Welcome to the HCA Healthcare Third 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 will take questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements that 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 refer to 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 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.

Good morning. Thanks for joining the call. As I’ve mentioned on past calls, it has been difficult over the pandemic period to judge our business trends because of the ups and downs we have experienced with the various COVID-19 surges. If you recall, the third quarter of 2021 was the most intense surge we saw with the Delta variant, and it significantly influenced our business, making it difficult to compare. We believe the second quarter and the third quarter of this year provide us with the most sustained period yet for us to judge our business. Generally, the financial results in the third quarter were in line with our internal expectations. As compared to the second quarter, our revenue production was consistent with overall volumes, payer mix and acuity generally stable. These results were generated with capacity constraints in certain situations caused by ongoing labor market challenges. In the quarter, we continued to invest significantly in our workforce including the opening of one more Galen College of Nursing campus. These investments produced improvement in retention, more new hires and reduced contract labor expenses. Overall, operating margins were solid and were a positive reflection on the disciplined execution by our teams. I want to thank them for their enduring commitment to our patients and our facilities. We continue to be impressed by the resolve and dedication. These attributes were once again put to the test with Hurricane Ian. Fortunately, no patient or employee was harmed during the storm. And with the help of our partners, all facilities with the exception of one are fully operational. In the face of disasters, whether a pandemic or a hurricane, the people of HCA Healthcare continue to shine. Normally, on this call, we attempt to provide you with some early perspectives on the upcoming year. Currently, we have reasonable insights into certain aspects of our business such as demand, which we believe will grow around 1% to 2% next year. We also expect payer mix and acuity to remain stable. However, with respect to inflation, we are less certain. We have responded to these unprecedented inflationary and macroeconomic pressures, and we will continue to respond with our workforce initiatives and our financial resiliency program, but it is too early to judge the effectiveness of our response as these forces and the related governmental responses continue to evolve and impact various categories of our costs. Therefore, we will refrain from providing the typical early outlook for 2023 until we finish our planning process in early January. By then, we will have seen another three months of performance to assess the overall environment as well as our response to it. I will close with this. We continue our work to position the Company for long-term success and sustained stakeholder and shareholder value. Our strategic plan is designed to optimize the networks we have built over the years by resourcing them with better technology and analytics, new and innovative care models and a highly trained workforce. We believe these efforts position us well to grow and effectively leverage our deployed capital. But more importantly, they position us better to deliver on our mission and provide higher quality care to our patients in a more efficient manner. Now, let me turn the call over to Bill. Thank you.

Thank you, and good morning, everyone. Let me provide some additional comments on the quarter. As Sam mentioned, our results in the third quarter were in line with our expectations. Adjusted EBITDA was $2.902 billion, adjusted EBITDA margin was 19.4%, and diluted earnings per share was $3.93, excluding losses on sale of facilities of $0.02. Our same facility volume levels in the third quarter were generally consistent with our second quarter levels. Our volume trends compared to the prior year reflect the COVID-19 surge we experienced in the prior year. For example, our same facility admissions are down 1.5% when compared to the prior year. COVID admissions were down almost 60% this quarter compared to the third quarter of last year, and they represented almost 13% of admissions in Q3 of last year versus 5% of admissions in the third quarter of this year. Non-COVID admissions increased 6.9% in the quarter as compared to the prior year and are up 2.7% year-to-date. Acuity and payer mix levels were generally consistent with second quarter levels as well and led to comparable revenue per equivalent admission between the second and third quarter. As mentioned in our release, we recorded approximately $266 million of revenue and $125 million of expenses related to the Florida directed payment program during the quarter. Approval for this program was received in September from CMS for the annual period ending September 30, 2022. In addition, we estimate the impact of Hurricane Ian, which made landfall on the West Coast of Florida on September 28th, was approximately $35 million in the quarter. Our labor costs were generally in line with our expectations. We made market-based wage adjustments for our employee workforce and were able to absorb much of this with a 19% reduction in contract labor as compared to the second quarter. Supply cost trends remained stable, both sequentially and when compared to the prior year. Other operating expenses increased sequentially from the second quarter but this is mostly due to the Florida DPP expenses and some increases in professional fees and utility costs. We remain focused on our resiliency programs that we’ve spoken to in past calls. And overall, our teams are doing a great job responding to the inflationary market dynamics while also identifying efficiency opportunities. Let me transition to discuss some cash flow and balance sheet metrics, which continue to be a strength for HCA Healthcare. Our cash flow from operations was $3.02 billion in the quarter, and capital spending was $1.13 billion. We completed approximately $700 million of share repurchase during the quarter and just under $5.5 billion year-to-date. Our debt to adjusted EBITDA ratio was just above the low end of our stated leverage range, and we had approximately $3.9 billion of available liquidity at the end of the quarter. Lastly, I will mention that our full year 2022 guidance remains unchanged. So, with that, let me turn the call back over to Sam for some quick comments before we go to Q&A.

