Welcome to the HCA Healthcare Second Quarter 2024 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 the 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 our CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take some questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they're 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 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.

All right, thank you, Frank, and good morning to everyone. the company's results for the second quarter were positive across the board and reflected strong demand for our services. In addition, our teams continued to execute our strategic plan effectively and produce positive outcomes for our patients while also enhancing efficiencies in our facilities, including better throughput and case management. I want to thank our HGA colleagues for their outstanding work and their continued pursuits to innovate and deliver on our mission. As compared to the prior year, diluted earnings per share, as adjusted, increased 28% to $5.50. Consistent with the first quarter, we saw broad-based volume growth across our markets and service lines. On a same-facility basis in the second quarter, inpatient admissions grew 5.8%. Equivalent admissions grew 5.2%. Emergency room visits increased 5.5%. Inpatient surgeries were up 2.6%. Outpatient surgery cases were down 2%. And like the first quarter, the declines were mostly explained by lower volumes in Medicaid and self-pay categories. Similar to the past few quarters, other volume categories, including cardiac procedures and inpatient rehab services, experienced strong growth, improved year over year, with commercial volumes representing 36.2% of equivalent admissions. And lastly, the acuity of our inpatient services, as reflected in our case-making index, increased slightly. These factors help generate same facility revenue growth of 10%. Also in the quarter, we progressed further on our cost agenda and produced solid addition to the last half of 2024, we are encouraged by the company's results. We believe the increased investments we are making in our people and facilities, along with our disciplined approach to operations, will continue to produce positive outcomes for our stakeholders. In closing, strong demand that we forecast for the remainder of the year, we have updated our guidance for the year as indicated in our press release. With that, let me turn the call over to Mike for more details. Thank you, Sam, and good morning, everyone.

The second quarter showed continued solid performance with strong demand, improved margins, and a balanced allocation of capital. Sam reviewed our top-line results, so I will cover operating costs in the quarter. Operating costs were well-managed, resulting in a margin improvement of 100 basis points to prior year and sequentially to the first quarter. Labor costs as percent of revenue improved 200 basis points from the prior year, and we continued to see good results on contract labor, which declined 25.7% from the prior year and represented 4.8% of total labor costs. Supply costs as a percent of revenues improved 50 basis points from the prior year. On other operating costs as a percent of revenue, they did grow compared to the prior year, but it remained relatively consistent for the past four quarters. We were encouraged that year over year, same facility professional fee cost growth moderated to approximately 13% in the second quarter, which compares favorably to the 20% increase we experienced in the first quarter. Adjusted EBITDA was $3.55 billion in the quarter, which represents a 16% increase over the prior year and included a modest benefit from Medicaid supplemental payments. As a management team, we are very pleased with the operational performance of the company. Now moving to capital allocation, we continue to deploy a balanced strategy of allocating capital for long-term value creation. The capital from operations was just under $2 billion in the quarter, which is a decline of $500 million in the prior year, driven by increase in tax payments and timing of Medicaid supplemental program accruals and cash receipts. Capital expenditures totaled $1.28 billion, and we repurchased $1.37 billion of our outstanding shares during the quarter. We also paid about $170 million in dividends. Our debt to adjusted EBITDA leverage remains near the low end of our stated guidance range, and we believe we are well positioned from a balance sheet perspective. Finally, in our release this morning, we are updating estimated guidance for 2024. For revenues, our new guidance range is $69.75 billion to $71.5 billion, net income attributable to HPA healthcare, $5.675 billion to $5.975 billion, adjusted EBITDA, $13.75 billion to $14.25 billion, and diluted earnings per share, $21.60 to $22.80 per share. Based on the strength of our year-to-date results and our revised outlook, we estimate that share repurchases will be around $6 billion in 2024, subject to market conditions. With that, I'll turn the call over to you, Frank, for questions and answers.

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

Thank you very much. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star 1. Again, that's star 1. Our first question comes from A.J. Rice from UBS. Your line is now open.

