Welcome to the HCA Healthcare Second Quarter 2022 Earnings Conference Call. Today's 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 Morgan. Please go ahead, sir.

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 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 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 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 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 Sam.

Thank you, Frank, and good morning to everybody, and thank you for joining today's call. We are pleased with our financial results for the second quarter. The solid results were driven by a good mix of volume with respect to payer mix and acuity, coupled with progress in managing our operating costs. Although overall demand for our services was not as strong as anticipated, when compared to the second quarter of last year, same facility revenue grew 4%. As indicated in our earnings release, same facility inpatient admissions declined 1.2% and adjusted admissions grew 0.5%. COVID admissions declined 18% and represented approximately 3% of total admissions, which is generally consistent with the mix in the prior year. COVID admissions dropped 70% from the first quarter. Emergency room visits on the same facilities basis grew 7.3%, reflecting strong demand for the service. Volumes across most categories exceeded pre-pandemic levels, as compared to the second quarter of 2019. Many aspects of our business were positive considering the challenges we faced with the labor market and other inflationary pressures on costs. Our teams executed well as they have in the past through other difficult environments. Again, I want to thank them for their dedication and excellent work. Labor metrics improved in the quarter as compared to the first quarter. Recruitment was up, turnover was down, and throughout the quarter we lowered contract labor expenses in each successive month with June down 22% as compared to April. Overall operating costs per adjusted admission improved on a sequential basis as compared to the first quarter. Because of these positive developments, we operated with more available capacity than we did in the first quarter and had solid volume growth sequentially. Additionally, we continue to expand our network offerings with new ambulatory centers and clinics. We opened three Galen nursing colleges in the quarter, and two more are scheduled to open later this year. Lastly, we increased hospital capacity with targeted capital investments. If we look to the balance of the year, we see volumes returning to pre-pandemic seasonal trends, but we expect growth in inpatient admissions at a more modest level than previously indicated in our guidance and in line with outpatient categories. We believe our labor and resiliency plans are appropriately responsive to market dynamics and the needs of our business, and they should continue to generate improvements in our operations. So let me close with this, and as I've mentioned this in the past, HCA Healthcare has an outstanding track record of responding to our realities by adjusting our operations in an appropriate manner. That is a manner aligned with our mission to provide high-quality care to our patients while also being prudent with our financial management. With that, I'll turn the call over to Bill for more details on the quarter.

Okay, great. Thank you, Sam, and good morning, everyone. Let me provide some additional comments on the quarter. First, as Sam mentioned, we are pleased with the overall results of the quarter. Our diluted earnings per share was $4.21 in the quarter after excluding the $0.11 from the loss on sale of facilities and $0.20 from the retirement of debt. Adjusted EBITDA was $3.04 billion and adjusted EBITDA margin was 20.5%. Non-COVID admissions were down 0.6% in the quarter, however, non-COVID managed care admissions were up 0.7%, reflecting favorable payer mix. Non-COVID case mix was up slightly from the prior year, maintaining acuity gains we've made and overall our same facility inpatient revenue per admission increased 3.3% from the second quarter of last year. In addition, as Sam mentioned, we saw improvement in most all key operating indicators compared to the first quarter, including our labor, supply, and other operating costs on both an adjusted admission and an adjusted patient day basis. We remain focused on our resiliency programs that have been highlighted in last quarter’s call, including our staffing and capacity efforts, executing our next generation of shared services and identifying best practices across HCA Healthcare through the advancement of our benchmarking and analytic processes. These efforts continue to be an important focus for us as we respond to the current operating environment, and we are pleased with the progress in these areas. So let me transition to discuss some cash flow and balance sheet metrics. Our cash flow from operations was $1.63 billion in the quarter. Capital spending was $1.08 billion as compared to $842 million in the prior year period, and we completed just under $2.7 billion of share repurchases during the quarter. Our debt to adjusted EBITDA ratio was just above the low end of our stated leverage range. And we had just over $2.7 billion of available liquidity at the end of the quarter. Lastly, I will mention that our full-year 2022 guidance remains unchanged from what we highlighted last quarter. So with that, I'll turn the call over to Frank, and we'll open it up for Q&A.

Thank you, Bill. As a reminder, please limit yourself to one question so that we might give as many as possible of a chance to ask a question. Chantel, you may now give instructions to those who would like to ask a question.

