end of long-term target ranges for diluted EPS and adjusted EBITDA. - Capital expenditures for 2024 estimated at approximately $5 billion, lower due to timing of capital projects.

• Impact of hurricanes: Ongoing expenses and revenue loss related to Hurricanes Helene and Milton, with HCA Mission Hospital facing significant infrastructure issues and HCA Florida Largo Hospital closed, with insurance recoveries not yet estimated. - Denial trends: Payers ramping up denial activities, though HCA has been working on mitigation strategies; still have issues with denials, especially from large Medicare Advantage payers. - Medicaid redetermination effects: Medicaid volumes down due to redetermination, with complex and variable Medicaid supplemental payment programs affecting results.

Q: AJ Rice from Credit Suisse asked about 2025 outlook and volume strength.

A: Mike Marks said ongoing hurricane effects in 2025 are manageable, primarily in North Carolina, and Sam Hazen added broad-based growth in service categories.

Q: Ben Hendrix from RBC Capital asked about denial trends and 2 midnight claims.

A: Mike Marks talked about denial mitigation strategies, Medicare to Medicare Advantage 2 midnight rule impact, and ongoing adjudication of claims.

Q: Ann Hynes from Mizuho asked about pricing assumptions for 2025.

A: Mike Marks said early look at cash net revenue per adjusted admission growth in 2025 is 2%-3%, and progress on payer contracting.

Q: Pito Chickering from Deutsche Bank asked about pricing next year and labor/OpEx.

A: Mike Marks said details on 2025 margin profile in January call, and Medicaid supplemental payment programs details.

Q: Andrew Mock from Barclays asked about inpatient revenue per admission deceleration.

A: Mike Marks said decline driven by state supplemental programs, with good growth in acuity and payer mix.

Q: Joanna Gajuk from Bank of America asked about payer mix and volume growth by payer.

A: Mike Marks provided data on equivalent admission growth by payer: Medicare up 5%, Medicaid down 8.5%, etc.

Q: Austin Gerlach from Wolfe Research asked about long-term debt and hurricane impact on guidance.

A: Mike Marks talked about leverage being at lower end of target range and hurricane impact considered in 2025 guidance.

Q: Brian Tanquilut from Jefferies asked about insurance claims and CapEx guidance.

A: Mike Marks said working on insurance recoveries, CapEx change due to timing of projects.

Q: Whit Mayo from Leerink Partners asked about AI and technology investments.

A: Sam Hazen talked about AI investment opportunities in administrative, operational, and clinical areas.

Q: Stephen Baxter from Wells Fargo asked about volume growth assumption and macro-driven dynamics.

A: Mike Marks said exchange enrollment to moderate, Medicaid volumes to flatten in 2025.

Q: Scott Fidel from Stephens asked about Medicare Advantage contracting and EBITDA cadence.

A: Mike Marks said largely contracted with Medicare Advantage payers, and EBITDA cadence talk in January call.

Q: Ryan Langston asked about hurricane impact on long-term strategy.

A: Sam Hazen said no major change in long-term strategy, facilities recover from hurricanes.

Q: Sarah James from Cantor Fitzgerald asked about outpatient surgery trend and insurance.

A: Sam Hazen said outpatient surgery volume down but revenue up due to acuity and payer mix, and insurance coverage details.

Q: John Ransom from Morgan Stanley asked about quality metrics and kickers.

A: Sam Hazen talked about quality data set and integrated quality agenda.

Q: Lance Wilkes from Bernstein asked about wage expense ratio and bad debt.

A: Mike Marks said wage rates stable, bad debt impacts stable.

Q: Craig Hettenbach from Morgan Stanley asked about resiliency program and professional fees.

A: Mike Marks talked about resiliency program status and professional fees leveling off.

Q: Jamie Perse from Goldman Sachs asked about Valesco update.

A: Sam Hazen talked about Valesco integration and long-term objectives.

Q: Joshua Raskin from Nephron asked about Medicaid adjusted admissions and strategy.

A: Sam Hazen said no major change in strategy, using investments to meet Medicaid needs.