Hi, everybody. Congratulations on a good quarter there. Maybe just two areas that people are very focused on, supplemental payments. How is that running relative to your expectations? And in your back half comments, are you including anything for Tennessee? And then the other area being the public exchanges, what is the trend there year to year? And how much is growth in that helping for these strong results?

Mike, I'll take the supplemental question. You know, I think, as you're aware, Medicaid has historically been our most challenging payer, really, other than patients without insurance. typically paying us significantly below the cost of caring for Medicaid patients. Over the last several years, most states in which we operate have implemented or enhanced Medicaid reimbursement through supplemental payment programs. And while these supplemental programs are growing, it is important to put them in context. They can be complex, variable in their impact from quarter to quarter, and when taken together with historical Medicaid reimbursement are still well short of covering the cost. We believe it is important to understand this backdrop when discussing these programs. But now to the quarter. In the second quarter, we recognize a year-over-year earnings increase of approximately $125 million related to our Medicaid supplemental payment programs, driven primarily by the new program in Nevada and the accrual of the Florida program, which began in the fourth quarter of 2023. To your specific question about the new program in Tennessee, that is with CMS for review, and we do not anticipate financial impact from that program. If you want to go to the public exchanges, you know, for the quarter, and let me just kind of give commercial volumes in general first, and then we'll kind of break out Higgs. But our equivalent admissions for, you know, for managed care, including our health care exchange volumes, we're up 12.5% in this quarter versus the prior year quarter. However, if you take our managed care volumes without health care changes, they were up just short of 5% on equivalent admissions. And for health care changes, we were up 46% over prior year for the quarter.

Thanks a lot. On the volumes, I think, as I mentioned and Mike alluded to there, I mean, our Medicare volumes were up, I think, by 6.5%. So, you know, the volume was supported really across. Clearly, the exchanges with the enrollment over the last three years or so has become a bigger component of the business. It's still relatively small in comparison to the other payer classes. But nonetheless, we did see good volume across all payer classes, with Medicaid, I think, being the only category that was down.

And Medicaid's were down 10% on equivalent admissions.

Okay, great. Thanks a lot.

Our next question comes from Anne Hines from Missouro Securities. Your line is now open.

Thanks. Can we talk about SW&B? It was down quarter sequentially, and it's usually flat. Is that just driven by contract labor improvement? And if you can give us just any details on temporary labor, percentage of total contract labor, things like that, that would be great.

Sure. Thanks, Anne. And contract labor, you know, was down 25.7% this quarter versus prior year quarter. As I noted in my opening comments, you know, contract labor's percentage of revenue, I'm sorry, percentage of SWB was at 4.8% in the quarter. This compares to 6.8% in the second quarter of last year and almost 10% at the height of COVID in early 2022. So we're continuing to see the improvements from all the work we're doing around recruiting and around retention, and that's paying the dividends in contract labor. If you think about kind of wage inflation, wage inflation was stable and kind of continues to run where we expected it to run. So, you know, we were pleased with our labor results.

We do tend to drop in the first quarter or consumed by the end of the quarter.

Question comes from Peter Tickering from Deutsche Bank. Your line is now open.

Hey, good morning, guys. This is my question. Can you have EBITDA raise for this year? What percent of the upside that you're changing is coming from better volumes? What percent is coming from changes to price labor? And then finally, are there any back half of the year versus original guidance?

You know, we're obviously really pleased with our year-to-date due performance. It kind of sets our thinking about the back half of the year. On the top line, our volume and payer mix for the first six months of this year were better than our original expectations. Solid labor management, as we just talked about, including the contract labor declines, also contributed to our thinking around the, you know, kind of our results. As we move into the back half of the year, we believe most of these trends should continue. We anticipate volume growth to be in the 4% to 6% range for the year. We expect salary, wages, and benefits, supplies, and other operating expenses as a percent of revenue to run mostly where we did June year to date. Contract labor as a percentage of salary, wages, and benefits is projected to be in roughly in the mid-4% range in the back half of 2024. And we do expect professional fee expense growth to the prior year to moderate a bit more in the back half of 2024. Specifically on Medicaid supplemental payments, as you recall, in our original guidance, we anticipated a headwind of $100 to $200 million from the Medicaid supplemental programs. As we noted previously, these programs are complex and have a lot of variability quarter to quarter. But given that we are now deeper into 2024 and have better visibility into the programs across our states, We now anticipate an approximately $100 million to $200 million tailwind in 2024 from Medicaid supplemental payment programs, much of which occurred in the first half of 2024.