Your first question comes from A.J. Rice with Credit Suisse. Your line is open.

Hi, everybody, congratulations on navigating well through a challenging environment. I want to address the near-term situation. There seems to be some confusion regarding volumes. I know you mentioned being a bit more cautious about the second half, which doesn't sound significant. But it appears to be relatively the same. Are we in your view transitioning to a new normal? There's speculation about how COVID positivity rates may be impacting patient visits. Are you observing any downstream effects on your business from this? Do you feel that there are still a considerable number of deferrals pending resolution within the system? Any comments on that? Additionally, regarding the overall outlook, I recall the company mentioning that, unless there's a shift in your perspective, you can aim for mid-single digits EBITDA growth long-term, often leaning towards the upper end of a 4% to 6% target. Is that still your perspective?

A.J., thank you. This is Sam. I believe when it comes to healthcare demand, our overarching belief is that it's pretty durable and somewhat responsive to normal trends over time. Obviously, we're still trying to sort out the implications of COVID in the pandemic on overall demand and make some judgments. Here again, it's only been really five months since the last surge, when you consider February, March, and then through the second quarter. And so we're making some early judgments that we believe there will be normal seasonality trends with respect to how volumes behave over the balance of the year. As it relates to long-term intermediate-term demand. Again, we're not seeing anything structural that would suggest that overall demand is reduced or necessarily increased beyond what its normal trends were. And we think on the inpatient side, healthcare demand, at least in our markets is somewhere between 1% and 2% and a little bit more than that on the outpatient side. So that lines up with our pre-pandemic but sort of thoughts around overall demand. So that's how we're seeing it. Again, we've seen incredible resiliency in our emergency room, which we were thinking that maybe it disrupted, our emergency room activities actually up. Over 2019, many categories of our business, as I mentioned on the call compared to 2019, have shown a nice, stable response. So we're still trying to sort out a few things with the pandemic and don't necessarily have great insights yet around some of those. But we do feel confident that healthcare demand in general will revert back to normal patterns as we move through the next few years.

All right. Thanks a lot.

Our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

Hey, good morning, guys. Thanks for taking my questions. Also going on the labor question, sort of a two-part question. The first one is, I think about your contract labor rates, how much visibility that have and what the rates you paying in the third quarter and views as it goes in the fourth quarter. And can sort of quantify to what contract labor you paid in 2Q, when you assume within guidance and then in 3Q? And then on the full-time labor, can you guys give any color on sort of what is your average hourly nursing wages in first quarter and how that went sort of in the second quarter? Are we seeing a downtick as you guys bring on new nurses' schools? Thanks so much.

Yes, Pito, this is Bill. Let me start first with the contract labor. I think, as we discussed last quarter, it was at a peak high in the first quarter really due to the COVID services. And we anticipated to see sequential improvement. And indeed, that's what we saw. We thought it would first start with being able to modify the rates that we were seeing in the market in terms of the average hourly rate, and indeed, we saw that and we were able to execute on that as the quarter went through. We finished with June. We were anticipating when we reset our guidance after the first quarter. And I think over the course of the year, we'll continue to see hopefully a reduction in the utilization of that contract labor. And again, we were encouraged by the sequential improvement we saw, we're encouraged by kind of how we ended the quarter in the month of June. So that's pretty much in line with what we anticipated.

Yes, I think there is still some room for improvement regarding the contract labor rate. While I don't have a specific number to share at this moment, we do expect continued progress in this area. Last year, we made a significant market adjustment for our nurses, and since then, we've been making targeted adjustments for both our nurses and non-nurses, as we also require lab techs, radiology techs, and others to support care delivery. We plan to make another market adjustment this year. Our nurse wage increase is in the mid-single digits, which we believe is manageable. We've maintained productivity levels in certain areas and have been able to leverage costly contract labor, improving our workforce positioning in the second quarter compared to the previous three quarters. We see opportunities in this area as the labor market is moderating and normalizing; our turnover has decreased by over 20% in the second quarter compared to the first quarter, and our recruitment efforts have increased by 18% in the second quarter. These early successes give us confidence that our strategies for compensation and retention, along with our labor mix, should improve as we progress through the year.

Our next question comes from Ann Hynes with Mizuho Securities. Your line is open.