Yes. One thing I wanted to share are the themes that we believe are takeaways from our quarter and sort of the normal business trends that we were judging between the second and third quarter. And these themes are as follows: first, again, we think our top line metrics are stable and normal seasonality patterns are beginning to show themselves; number two, we are making progress on our human resource agenda, our engagement levels are up, and so we’re encouraged by that; number three, inflation is real. It’s a pressure point, but we’re working our way through it with our resiliency agenda and other initiatives; and then fourth is that long-term growth prospects, we believe exist across our portfolio. So those things, we think, are important to our judgment of the third quarter as compared to the second quarter and as we look to push forward on into next year and the years thereafter. So with that, Frank, I’ll turn it over to you for questions.

Thank you, Sam. As a reminder, please limit yourself to one question so that we may give as many as possible in the queue an opportunity to ask a question. Dennis, you may now give instructions to those who would like to ask a question.

Thank you. Your first question today comes from the line of A.J. Rice with Credit Suisse. Please go ahead.

Hi, everyone. Thank you for the question. I have a technical point regarding Hurricane Ian and its impact in the early part of the fourth quarter. Additionally, I have a broader question about your surgery volumes. You have clearly shown positive trends in inpatient compared to a year ago, with outpatient consistent with what you've demonstrated year-to-date. I assume some of this is related to what occurred last year with the Delta surge. Can you provide some insight into your inpatient-outpatient situation, and are we back to a normal environment there? It seems like you anticipate a potential increase in the fourth quarter due to normal seasonal patterns, but I would appreciate any comments on that.

Well, A.J., this is Sam. I’ll let Bill address the first question regarding Hurricane Ian in the fourth quarter. To provide some context, we evacuated four hospitals in the Tampa and St. Pete area when we thought the storm was going to hit further north. When the storm moved south, we managed to transfer our most critically ill patients from two hospitals that were significantly impacted in Charlotte County. One hospital sustained considerable damage, but we have already reopened portions of it. Our emergency room is operational again, one of our medical-surgical floors is back open, and we expect to be fully functional by the end of the year. Our teams in the West Florida division and North Florida did an outstanding job responding to a very impactful hurricane, which affected our results in the third quarter. Our volumes were down in both the West Florida and North Florida divisions that oversee Orlando due to this. We had extensive preparation and management in advance of the storm, which led to a modest decline in our volumes. Regarding seasonality, we believe normal seasonal patterns are starting to take hold, typically leading to increased activity in outpatient surgery during the fourth quarter compared to the third quarter. We anticipate this trend and are noticing normal patterns in other areas of our business related to surgeries and cardiac procedures. This helps us assess our current position and the efficacy of our initiatives. It’s also important to note that capacity constraints we experienced in the third quarter were genuine. Some of this stemmed from the typical challenges we've faced over the past two and a half years in managing capacity. However, we believe we can continue to expand our capacity as we progress through the end of this year and into next year. In the last quarter, we saw declines in many cases because we couldn’t accommodate patients, accounting for about 1% to 1.5% of our total admissions due to these capacity constraints. We need to address this issue. We are confident that the advancements we are making on our HR agenda will help us maintain adequate capacity to meet the needs of the patients requiring our services. We will keep pushing forward on these fronts, and we are encouraged by the progress we are making.

Your next question is from the line of Pito Chickering with Deutsche Bank. Please go ahead.

I understand that you don’t want to give sort of 2023 guidance at this point, but can you help us sort of quantify a couple of things? How should we think about top line growth next year? You talked about sort of 1% or 2% demand. Where do you expect the pricing to be, any color on managed care price increases in 2023 versus 2022? Now, on the cost side of the equation, what are you seeing for full-time inflation in the fourth quarter this year? I think that evolves next year. Any color on sort of how new grads coming out of nursing schools, decreases contract labor? And then any sort of thoughts around non-labor inflation next year that you can give some color on? Thanks so much.