My next question comes from Brian Tranquilis from Jeffries. Your line is now open.

Hey, good morning, guys, and congrats on a solid quarter. Maybe, Sam, just as we think about, you know, you called up Medicaid with the redeterminations kind of dragging on volumes a little bit here, but still a very, very good performance. So just curious where you stand now as you think about the sustainability of this elevated utilization trend.

Well, as Mike just mentioned, Brian, we do expect that these volume trends will continue throughout 2024, volume growth. I think when we pull up and we look at volume for the company and overall demand for our end markets, as we indicated at our investor date, that we think have solid characteristics that are going to support, That's the first thing. The second thing is the HCA network way, and that is how we build our networks, how we execute inside of that. Our inpatient bed capacity is up 2% year over year. When you look across all of our facilities, we've added a few hospitals in that as well, really small ones that are coming. So our network development is a key part of continues to be positive. The third thing for us is to use our capital to make our services better and produce better outcomes for our patients. So this year we'll invest somewhere around $5.2 billion, which is significantly up over the last couple of years, and we continue to see opportunities inside of our organization to invest capital. The next area, and it's hard for us to know this, but we do believe that coverage, when people are covered, whether it's through the exchanges mostly, through their employers, through Medicare, they tend to purchase services. And so coverage is up, so that helps elevate demand. And we are in really uncharted territories for growth in demand in a normal environment. And it's hard to know if there's hangover from COVID, as we've mentioned in past calls and so forth, But we do believe the fundamental attributes of coverage help support demand growth. And then when you start looking across, like we said earlier, the different payer classes, it's broad-based. It's broad-based across the different payers. It's broad-based across our services. I mean, even obstetrics was up slightly in the quarter. So we have seen just sort of a lift across all aspects of our business. And, again, the diversification of HCA from market to market as well as the diversification from service allows us to participate in this demand growth. And we're pretty encouraged by what we see year-to-date and what we expect over the balance of this year.

Thank you.

Our next question comes from Ben Hendricks from RBC Capital Markets. Your line is now open.

Thank you very much. I was wondering if you could comment a little bit more on the sources of acuity strength that you continue to see. We can parse that out between maybe the two midnight rule, investments in higher acuity capabilities, or if there's, like we heard some MCOs talk about higher acuity and continuing Medicaid books, and then maybe even some pull forward of acuity ahead of members being redetermined off. I just wanted to get any indication of kind of where you're seeing that acuity growth.

This is Sam. Let me speak to sort of our core strategy. Our core strategy is sort of a one-stop capability within our systems. And by that, I mean the ability to take care of a patient's needs regardless of what their condition happens to be. So we, over time, have built complexity in the services that we've offered. So we've enhanced trauma programs. We've enhanced, opened up our infrastructure with our transfer centers, with helicopters, interacted with the rural community in a way to support the health care needs there, which typically tends to be more acute care service requirements than not. And so all of that has been part and parcel toward our network strategy over the years. I will tell you, again, we had broad baits in the number of cardiac care or cardiac surgery was up. So we had neonatal admissions were up. All of these components that I mentioned that are essential to our network strategy saw growth. And so that of the two midnight rules, because those are lower acute patients being an inpatient status, but nonetheless less than average acuity by comparison. So our quarter suggests that the acuity and the complexity of the services that we offer is even more than what it reports out simply because of the dilutive effect of the 2-MED-9 rule.

Thank you.

Our next question comes from Justin Lake of Wolf Research. Your line is now open.

