HCA Healthcare, Inc. Q4 FY2024 earnings call

• The company had strong business fundamentals in 2024, with demand for healthcare services remaining strong. Teams remediated facilities impacted by hurricanes, and facilities resumed normal operations. - 2024 was a period of long-term growth with operational improvements and value creation for shareholders. - Believes the combination of local and national systems model is effective. - Cash flow and balance sheet strength allow investment in networks, employees, and capital allocation for shareholder value. - Fourth quarter adjusted EBITDA margin declined 60 basis points mainly due to hurricanes. - In 2024, contracting for managed care was 80% for 2025, 60% for 2026, and 20% for 2027. - Labor agenda improved with contract labor use decreasing, and wage inflation stable in the fourth quarter.

In the fourth quarter, diluted earnings per share adjusted increased 5.4% compared to the prior year. The financial impact from hurricanes was approximately $0.60 per share. Revenue growth was approximately 6%. Same-facility inpatient admissions and equivalent admissions grew 3%, emergency room visits increased 2.4%, inpatient surgeries were up 2.8%, outpatient surgery cases were down 1.3% but had solid revenue growth due to payer mix and service mix, and rehab, obstetrics, and cardiac procedure volumes were strong. For the full year 2024, revenue growth was 8.7%, revenue per equivalent admission grew 3.2%, equivalent admissions grew 4.5%, adjusted EBITDA margin improved by 10 basis points, adjusted EBITDA increased 9% over prior year, and diluted earnings per share increased 15.5% over prior year. The hurricanes adversely impacted full year 2024 by $250 million or $0.73 per diluted share. The full year incremental net benefit from supplemental payment programs was approximately $400 million. Healthcare exchanges in 2024 accounted for 7.5% of equivalent admissions and about 9% of revenues.

• 2025 revenue expected to range between $72.8 billion and $75.8 billion, net income attributable to HCA Healthcare between $5.85 billion and $6.29 billion, adjusted EBITDA between $14.3 billion and $15.1 billion, diluted earnings per share between $24.05 and $25.85, and capital spending approximately $5 billion to $5.2 billion. - 2025 expects a year-over-year increase in adjusted EBITDA from Largo reopening and a year-over-year decline in the North Carolina division due to Hurricane Helene's lingering effects. - Medicaid supplemental payment programs' net effect is expected to range from flat to 2024 to a $250 million headwind. - Full year margins consistent with 2024, cash flow from operations expected to range from $10.75 billion to $11.25 billion. - Board authorized a new $10 billion share repurchase program and increased quarterly dividend from $0.66 to $0.72 per share.

• Hurricane impact with Largo reopening growth offset by North Carolina division decline due to Hurricane Helene's lingering effects in 2025. - Medicaid supplemental payment programs are complex, variable, and do not fully cover costs. - Labor market risks including potential wage inflation and labor supply issues. - Policy risks such as uncertainty in Medicaid supplemental programs, site neutral payment policies, and tariff policies.

Q: About Medicaid supplemental payments, how was the 2024 full-year situation and the 2025 expectation?

A: The net incremental benefit from supplemental payment programs for full-year 2024 was approximately $400 million. Q2 had the highest benefit at $125 million and Q4 had the lowest. For 2025, the net effect is expected to range from flat to 2024 to a $250 million headwind, including the new Tennessee program.

Q: What about the pricing and denial rates of managed care?

A: 80% of contracts were signed for 2025, 60% for 2026, and 20% for 2027. Currently, no significant impact of denial rate growth on the company is seen.

Q: What are the internal initiatives recently?

A: Initiatives include case management, inpatient throughput optimization, emergency room operation improvement, operating room optimization, labor agenda improvement, and exploration of technology application like AI in administrative, operational, and clinical aspects.

Q: What about the healthcare exchange enrollment and its impact on Florida and Texas?

A: Healthcare exchange enrollment continued to grow, increasing by 12%-15% in 2024. HCA had consistent growth in relevant states. It's considered positive politically, and HCA is active in partnering with the Trump administration. In 2024, healthcare exchanges accounted for 7.5% of equivalent admissions and 9% of revenues.

Q: Impact of Medicare Two-Midnight Rule on 2024 inpatient admissions and 2025 expectation?

A: In 2024, it was estimated to impact overall admission growth by about 50 basis points. No significant more changes are expected in 2025, with focus on collecting revenue and handling denial and appeal processes.

Q: Performance of Mission Hospital in the quarter and its impact on 2025 EBITDA?

A: Overall volume in the quarter was affected by respiratory season downturn and hurricanes. Largo reopening is expected to increase adjusted EBITDA in 2025 year-over-year, while the North Carolina division is expected to decline year-over-year due to Hurricane Helene's lingering effects, and they offset each other.

Q: Professional fees situation and 2025 expectation?

A: Professional fees account for about 24% of other operating expenses. In 2024, cost curve was flattened through efforts. In 2025, physician cost pressure is expected to be further eased but still higher than normal inflation trends. Radiology has pressure but not expected to be a significant impact in 2025.

Q: Impact of California wildfires?

A: Southern California hospitals had no impact. A hospital in Ventura County had fire warnings and prevention measures. A hospital in Riverside had smoke issues but facilities were unaffected.

Q: 2025 first quarter EBITDA and Tennessee new program?

A: No quarterly guidance is provided, following historical seasonal trends. The Tennessee program has approved partial years (July 1, 2024 to December 31, 2024), and the 2025 calendar year program is not approved.

Q: Impact of site neutral payment on ASCs and 2024 Q4 ASC same-store revenue growth?

A: Opposes cutting Medicare hospital outpatient reimbursement. 2024 Q4 ASC same-store revenue growth was about 5%-6%.

Q: Impact of tariff policies and labor-related immigration policies?

A: Closely monitoring tariff policies for details to assess impact. The company doesn't hire undocumented workers, and impact on labor market supply and demand is being tracked but no special insights are available.

Q: Reason for equivalent admission growth change from 4.5% in 2024 to 3%-4% in 2025?

A: Healthcare exchange enrollment growth slowed in 2025 compared to 2024, Medicare Two-Midnight Rule benefit in 2024 won't repeat, and Medicaid redetermination process flattened in 2025.

Q: M&A activities and 2025 plans?

A: Primary growth is through capital spending and organic measures. Expect to close a new hospital acquisition in Manchester, New Hampshire in Q1 2025. Most investments are in organic system development.

Q: Types of procedures driving inpatient surgery growth and reason for outpatient surgery decline?

A: Inpatient surgery growth was broad-based including neurosciences, orthopedics, general surgery, and vascular. Outpatient surgery decline was mainly due to 10% decline in Medicaid, 1%+ growth in commercial and exchange volumes, and decline in self-pay.

Q: Changes in the fourth quarter of 2024 and Tennessee payment situation?

A: Fourth quarter was affected by hurricanes and respiratory season downturn. Medicaid supplemental payment net benefit was lowest in Q4. 2024 Q4 was a tougher comparison to 2023 Q4.

Q: ASC performance and market limitations?

A: There are 125 ambulatory surgery centers, and about 20-25 GI centers. Limitations are mainly regulatory factors.

Q: Labor progress and Medicaid supplemental program margin?

A: Contract labor use improved, with contract labor percentage of SWD at 4.6%/4.5% in the quarter. Wage inflation is stable. Medicaid supplemental payments don't fully cover costs, still below covering cost.