Well, Pito, this is Bill. Let me try. I mean, I think Sam gave you comments on our thinking about top line. And really, the uncertainty remains around inflationary trends. And that’s what we’re looking at. Take the balance of the year, coupled with our experience so far to get some informed judgment as we go into 2023. So, it’s a bit too early to provide too many details. We’re pleased with the continuation of labor agenda. We’re pleased with the continuation of reductions of contract labor. And we’re just going to have to judge the overall inflationary environment as we go into 2023. We think our teams and our resiliency efforts are good countermeasures to that. But that’s what we’re taking a little bit more time to kind of be able to judge that, and we’ll give you a full commentary in January.

I think just to add a point to the third quarter as compared to the second quarter, our salary, wages and benefit cost per hour were flat with the second quarter. That was partially due to a 20% reduction in contract expenses. And at the same time, our normal wage timing for adjustments for our employees happens in the third quarter. And so, we were able to absorb that with the management of our contract labor expenses. So, that was encouraging. That’s the first quarter in a while where we’ve seen stabilization in our labor cost per hour when you mix all components of our labor costs. So, we’ll continue to hopefully make some strides in that area and moderate some of the pressures, Pito, that exist in the labor market as we continue to execute on our recruitment agenda, our retention agenda, our capacity management and so forth.

Your next question is from the line of Ann Hynes with Mizuho Securities. Please go ahead.

Your volume guidance for next year is 1% to 2%. And I believe that’s a little lower than historically, you typically guide 2% to 3%. Can you just talk about that and maybe what procedures aren’t coming back or why you feel like it’s not going to be a normal year since COVID admissions, while they still exist, aren’t at the height they used to be?

I believe the 1% to 2% guidance is somewhat lower than our historical trends due to COVID admissions activity in 2022, which we expect to be less significant in 2023. Adjusting for COVID, the figures align more closely with our past trends. We anticipate outpatient activity will be stronger than inpatient activity, consistent with historical patterns. Additionally, with robust market conditions and our investments in the network, we are confident we can reach those normal trends, especially once we account for the reduced COVID impact we expect next year. There is still some lingering influence from COVID, which plays a role in our guidance.

Your next question is from the line of Justin Lake with Wolfe Research. Please go ahead.

Thanks. I wanted to ask a couple of questions about 2022. First, I noticed that you didn't update your guidance, which I assume means it remains the same. I'm curious, now that we’re three quarters in, where you think you might end up within that guidance range. Additionally, in the third quarter, COVID admissions fluctuated quite a bit. Could you provide a revenue per admission figure excluding COVID, so we can assess growth without the impact of those significant COVID swings? Thanks a lot.

Yes, Justin, this is Bill. Let me address guidance first. We are maintaining our previous guidance, which accommodates a wider range of outcomes than usual at this point in the year. Given the uncertainties in the environment that we've discussed, we believe this is appropriate, and we'll continue to manage through the rest of the year. Regarding non-COVID revenue for adjusted admission, we saw growth in both overall and managed care. If you give me a moment, I’ll provide you with the exact number. For the quarter, we experienced an increase of about 2 points in revenue per adjusted admission for non-COVID.

And Bill, that would strip out the Florida revenues as well?

Yes, it would be.

Your next question is from the line of Gary Taylor with Cowen. Please go ahead.

I have two quick questions. First, regarding the challenges for 2023 that you mentioned earlier, specifically the Texas out of period and some COVID reimbursements. Does the Florida DPP count as a challenge for 2023, or is it a program you expect to continue, making the annual figures consistent? My second question relates to your comments on inflation. We've seen strong labor performance this quarter, and the supply cost per adjusted patient is actually down year-over-year. Are you indicating that there is a new turning point in inflation that concerns you for 2023? Is this related to labor costs, or is it affecting other operating expenses like utilities and insurance?

Yes. Hey Gary, this is Bill. Let me address the Florida DPP. We are not anticipating that to be a headwind next year. That is an annual program, have received annual approval. So, we are subject to approval. But, as you might recall, we reported some amounts in the fourth quarter of last year. And with this amount, we would, at this point, anticipate that program will continue, and it’s material for next year, but we’ll continue to evaluate that.