Thanks. Good morning. Sam, I wanted to get your view on one of the bigger questions we're all getting from investors heading into the elections, which is the potential for exchange disruption, should the enhanced subsidies be allowed to expire at the end of 2025? Has the company run any scenario analysis of what happens to these volumes in hospital economics? Should those subsidies expire? And if not, maybe you could just share with us what you think happens to those patients in terms of coverage who might drop from the exchanges. Do they become uninsured? Do you think they move to other payer types? And then if I could just squeeze in a numbers question, can you tell us what same-store ASC revenue growth was in the quarter?

Obviously, there's a lot to play out here politically between now and the end of the year. So it's a little creamer to forecast what's going to happen politically with respect to the exchanges. It's no secret that they are scheduled to exchange. Many of the participants are in states that we serve, obviously. You all have seen that in the data that's available. We don't have a great line of participants in the exchange have what level of subsidies and how that will play out. It's really difficult for us to know precisely what that is. We are starting to try to study as much as we can study, and we're hopeful that in 2025 we'll have some sense of the policies that might be put forth, a better sense of the economics around the exposure if the subsidies go away. But at this point in time, it's way too early for us to make any judgments on that. possibly can be with you all around it once we have information that we feel we can support and share.

Same store, ASD revenue growth is about 8%.

Our next question comes from Whit Mayo from Living Partners. Your line is now open.

Hey, thanks. Sam, you've talked a lot in recent quarters around the efficiencies and the throughput initiatives that you've had in the ER. Any numbers that you can share around any of those productivity gains that puts this in perspective? Maybe we see it on the back end with Link to Stay. And just if you could comment on the commercial growth in the ER this quarter.

Let me start with the commercial ER growth. Our commercial volumes in the emergency grew almost 18 percent, so really strong. Again, we throughput what we call our ER revitalization program. And our ER revitalization program has produced really positive throughput time to see a patient. It's down two minutes. Well, we're moving from 11 to 9 minutes. Our length of stay for patients who have been discharged is down, I think, about 15 to 20 percent to around 160 minutes or something in that zone. again, throughput, getting the patient through the system, communicating with them effectively, and then getting them out when they're ready to be out. Then we have patients who are admitted. For those patients, we've also improved the hold time in the emergency room so we can get them up. We have room to go, and we're continuing to invest in our leadership development. We're continuing to invest in technology. We've put our care transformation and innovation team inside of our ER processes to help them. Over eight out of 10 patients would highly recommend or be a emergency room. We're adding capacity on our hospital campuses, but we've also added capacity off campus to really meet the needs of different communities. And that's been part of our growth as well. And we continue to invest in heavily in our process standpoints to make sure that we're delivering the services that our communities need and that our patients deserve. And I'm really proud of the ER effort that our teams have put forth. Thank you.

Thanks.

Our next question comes from Andrew Mock from Barclays. Your line is now

open. Hi, good morning. One clarification and then a question. First, can you just give us the exchange admissions as a percentage of total in the quarter? And then on the question, outpatient surgeries were down about 2%. Can you elaborate on some of the trends you're seeing there? Maybe break that out between hospital outpatient and ASC volumes. Thanks.

Yeah. So, on the exchange volumes, they're just right at 7% of admissions and AR visits as well for exchange as a percent of total. What was the second question?

It was on, yeah, I've got it right here. So in the quarter, 2% that we mentioned. Again, it's exclusively in Medicaid and uninsured. So our overall revenue growth in our ASC and profitability on that segment was up. And yes, we have a volume metric that's down, but the implications to our business really aren't there as a result of it.

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

Hi, thanks. Just a couple more on the guidance. I was hoping to hear if you've updated your thinking on core wage inflation as part of this guidance revision, wondering if that's a contributor or potentially not due to the higher volumes you're staffing to. And then if there's any impact of M&A in the guidance,

If you look at wage inflation, as we kind of came in this year, we were thinking in 2.5% to 3% range, and that stays consistent as we think about where we are here and how we're going to kind of close to the back half of the year. So we're thinking wage inflation will be – And then it's more M&A. M&A. So there were some questions on M&A. Let's just kind of run through that. So, you have $400 million of revenue in new stores. You know, about $250 million of that is from Valesco. The rest are from the acquisitions in Texas. You heard us talk about the wild healthcare system acquisitions, a couple of others. And, you know, that's the revenue side of that. It was diluted to earnings, though, and about a 1% negative impact to EBITDA for the quarter. So, the M&A trends, you know, don't really impact or did not really impact your EBITDA growth in any new store.