Hi, good morning. I know it might be early, but how do you think we should think about key inflationary pressures for 2023 versus several trends, especially with age applies? And on the managed care side, I know that you will eventually be able to pass some of these inflationary pressures through pricing. Can you just give us some timing on how we should think about that? Thanks.

This is Sam, let me speak to inflation. Generally, obviously, we are seeing inflation as we mentioned inside of our labor costs. Again, I just give you an overview of how we think we're managing our way through that. And Bill can speak to some of the specifics on the supply side. Fortunately, in many areas, we have contracts that have terms to them today. So it gives us some protection in the short run. We think protection allows us to reposition some of our pricing as we move through the next few years to reflect more accurately the inflationary pressures that we're seeing and others are seeing in the provider system. We're seeing some early success and recognition by the payers. And we expect the payers to appreciate the overall inflationary environment that the providers are in, but we're seeing some early recognition of that and some renegotiated contract have reflected more escalation in pricing than what we had seen in our past trends. As I mentioned on the last call, we're pretty much contracted for 2022, obviously, but as we look to 2023, we'll start to see some uplift in our contract pricing reflecting the new contracts. And then on '24, we fully anticipate having a different trend on our pricing as a result of these renegotiations. On our capital costs, we obviously experienced some inflationary pressures there. I don't know that we have visibility at this point to give you any number on any of those we think about 2023. So we'll try to hone in on that a little bit more as we get ready for our guidance in the next year.

Our next question comes from Whit Mayo with SVB Securities. Your line is open.

Hey, thanks. Bill, the accounts receivable days increased again this quarter. I'm trying to understand what's causing that. Is it due to higher payer claim edits, or is there any underlying issue with collection rates? I would appreciate any context you can provide on that. Additionally, could you describe how this trend relates to your expectations? Also, I missed the number of full-time equivalents for the quarter, so if you could share that, it would be helpful. Thanks.

Yes, Whit. We have seen some increase in AR days as we've gone through the year. Part of that is prior period during COVID, I think the payers have kind of turned off many of their bill edits, we've seen some of those come back into play. Pretty much in line with what we anticipated, we're hoping the kind of at a high mark right now, we'll continue to see improvement as we go through the year. But we are seeing a little bit more kind of delays in the payment processing cycle. And we're working through that with our payers. In terms of the cost per FTE, we saw again sequential improvement in the quarter compared to the first quarter recall in the first quarter, we ran pretty high. I think it was almost a 7% year-over-year number, more now in the 4.5% for the second quarter. And so it was tracking about what we anticipated as we ended the first quarter.

Thanks.

Our next question comes from Gary Taylor.

Gary Taylor.

Hi, can you hear me?

Yes.

Okay. Just the two-parter, both of which you've just touched on a little bit, I just wanted to make sure I understood if you'd provide a little more color. I think we sort of triangulated in the first quarter, somewhere north of $600 million of contract labor spend. And I know that's down and you said it was down you said was in June, but just wondering kind of where that ran for the quarter, just to help us sort of modeling the rest of the year. And then the second part is with the AR growth and also payables down, you've done $3 billion cash from Ops in the first half in the annual guide is 9% to 9.5%. So, despite the payer edits and so forth, you still feel good about the cash from Ops number for the year?

Yes, Gary, let me start with the cash flow process, it's Bill. We're continuing to look at that, I think it's probably going to be hovering around the 8%, maybe 8.5% level somewhere in between those. And we'll continue to track that as the year goes on. But I still think that's a very strong number for us and allows us to kind of execute on all aspects of our capital allocation philosophy. When you look at the contract labor piece, we did see sequential improvement, the actual dollars amount were down from where we were in the first quarter, and we're looking at contract labor as a percent of SWB, we finished at the end of the quarter of the month of June down just above 8% where in the first quarter, we were running 9%, 9.2%. So again, we saw I think nice improvement in the absolute contract labor numbers.

Our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

Good morning, actually, this is Joanna Gajuk filling in for Kevin today, so thanks for taking the question here. So I guess the first question and then I have a follow-up too but in terms of looking at I know you maybe it's early to talk about next year, but you obviously kept your guidance positive, given the expectation here. This year has some benefits right from sequestration PHE being extended. So how should we think about, roughly speaking from going from here, is this year a good base to grow off of your long-term kind of targeted growth rate? And my follow-up question in terms of the commercial pricing discussion that you highlighted in terms of the improvement over time. So is it fair to assume when you look at the history, right of the company, should we expecting commercial that would be accelerated to say, 4%, 5% at some point, like we saw in the past, we're in a period of high cost inflation? Thank you.