Yes. And Gary, this is Sam. On inflation, we’re not really signaling anything. We’re just suggesting that we want to go three more months and understand the progress that we hope to make with our labor agenda and some of our other efforts. And that will give us, hopefully, nine or ten months’ worth of normal run of business. Again, we haven’t had that for three years. And that will help inform where we think the market is, where we think our initiatives are and how that’s positioning us for 2023, and we’ll give you more specificity at that particular point in time on the different cost categories and inflationary pressures that exist within each of those.

Your next question is from the line of Andrew Mok with UBS. Please go ahead.

I understand you’re not commenting on 2023 at this point, but can you help us understand the level of nonrecurring benefits in 2022, so we can bridge to a proper 2022 baseline? Thanks.

Well, I mean, we’ve talked publicly before around the Texas out-of-period amounts that we recorded earlier in the year that related to last year. That was approximately $150 million. And then, we’ve sized the various COVID support payments we received this year that we don’t anticipate to continue around $300 million. And so, those would be the two areas we’ve talked about before. And there is other pluses and minuses, 340B is out there. But those are the two things that I would highlight at this point.

Your next question is from the line of Whit Mayo with SVB Securities. Please go ahead.

Thanks. I just want to go back to contract labor for a minute. I appreciate the disclosure that it declined 19%. Can you maybe frame that as a percentage of SWB in the third quarter and also maybe what the exit rate is? And also, Bill, your comment on market-based wage adjustments, is there any way to maybe quantify that on an FTE basis or a per hour basis, just to put into perspective the level of inflation that you’re seeing and how different that is maybe from the beginning of the year? Thanks.

Yes. Whit, on the contract labor percent of SWB was about 7.2% for the quarter, and that’s pretty much close to our exit rate, as you say, for the quarter. So that’s a good improvement. Roughly speaking, half of that was through the continued reduction of the average hourly rate and half though reduction of utilization of contract labor. So, we’re very pleased with those trends going forward.

Yes, this is Sam. We typically implement our wage increases in the third quarter, although it can vary by market. This period accounts for the majority of our increases. In the past year, we have made some targeted market adjustments, but we realized we needed to be more substantial with these changes. The overall increase is just above 4% when comparing the third quarter to the second quarter in terms of average hourly rate increases for our employed forces. We managed to absorb this increase within our contract labor expense management, resulting in labor costs remaining flat from the third quarter to the second quarter. We currently have more nurses in contract labor compared to 2019, which gives us room for improvement. We must effectively execute our human resource strategies to achieve this. We have heavily invested in enhancing our recruitment capabilities, which have greatly improved our recruitment processes and applicant experiences, as well as management experiences for our teams. We are implementing focused retention efforts, including competitive compensation, benefits, and flexible scheduling, and we are seeing positive progress in this area. Our recent engagement results are very encouraging, and we feel optimistic about our ability to adapt our workforce over time. We recognize that circumstances can change, but for now, this is our position.

Your next question is from the line of Ben Hendrix with RBC Capital Markets. Please go ahead.

One of your competitors mentioned an increase in the number of clinicians in quarantine this quarter, which clearly affected agency labor. However, it seems you managed agency labor much more effectively. I'm curious about your staff quarantine rates this quarter compared to previous ones. How were you able to handle that? Did you experience any scheduling delays for outpatient electives because of the changes in quarantine rates? Thanks.

This is Sam. Thank you for that question. I don’t know of any quarantine issues that we experienced in the third quarter this year. Last year, with the Delta variant, we had a number of our staff who were out on quarantine. But this year, that has not been an issue for us across our divisions. I’m sure there were some people who experienced some COVID in our workforce, but it wasn’t a significant issue for us.

Your next question is from the line of Lance Wilkes with Bernstein. Please go ahead.

Yes. So, could you talk a little bit about rate negotiations with managed care? What progress you’re seeing on that? And maybe if you can give some context on the market environment, if you’re seeing any smaller hospitals that are terming contracts or if you, in fact, termed any contracts? Thanks.