Our next question comes from Scott Feidel from Stevens. Your line is now open.

Hi, thanks. Good morning. I was hoping to circle back on the Medicaid supplemental payments, and maybe if you could just sort of talk about how your Medicaid margins have evolved, you know, from maybe where they were a couple of years ago to where they are currently inclusive of the Medicaid supplemental payments. I know that you had mentioned how this is really just, you know, trying to get the business still on Medicaid, you know, back closer to break even or maybe not even there yet. So helpful if you could sort of walk us through that. And then, you know, just looking out to the elections, there is a level of investor uncertainty around the sustainability of Medicaid supplemental payments if there was a switch in the White House. Although I do think it's notable that we do see many of the states that are sponsoring these payments are from red states. So it feels like these payments likely would be, you know, quite sustainable. But there is a lot of investor uncertainty around this topic. So we certainly appreciate your thinking on that.

As you noted, they're well supported historically both in red states and blue states. And, you know, frankly, two of our biggest programs are in Texas. The goal that came out earlier this year on sustainable programs, on Medicaid criminal programs, we found to be positive and supportive and actually good for them. If you think about kind of margins over time, you know, if you go historically back in time, the Medicaid margins, and you're right, you know, they were pretty significantly below the cost. Over the last several years, they have grown, even now, if you look at where we are in 2024, and you think about the historical kind of base Medicaid reimbursement plus the supplement, it's still, you know, pretty well short of the cost.

Next question.

Our next question comes from Jason Casoria from CQ Group. Your line is now open.

Great, thanks. Good morning. Just wanted to ask on CapEx, sounds like you're maintaining your outlook there, But just in context of a higher 2024 revenue and EBITDA outlook, I just, I guess, curious if there's anything to call out on the CapEx side. And apologies if I missed this, but it sounds like maybe perhaps you're expecting to use the excess free cash flow from the guide raised just for share repurchase, or how should we think about that?

We are not really revising our CapEx. You know, as we started this year, we talked about $5.1 to $5.2 billion. We think it's still going to generally be in that same range. As noted in our comments, you know, we do expect, you know, based on the improved outlook and the updated guidance that we're going to spend about $6 billion in 2024 on share repurchase. So, you know, the bulk of the increase from the, you know, from the improved results would be going towards share repurchase.

And let me add, Mike, if I may, to Sam, to the capital. I think it's important, as I mentioned, so our inpatient occupancy continues to grow reflecting the acuity of our patients, reflecting the overall demand, and reflecting the market share gains that we believe. The second piece is our ambulatory network development. Again, we have about 2,600 outpatient facilities and clinics across the company, up 5% from where it was last year. Those are a component of our capital spending as well, and we will continue to look for opportunities from one market to the other to build out a network that serves our patients as we need to serve them. And the third piece is your business. It requires us to have facilities that have the appropriate environment for our patients. We have facilities and so forth. And so a lot of that is maintenance. So half of our capital goes toward to keep our facilities where they need to be. And then the last thing for us is technology. We are investing more in our technology agenda because we see opportunities for it to support the company's next generations even better. So our technology component of our CapEx continues to grow. All of this is in the backdrop of our long-term view on demand. As we indicated in November at our investor day, we expect long-term demand to be in that 2% to 3% zone as well. And so we have to build the necessary capabilities in our networks, in our facilities to be able to serve that demand, and that's what our capital expenditure plan is intended to accomplish. Hey, Sam, let me clarify real quick. I said 5.1 to 5.2.

It's actually 5.1 to 5.3 billion in capital spending for 2020.

Our next question comes from Kevin Fischerbeck from Bank of America. Your line is now open.