Well, let me make sure I got that relative to 2023 and kind of the plusses and minuses as we go through the year. Yes, we are anticipating as we go through the balance of this year, kind of the normal course of business has stabilized, as Sam mentioned in his comments, we think we're going to see patterns return to kind of their normal seasonal trend. And so that should give us a good base to grow off of in 2023. It's a little early to be talking about all the variables in 2023. We're going to be approaching our planning process right now. But most of them are no. And I think, as Sam mentioned in his earlier comments, we think fundamentally, there continues to be growing demand for healthcare in our markets. And we're well positioned to serve that. And I think that becomes a nice place to think about 2023 in as we go forward. Relative to commercial pricing, as he said and as we mentioned before, we are having those discussions with the payers, we've had some early success, there's a recognition of the inflationary pressures that providers are seeing. So we'll continue to progress those discussions as we go forward. And hopefully we'll continue to roll those and get to benefit in '23.

Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Thanks. Good morning. Just wanted to follow-up on a couple of numbers questions. First, on COVID, I know you had expected the PHE earlier to expire, like almost in the first half. I think your number was about $150 million of that. Can you give us an updated number there in terms of what's in guidance, then on that total pricing, I know it's early, and you've got some wins there, hopefully. But can you give us an idea of pricing, I think was in a 4% to 5% range historically. Where do you think those contracts shakeout in terms of, as we do get through them, they may shake up the high single-digits or something a little bit lower than that. And that's it for me.

Yes, Justin let me start with your first one relative to the various COVID support. Honestly, very little did we recognize in the first quarter, probably $20 million to $25 million. You look at last year, you guys probably hovering around $140 million in a quarter, pretty much in line with what our expectations were. Most of those programs have pretty much concluded. And so we'll run this out. I think it's probably $200 million year-to-date. So that's pretty close to what we anticipated. When we turn the calendar and expectations relative to pricing, I think it's reasonable to assume that we were in the 3.5% to 4% zone previously with our commercial pricing, that we are going to be in the mid-single-digits as it relates to our expectations, how all those land, we don't know yet. We believe again with transparency and such that we're in a competitive positioning as a company globally. And that allows us to negotiate based upon the inflationary pressures, reasonable escalator as I mentioned. So that's sort of our targets. We're still early as our contracts come up for renewal. And we need to understand where the payers think we are aware they are in their planning as well. And I believe our relationships will allow us to get to a number that makes sense for both organizations. But I do anticipate it being somewhere around the mid-single-digits.

Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is open.

Hey, thank you very much. I just wanted to ask a capital deployment question now ex-these Utah hospital acquisitions, given the FTC challenge, does this change at all your strategy or impede the strategy of accessing patient access points in market? Could this potentially mean that we might look at some larger health system acquisitions in new markets. So just any thoughts on that? Thanks.

I don't think the decision in Utah necessarily changes our overall outlook, we will continue to look for opportunities that are appropriate in market, most of us tend to be ambulatory oriented, where we're able to add to our networks, just this past quarter, we acquired another urgent care company in our Virginia division. And it's solidified our network capabilities offerings in that particular state, just like we've done previously in Florida. So we'll continue to look for outpatient network development opportunities. A lot of that will be our own Greenfield projects, but it may be some acquisition opportunities here and there. As it relates to markets, clearly, we're interested in new markets, we think we have the organizational capability and the financial capability to create a lot of value in the communities across the country. And hopefully, we will see some opportunities on that front, we're fortunate to be in a position where we have solid organic growth opportunities, given the markets that we serve. And so we will continue to invest in those. I think in general, our capital allocation strategies will remain consistent. We have a very diversified approach to capital allocation. And we all continue to use that model for delivering shareholder value as well as making sure our networks are sufficiently developed with capacity in different offerings.

Our next question comes from Brian Tanquilut with Jefferies. Your line is open.