Well, we’ve mentioned in the past that we felt the inflationary pressures that we’re incurring on our cost structure are being received reasonably well by the payer community. And that has, in fact, happened. We closed some additional contracts in the third quarter of this year, and they were generally in the target of where we had indicated previously that we expected our new contracts to land, and that was somewhere in the mid-single-digits. So, we are making progress with respect to our renegotiations. As I mentioned, we were already partially negotiated for 2023, and we continue to add to that negotiation in contract completion rate as we move through the third quarter. So, we’re encouraged by the renegotiations that have occurred, and we are about 70% contracted for 2023 and about 45% contracted for 2024, and we’re seeing elevated escalators by comparison to our historical trends on our commercial contract book. As it relates to our competitors, there’s always pockets of negotiations where there’s terminations and so forth. We have not had to terminate any contracts in any significant fashion. We’ve been able to reach agreements that work for us and work for the payers, and we’ll continue to hopefully be able to make that happen. We are working with the payers with respect to making sure that our accounts receivables are handled timely and appropriately with respect to denials and so forth, and we are incorporating that into our discussions in a way that we think will be productive for us and hopefully productive for the payers.

Our next question is from the line of Brian Tanquilut with Jefferies. Please go ahead.

Sam, I appreciate you guys providing some insight into next year’s volume expectations. But, as we stare down a recession here, I mean, how are you thinking about the resilience of the business? You guys did fairly well during the last recession, but just some thoughts on that and maybe your thoughts on any differences this time around versus ‘07 to 2012?

Well, I think the most material difference, and I mentioned this on the last earnings call we had is that the Affordable Care Act and the exchange community provides a potential safety net that heretofore in previous recessionary cycles we didn’t have. And that, for us, we believe, is a positive. As it relates to the other aspects of our business, our demand for healthcare services tends to lag the rest of the economy and we tend to see demand in the earlier part of a recessionary cycle sort of hold, and that was when people were under COBRA benefits and so forth and then it would fade over time. But with the Affordable Care Act and the support that the exchanges provide, we’re not sure how to gauge that at this particular juncture, because it’s a new dynamic, but we believe it to be a favorable dynamic. So, that would be where we are at this particular point with judging the future impact of a recessionary cycle. I think, our teams are working to with our resiliency agenda and other efforts to anticipate where they can anticipate and make adjustments where they can to put us in the best position to be successful. We think our balance sheet is strong and that should create opportunities for us to invest in certain situations and hopefully gain market share. You look at our markets as a whole, Florida, Texas, Nashville, Vegas. These are fairly strong durable economies, we believe. It may be a little stronger than the nation as a whole. So, that can hopefully add some support as we go into a recessionary cycle potentially in the future.

Your next question is from the line of Kevin Fischbeck with Bank of America. Please go ahead.

There seems to be some uncertainty about how to approach volume normalization. While you're performing better than in 2019, you're still approximately 4% to 7% under what you might have anticipated if you had experienced a growth of 2% to 3% each year leading up to 2019. Additionally, it seems like you're projecting that growth rate to remain below average for next year. It sounds like you're suggesting that demand in your markets is resilient, yet it feels like you're drifting further away from that expected trend line in the short term. Could you clarify how we should consider this situation? Is labor the main obstacle to returning to that trend? Are there other factors at play? If the trend line is indeed a valid benchmark, what are your thoughts on the necessary steps to get back to that level?

Let me make a couple of comments. I do think there is an imbalance between supply of healthcare and demand for healthcare right now, primarily because of some of the labor constraints. And people are being pushed out, they’re being held up. Again, transfers are not happening as we had anticipated. So, there is some influence to that. Anecdotally, we’ve heard from some of our physicians that their clinic practices are starting to recover in ways that maybe earlier in the year, they didn’t recover. So that’s encouraging to us at some level. Obviously, during the comparison of 2019 to today, our total joint business migrated fairly significantly to outpatient activity. When you look at 2019, on the outpatient side against the third quarter of 2022, we think our outpatient activity has grown 5% or 6% over that time period. Our inpatient activity is down a little bit, most of which is explained by the total joint movement. So, we were asking ourselves when you think about it, did that business go away or not. So, I think when you look at our non-COVID admission activity, which year-to-date has grown 3% and grown a little bit more even in the commercial business, it is actually sequentially growing third quarter to second quarter. That gives us encouragement that we’re moving closer to the historical trend. Again, we have a little bit of COVID influence this year because we had activity in the first quarter and a little bit of activity this quarter. But, when we look at non-COVID by itself, we’re encouraged by what we’re seeing. ER visits have rebounded and shown a great deal of resiliency. So, we think it’s migrating closer to the historical trend than not.

Your next question is from the line of Scott Fidel with Stephens. Please go ahead.