Great, thanks. It sounds like you believe that the volume and the demand supports this volume as kind of a base for the future. I wanted to see if you could give a little color on the margin side of things. Is this the right way to be thinking about the base when we think about next year? Is there anything puts or takes that you would point to? I know sometimes when volume comes in stronger than you planned for, maybe there's a little bit more margin leverage than you would expect, and maybe that might moderate, or whether you mentioned the timing in the past about some of the supplemental payments. Is there any obvious headwind from timing from this year into next year we should be thinking about as we think about margins and EBITDA sustainability? Is this a good base for thinking about next year's growth?

This year, this is core operation, likely by the Medicaid Supplemental Program, but core operational level of performance is quite clean. You know, some of the choppiness that naturally occurs with COVID, with the supplemental payment timings and so forth, with some of the challenges we experienced last year with just the inheritance. But when we look at the first six months and we think about the balance of the year, this is really a solid operational performance supported by strong volume and not really unusual items fitting or dragging the business in any.

That's how I'd answer that question.

The next question comes from Ryan Langston from TD Cohen. Your line is now open.

Hi, good morning. I just want to go back to labor for a second. Obviously, impressive results. Is there anything particular in recent achievements driving these results, maybe past throughput and length of stay reduction, and maybe how to think about that carrying forward over the next few quarters? And then just there is some potential M&A larger deals in the market, both on the hospital and the ambulatory side. I understand in-market tends to be, you know, where you focus, but can you maybe just remind us of the parameters that you would need to entertain maybe a more larger market or national expansion?

Yeah, so, you know, labor, as we've already said, the biggest driver if you think about, you know, our performance in the first half of the year compared to prior year was this reduction in contract labor. And that kind of comes through all the work we've been doing over the last several years, improving our recruitment activities, and really working on retention. On the recruitment side, you've heard us talk about our academic affiliation work, our work around the Galen School of Nursing, and all of that has kind of produced, improved supply of nursing into our markets, which has been super beneficial. You know, I do think from a contract labor perspective, you know, as I noted in my comments, we're down to 4.8% of contract labor as a percentage of salary. You know, I do think that the go-forward improvement will still have some. You know, we've got it, as you've noted from my comment on guidance, that, you know, we think we'll run, you know, probably in the mid-four range in the back. You know, I think that as we continue to work on recruitment and retention. So that would be my take. I don't see anything other than that that's material related to driving or labor trends. I mean, productivity remains good. So those are the major things that we think about when we think about from now to the back half.

I mean, our focus now is finding ways to help our employees succeed even more at what they do. So we are in the location of our existing workforce just as much as we're investing in education and new nurses and successes around supporting our caregivers so they can deliver better care. So we have a number of initiatives that are connected to our nursing operations and so forth that really make sure that we have resources and support for our caregivers on a day-in and day-out basis. And we're investing heavily in our leadership because good leaders produce good outcomes for our patients and good outcomes for the organization. So those things are wraparounds to what Mike just alluded to. We added to our platform this year with some tuck-in acquisitions from one market to the other. In Texas, as Mike alluded to, we added a number of hospitals to our North Texas market, small but very complementary, and we're starting to see good results out of them. In Houston, as an example, we added an outpatient business to our network there. That has produced very good outcomes. We are built to be bigger. We know that, and we have the balance sheet to support that, but we're very selective around making sure that an acquisition fits the model and can produce the returns that we expect from acquisitions. Will we enter new markets? Hopefully, yes, but those opportunities haven't necessarily presented themselves. I don't know that we'll deviate from our model. Our model is more centered on making our system, our local system, work for the community, work better for our patients, and work better for other stakeholders that are connected to it. We obviously could do that, but we don't think that's the best answer for the company. And that's been part of what we define as the durability of HCA Healthcare. It's staying true to the model in ways that produce a really good outcome for our stakeholders. It's possible that something will cause us to deviate from that, but we haven't really seen it up to this point. So our focus is on investing back in our business, doing selective strategic acquisitions that complement our networks where we can, and really advancing our position in these great markets that we serve.

And one more comment later, you know, the other thing that was very helpful for net reduction in length of stay. So, you know, if you think about kind of how did we service, that's almost 6% growth on the emissions. I mentioned this, but we had a 2% increase in our bed count from our capital investment program. And then our occupancy, that 2% drop in length of stay and the ER efficiency.