Hey, good morning, guys. Sam, you mentioned in your prepared remarks how you opened three new Galen nursing schools this past quarter. So there's a lot of chatter about how difficult it is to add nursing school capacity here in the U.S. Just curious in terms of how you're thinking about the ability to add more locations, based on availability of professors and licenses to add to the nursing capacity in HCA?

Thank you. I think the acquisition of Galen has yielded since we closed on that transaction, we've added eight new schools. And in most circumstances, those schools have started with a moment that was ahead of our model. Part of our ability to expand and open new colleges as efficiently and effectively, as Galen has so far is really reflective of a unique model they have where they standardize the facility. They standardize the curriculum in the delivery, what's unique about HCA and Galen together is that we can use some of our own staff to support faculty needs in some cases, and then obviously create very efficient and effective clinical rotations. We are up to 13 schools. We will open, like I said, a couple more this year, and I think our pipeline has six to eight over the following 12 to 18 months. Our vision is that all of our major communities will have at least one Galen College of Nursing as part of the overall network offering, some communities because of their size will probably have more than one. So we're extremely encouraged. I have visited myself three of our new schools. There's tremendous enthusiasm with the students. There's tremendous enthusiasm with the faculty and there are tremendous enthusiasm with our nursing leadership across the company about the unique possibilities that the integration of nursing education with clinical operations in facilities as sort of an integrated model is something that is differentiated and it's going to create better nurses, better value for the patient, and we think it will supply for HCA facilities that you need in most circumstances.

Our next question comes from Joshua Raskin with Nephron Research. Your line is open.

Thanks, good morning. Are there certain parts of the healthcare delivery ecosystem that you think are more attractive now that you're talking about the sort of new stabilization, that that just haven't been as attractive in the past. Are there areas of growth for HCA in the future that you just haven't looked at in the past?

I don't think there's anything that's completely changed. Obviously, outpatient facilities, pre-pandemic were very important aspects to our network. We have roughly 2,500 outpatient facilities that are part of our hospital network ecosystem. So it's about what 12:1 in our company. We were very intentional over the last decade in building out our outpatient network to support our hospitals, which is sort of the core of who we are. And that integrated network model, we think was very effective, and very supportive and our ability to go from 23% market share in 2011 to 28% market share today. As we push forward into the future, I do anticipate more velocity, if you will, and the network development we've had previously. But that really is across all aspects of outpatient development. Our philosophy is to create convenience for the patient, efficiency for the patient with different price points, and then integration with a full system approach, so that the patient can get whatever services they need inside of our overall provider system. I don't know that anything is uniquely differentiated in that though, and I think it takes a comprehensive and complementary approach to be most effective and most responsive to our patients and our physicians.

Our next question comes from Lance Wilkes with Bernstein. Your line is open.

Yes, thanks a lot. Just wanted to understand a little bit about kind of volume constraints that have been in place during COVID. And including labor supply constraints, and maybe how you track those metrics to see if those are starting to kind of loosen up a little bit, that the aiding volume in addition to just normal resumption of volume trends out there. So how are you looking at it? And what are some of the steps you're taking to kind of improve labor supply there?

Well, let me speak to our occupancy. This is Sam again, we ran about 72% occupancy in the second quarter. And as I mentioned in my prepared comments, we did open up more capacity than we had in the first quarter. We were a bit constrained with staffing. We had surgeons we were dealing with. So our overall availability of capacity was not as much as it was in the second quarter. In the second quarter, however, we did have periods of time, where our staffing constrained our capacity, and we weren't able to take transfers through our transfer centers, which are a very important element of our network that I just talked about, with our network model. And we saw situations where we couldn't take patients in certain facilities at certain times. It wasn't structural, but it was episodic in how much activity we had at a particular facility at a particular point in time, as well as the staffing. Our overall staffing supply agenda, I've spoken to that already around recruitment, retention, different care models that we're trying to use and managing our case management capabilities at a totally different level. We've seen improvement in every one of those categories, and that's helped us stretch our capacity, if you will, in appropriate ways that deliver outcomes for patients that are appropriate. So we'll continue to move on all of those initiatives. And we think it will allow us over time to continue to open up more and more capacity. We've seen a lot of pressure in our behavioral health services, where we have a reasonable number of facilities that are operating less than at full capacity, we've had the same thing in our rehab services. And we had the same thing in other aspects of our business. But again, it's improved sequentially. And we think it will continue to improve as we move through the year. Does that significantly compromise our volume? No. But it does create some opportunities for more volume as we manage through those initiatives.