Question just around, obviously, another one of the sort of uncertain swing factors for 2023 is just around the public health emergency and whether that gets finally pulled back or not. Can you just remind us for HCA again, just what the key impacts or benefits that you’ve been seeing from the PHE would be? And how that would factor into your thinking for next year, would you ultimately see the public health emergency go away? Clearly, return of redeterminations in Medicaid is probably the biggest item, but just any others as well would be helpful. Thanks.

Yes, Scott, this is Bill. I believe the main point was the additional payments tied to the DRG that we've discussed. With the COVID volume decreasing, that hasn't had a significant impact on us. Regarding the next area, which is likely more important, is what will happen with the Medicaid redetermination process when it expires across different states. We've looked into that and feel we're well-prepared. Those would be the main consequences or effects of the public health emergency; the DRG add-on isn't currently significant, and we'll get ready for the Medicaid redeterminations.

Your next question is from the line of Jason Cassorla with Citi. Please go ahead.

Great. Thanks, and good morning. Just related to fourth quarter, I guess, COVID has trended higher so far this year than perhaps your previous expectations. But, can you help on how you’re thinking about COVID activity for fourth quarter and if you’re thinking if it will accelerate versus this quarter? And then, also, just what your expectations are for flu trends, maybe just in guidance and for 4Q? And how we should think about what an elevated flu environment would mean for this year, maybe just in context of the current labor backdrop and versus historical flu seasons? Thanks.

Yes. I’ll start with COVID. We don’t have specific fourth quarter projections. As I said in my comments, we ran about 5% of our admissions in the third quarter. We ran about 3% in the second. So, my intuition says somewhere between those areas might be an area we see in the fourth quarter on there. In terms of flu volumes, again, we haven’t made any specific projections for flu, but clearly, we’re paying attention to the flu volumes that are out there in the anticipation that it might be a busy flu season. But I don’t think that necessarily changes the trajectory of our fourth quarter compared to what we previously thought.

Your next question is from the line of John Ransom with Raymond James. Please go ahead.

Good morning. I was considering the labor trends from the third quarter to the fourth quarter. You mentioned the 5% to 4% update during the third quarter. Does the fourth quarter appear stable if we factor in a potential ongoing decrease in temporary labor, or if you reach a plateau in that 7 percentage range you discussed?

I believe we need to wait and see regarding the contract labor levels, which we are confident about. We've made good progress this year, decreasing from around 9% in the early part of the year to 7%. We think we can maintain that range for the rest of the year. Overall, we feel positive about the labor environment. It's too early to determine if the trends will be flat or if there will be some growth. However, we believe we can sustain the current contract labor trends and see some incremental improvements with utilization as recruitment and retention efforts continue to strengthen. We'll have to see how things develop, but we are optimistic about our labor strategy at this time.

Your next question is from the line of Joshua Raskin with Nephron Research. Please go ahead.

I was wondering, Bill, if you could give us an update on your returns that you’re seeing on your capital expenditures, maybe how you’re thinking about spend into 2023. And maybe related to capital, anything we should read into the lower share repurchases in the last quarter here?

No, I don’t think there’s anything to interpret from that. Regarding capital returns, we are still identifying promising projects to invest in. We expect our total capital spending this year to be around $4.2 billion. We are planning for next year and I expect it to remain within that range. This reflects the opportunities we continue to see for deploying capital to meet the anticipated demand for both inpatient and outpatient capacity as well as program development. Additionally, with HCA's cash profile, we have a well-balanced capital allocation. Our balance sheet is strong, and I expect our share repurchase program this year to be around $7 billion. Overall, this demonstrates a solid capital allocation aimed at delivering reasonable returns moving forward.

And Bill, I think you’ve said in the past something around north of 15% total, total return on CapEx, including maintenance and growth. Is that still the right range? Are you guys still generating sort of mid-teens returns on those CapEx projects?

Yes. I mean, obviously, each project varies. But when I step up and look at our overall return on invested capital, we’re in the high teens. So, that we’re encouraged by the net effect of all of our investment decisions.

Your next question is from the line of Jamie Perse with Goldman Sachs. Please go ahead.

I wanted to see if you could talk about length of stay. It’s still quite elevated versus 2019. What are the key bottlenecks you’re facing, both on inpatient throughput as well as discharge? Do you think those will go away over the course of 2023? And what does that mean in terms of your capacity expansion and also managing costs on a per patient day or per admission basis?