Our next question comes from John Ransom from Raymond James. Your line is now open.

Hey, good morning. Great job. Rob, just curious, a question we're getting is if you look at the back half, do you happen to have the DPP compare of 23 versus 24 in your back half?

Here's what I would say about the guidance on the back half of the year. We talked about when we came into this year that we thought we would have a headwind of $100 to $200 million for Medicaid supplemental payment programs. As we've gotten deeper into this year, you know, we're now kind of changing that or updating that to a $100 to $200 million tailwind. So if you think about that flip of $200 to $400 million, I would tell you that much of that already occurred in the first half of 24. So if you think about the back half of 24, you know, what we're expecting for supplemental payment programs will look pretty similar to what we had in the back half.

Okay. And if I could just think one more. And M&A, what is the year-over-year M&A contribution to EBITDA? Because it looks like in your cash flows, M&A has been quite modest, but it looks a little bigger in your table. So can we kind of – and was that fully in your guide, the M&A effect, when you guided for 24?

As I said earlier, if I think about M&A, or another way to think of that is kind of new stores, It was a, you know, for the second quarter, it was about a 1% dilution to EBITDA for the quarter in terms of the impact from M&A activity. That includes, by the way, Valesco. I would note that Valesco moved in the same store in, you know, 2025, and so, you know, you'll see it kind of stop talking about Valesco next year. But M&A was not a material impact related to our earnings for the quarter.

And, Mike, as it moves through the line, slightly better.

Great. Thank you.

Our next question comes from Joshua Raskin from Necron Research. Your line is now open.

Hi. Thanks. Good morning. Just getting back to the exchanges, As I heard, 7% of admissions now are coming from patients with ACA exchange coverage. What does that translate into revenues, and should we assume that those patients carry margins that are typical of the broader commercial population?

What we typically say about our healthcare exchange, you know, is a payer category. It's our second best payer. You know, it's below, from a reimbursement level, it's below commercial. It's above Medicare, so it's in between those. So it would have margins less than your typical commercial margins, but better than Medicare would be roughly what we're talking about. So, you know, on 7% of admissions, if you look at revenue, something like 8% to 9% of revenue.

Next question. Our next question comes from Sarah James of Cancer Fitzgerald. Your line is now open. Sarah James of Cancer Fitzgerald. Thank you.

Yes. Thank you. Sorry about that. Can you give us some clarity if the commercial outpatient surgeries that were delayed related to holidays in 1Q were rebooked? And then just taking a step back, if I look at outpatient surgical trends, you know, first half last year was kind of mid-single-digit. Redetermination started, and it dropped down to low single digits. Now it's at negative two for first half this year. So is that, like, full change from the mid-single digits first half last year to now the negative two all related to Medicaid? And should we start to see that fall off in the back half of this year then as we start to anniversary some of the impacts?

And the volume declines on outpatient surgery are associated with Medicaid declines in that category as well as uninsured self-pay categories. So both of those categories explain year-to-date pretty much 100%. I mean, there's a thesis inside of our company. It's not proven yet that the patients who migrated from Medicaid into the exchanges through the redetermination process may be in a different seasonality category with respect to when they access. So that's a theory we have. We'll have to see how that plays. But I think it's important to understand, you know, the revenue growth, the service level growth that we've seen in our outpatient surgery. And if, in fact, our thesis is here. But, again, we don't know that. For sure, we need to experience this change in our business with the system.

I would just add on Medicaid redeterminations. You know, we're about one year into the redetermination process. But you remember from last year, you know, it really started gaining speed towards the end of last year. So, you know, I don't think you'll, sunset or anniversary, you're into the full Medicaid year-over-year comparison period until you get closer to the end.

This now concludes our question and answer session. I'd now like to hand back over to Mr. Frank Morgan for final remarks. Thank you.

Ellie, thank you so much for your help today, and thanks for everyone for joining our call. We hope you have a great week.

Thank you, everyone, for attending today's conference call. You may now disconnect. Have a wonderful day.