Our next question comes from Scott Fidel with Stephens. Your line is open.

Hi, thanks. I was interested if you can give us your perspectives on the evolving primary care environment, just with all the focus on value-based care and then and with the emergence of some new players in the space, I guess, including yesterday. And then for HCA, how you think that could impact physician recruitment or network development longer term? Thanks.

Thank you. This is an interesting point in healthcare, generally speaking, I mean, primary care is a multi-faceted offering. It has urgent care, it has women services, pediatric services, telemedicine, internal medicine, even the emergency room, in some cases, serves as a primary care platform for many people. So our approach is to have as many components of the primary care offering set as we possibly can. In some cases that's employed, we have employed physicians. In our physician model, we have our urgent care offerings, we have telemedicine offerings. We have pediatric offerings, and so forth. In many instances as a combination of employee and affiliate physicians or affiliate providers, it could be providers of other urgent care centers, or other physicians and so forth. What's developed with the one medical, it being just another component of a possible affiliated network offering, I don't know that it completely changes the paradigm that exists across the multi-faceted aspects of primary care and how people access care through those different dimensions. So we will continue to have a pluralistic approach to primary care. And we think that's the model that works for us, as pushed through our system approach to healthcare in these communities.

Our next question comes from John Mason with Raymond James. Your line is open.

Hey, good morning. Bill, you said on the first quarter, you thought the kind of short term margin was in the 19% to 20% range with the new realities. As your thinking changed on that?

No, John, not really. I mean, you look we did I think we did it 19.7 in the first and 20.5 in the second. Obviously, there's pluses and minuses. As you know, there's a lot of variables that go into the actual margin number, and we continue to focus to operate the company as efficiently as possible. But I think that 19 to 20 range is a good planning horizon for us. I think there'll be periods where we're north of that, some periods where within that. So I still think that thinking holds today.

Thank you.

Yes.

Our next question comes from Stephen Baxter with Wells Fargo. Your line is open.

Yes, hi. The commentary you gave on the non-COVID emission metrics seems like you're seeing the growth in managed care, but I guess that implies, declines on the government side of the business or the uninsured side of the business. I was hoping you could provide some insight into, what you think is driving that differential? And then as a follow-up, just wondering how we should be thinking about the growth of surgical volumes for the balance of the year? Thank you.

Well, this is Bill, let me start with a non-COVID piece. I think there's a couple of things that play there. One, we did see growth in the non-COVID managed care. And that continued, I think a favorable payer mix during that we were seeing and again, as I said in my remarks, we also saw the acuity levels maintain. So those are two areas that we're focused for us and we were pleased with that. Relative to the governmental activity in a non-COVID. It fluctuates, we are seeing some growth in the Medicare, which is still a good thing for us. Our total Medicare admissions, I think we're at 0.6% for the quarter, but we also saw growth in the managed care side. So I think, ultimately what we expect to see is a return to historical growth patterns and pretty consistent among those payer prices. And as I've talked about in various settings, it may be a return of both governmental payer classes as well as a commercial and net-net those are still positive and productive for us.

Our next question comes from Andrew Mok with UBS. Your line is open.

Hi, good morning, given the footprint of your hospitals, it seems like you are well positioned to benefit from stronger ACA enrollment helped by enhanced premium tax credits, can you help size the benefit in terms of revenue or volumes from those programs? And how are you thinking about the impact to your business should those enhanced subsidies expire? Thanks.

Yes, that's a great question. And I'm sure paying attention to that. And we have some hope that we'll see those enhanced subsidies have some continuation, and we'll pay attention to that as the year goes on. And we'll try to assess any impact of that in 2023. There's no doubt we talked about that through 2021, we saw growth in the health insurance exchange activity across HCA primarily due to the enrollment increases that we saw on there. So if the subsidies end up being reduced, it would have an impact on enrollment, it could have an impact on our volume. We haven't fully sized all of that, we're going to wait to see how the various proposals worked through Congress and the Houses and again, helped get some extension on there. But if we go into '23, that's obviously a key area that we're going to have to focus on kind of soon. But we saw I think, through the course of '21, our health insurance exchange growth, probably 20% to 25% in a given period. And again, I do think that was primarily attributable to the increased enrollment that I think is attributable to the enhanced subsidy. So we'll just have to see how that plays out. We're hopeful that they find ways to continue those and you won't see a drop of people gaining coverage through the health insurance changes we go through the balance of the year.

Great, thank you.

Thank you.

Our next question comes from Jason Cassorla with Citi. Your line is open.

Great, thanks. Good morning, just with year-to-date CapEx spending close to $2 billion, you're seemingly tracking towards your '22 guidance of $4.2 billion. But I was wondering if your expectations on areas for CapEx allocation for service lines specifically has changed given trends so far, perhaps different service line buildouts, just given the volume and labor backdrop, any help there would be great, thanks.

This is Sam, I don't think we're going to see any material change in how we allocate capital. We believe we have a sufficient allocation around our technology agenda, our outpatient development agenda, and then as I mentioned in my comments, targeted hospital investments to support a growth opportunity or relieve a capacity constraint or really even create a better environment for our patients in some instances. So I don't anticipate significant shifting of categories, we will obviously adjust the overall market demand picture in such from one community to the other and we'll weave into that inside of those categories primarily.

Our next question comes from Sarah James with Barclays. Your line is open.

Hey, thank you. So if I think about the 10,000 nursing students a year that could be graduating from Galen, how much of those are actually taking full-time positions at HCA? What's your capture rate and then is there anything that you can be doing with tuition reimbursement to try to improve your capture rates?

Well, that's a great question. We're evolving our integration model, as I mentioned with nurse students and externs and rotations and so forth, and it's a little early to give an indication as to what the capture rate will be if you will, partly due to the fact that the schools are new, and we aren't seeing graduates just yet. We only have two schools today in HCA markets where they're graduating students. And we're improving sequentially our capture rates, use your term in those two schools, and that's in Tampa and San Antonio, where we're seeing more Galen students land in HCA facilities. We have a very robust academic partnership strategy. It's not just Galen, Galen can't solve all of the nursing needs for the organization. They can complement it in a very significant way, as we've mentioned, but our broader academic partnership agenda is working with other great schools out there that provide nursing care. And we think what we can do is learn from our Galen experience and meet with other academic centers more effectively, create a better experience for their students, and maybe a better pathway forward into HCA facilities in the future. We do have numerous programs that support HCA colleagues in getting nursing degrees. We have tuition support, we have other programs that create opportunities for our people inside of Galen, and we're continuing to evolve those. But I'm encouraged by some of the early indications of how many HCA colleagues were actually participating in Galen schools now. So we will hopefully see some benefit from that in the future.

Our next question comes from Jamie Perse with Goldman Sachs. Your line is open.

Hey, good morning. You commented earlier just on your ability to flex and adapt. And you showed that this quarter and really the last couple of years, I'm curious how you think about a recessionary scenario or just lower growth overall, constrained consumers, weaker job growth. How should we be thinking about that type of environment? And what types of things that are in your playbook to adapt to a more challenging macro?

Well, we have gone through numerous recessionary cycles, just as other companies have gone through. And we're preparing ourselves for what that could be, if it does develop in this cycle. And Bill alluded to a number of the programs that we have, trying to make sure our efficiencies and other resiliency items are pushing forward regardless of the circumstance because we see value there and opportunities. I think what is potentially different in a very significant and structural way now is how the Affordable Care Act in exchanges and Medicaid expansion play in a recessionary cycle, we have never had that safety net during that type of cycle. In those past cycles, if a person lost their job, they went into the uninsured ranks. I think what we have today is a unique safety net for those people in the Affordable Care Act programs that should provide some support by comparison to past cycles. Typically, we lag as many of you know and how demand behaves in a recessionary cycle, but it provides labor relief also for us. So there's a balance between the two, HCA Healthcare has performed well in past recessionary cycles. And I'm confident that we can perform reasonably well in future recessionary cycles as we get more adaptability in our business and then again, as the Affordable Care Act provides some level of support that we hadn't seen in the past.

We have reached the end of the question-and-answer session. I'll turn the call back over to Frank Morgan for closing remarks.

Chantel, thank you for your help today. And thanks everyone for joining our call, who gave a wonderful weekend. I'll be around today if I can answer any additional questions you might have. Have a great day.

This concludes today's conference call. You may now disconnect.