I think one thing. This is Sam. That’s important to understand. Our length of stay is up over 2019. But our case mix is up even more. So, when you look at our length of stay on a case mix adjusted basis, it’s actually down. So, that’s encouraging. Now, we have opportunities. We have significant opportunities, we believe, with better case management protocols, better use of technology, better partnerships with subacute providers and our own providers in that space to really improve the throughput in our facility. Just this past week, actually, we had an update on our case management agenda, and we continue to be encouraged by the progress incrementally that they’re making. And we think as we move on into 2023, that will continue. That is a key part of our capacity management and labor management as well. So, it’s got a lot of efficiencies connected to it. But, we have significantly increased our case mix over 2019, and that’s influenced our length of stay somewhat as well. But, I believe our overall program, which is a key ingredient to our resiliency effort is, in fact, adding value and will continue to add value for our patients as well as for the efficiency and the throughput within our facilities.

Your next question is from the line of Calvin Sternick with JP Morgan. Please go ahead.

Yes. Hi. Thanks for squeezing me in. I think you noted the impact that capacity had on volumes in the quarter. Just curious, I guess, one, if you think that’s going to be relatively consistent going into the fourth quarter? And then, it looks like same-store ER visits picked up a bit sequentially. Just curious, are you starting to see some more episodic care start to bounce back in that setting? And has there been any shift in the payer mix you’re seeing there? Thanks.

We will still face some capacity constraints in the fourth quarter. I am optimistic that our recruitment efforts and increasing headcount, along with the opening of more beds, will help alleviate some of these issues. Additionally, our case management initiatives will also contribute to increasing our capacity. However, I do expect some temporary closures regarding our ability to accept new patients at certain times. This situation arose during the pandemic but at a much lower level than we are experiencing now. Concerning the emergency room, we are pleased with the resilience of our emergency services. We are continuously improving our operations and patient flow in our emergency rooms to ensure we provide the care people need. We have expanded our emergency room capacity within our hospitals and some of our freestanding facilities, which is vital for our outreach in this area. We believe that the emergency room is a critical component of the healthcare system, offering essential 24/7 service to our communities. Therefore, we are still selectively investing in our emergency rooms to ensure we meet what we anticipate will be increased demand.

Your next question is from the line of Stephen Baxter with Wells Fargo. Please go ahead.

I wanted to ask about the mix of outpatient revenue in the quarter. It looks like that stepped down a bit more than you might have expected in a typical year. What should we think about as the key drivers of that? I guess, with some distance, does it look like Q2 might have benefited from some pent-up demand? And it doesn’t sound like it based on your comments, but any impact you’d flag from outpatient surgeries moving back to inpatient at least maybe compared to earlier in the year? Thank you.

No, I don’t think there’s anything structurally different. The outpatient revenue last year was impacted during the Delta COVID surge, and inpatient capacity was managed and limited, which likely resulted in increased outpatient activity in the second quarter last year. However, in terms of trends, we don’t see anything different occurring sequentially between Q3 and Q2 regarding outpatient trends.

And today’s final question comes from the line of Sarah James with Barclays. Please go ahead.

Hi, thanks for squeezing me in. Has there been a lift to acuity mix in ‘22 from some of the low acuity falling off related to consumer reactions, either COVID or the economy? And what would that do to revenue per admission as it normalizes? And then, just a quick clarification. Earlier you mentioned the 24 payer contract has labor cost escalators, can you clarify if that’s a static or dynamic? Because I think some of the acuities we’re talking about dynamic escalators coming in to reflect labor cost fluctuations.

This is Sam. I’ll answer the last question. Most of our inflators are static. We do have some contracts that have corridors, if you want to call that, or dynamic components to it with respect to inflation. So, most of our 24 will be more of a static inflator that we negotiate on the front end. And so, that’s how most of our contracts are structured.

Yes. Regarding the case mix, we're observing growth in our non-COVID case mix trends. Our case mix has remained stable, and we haven't noticed any significant decline. In the COVID segment, COVID contributed to a higher case mix compared to non-COVID, which has influenced our results. However, when we assess the basic trends, the acuity levels have remained stable, particularly between the third and second quarters. We view this as a fairly positive indicator.

And at this time, there are no further questions. Please continue with any closing remarks.

Dennis, thank you so much for your help today. Thanks, everyone, for joining us on the call. Hope you have a wonderful weekend. I’m around this afternoon, if I can answer any additional questions. Thank you very much.

This concludes the HCA Healthcare third quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect.