Thank you for standing by. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to the HCA Healthcare Fourth Quarter 2024 Earnings Call. All lines have been muted to prevent any background noise. After today’s presentation, there will be an opportunity to ask questions. I will now turn the call over to Frank Morgan, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen and CFO, Mike Marks. Sam and Mike 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 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 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.

All right. Thank you, Frank, and good morning to everybody. The company finished the year with strong business fundamentals that were consistent with the previous quarters this year. Demand for health care services remains strong, operations were in good order and stable, and the company continued to see favorable investment opportunities. These fundamentals represent a good starting point as we enter 2025. Our teams have done a fantastic job in remediating a number of facilities in North Carolina, Georgia, and Florida that were impacted by the two major hurricanes we experienced a few months ago. All of these facilities, including Mission Hospital in Nashville, where the community's recovery efforts continue, and Largo Hospital in our West Florida division, resumed normal operations in the quarter. As we end 2024, the first half of this decade has been another period of long-term growth for the company. We have seen operational improvements across key performance indicators, and we have delivered increased value for our shareholders. These accomplishments position us well for the future. I'm grateful to our colleagues who made this happen. We believe the HCA way of combining our high-quality local health networks with the capability of a national system consistently produces better patient outcomes, drives greater innovation and efficiency, and yields stronger financial results. While gratified with these accomplishments, we will maintain our pursuit to improve outcomes further for our stakeholders. We believe the strength of our cash flow and balance sheet positions us well for investing further in our networks to increase access, expand capacity, and enhance clinical capabilities. They also allow significant investments in our people to improve training while also creating career growth in our company. And finally, this financial strength creates opportunities to deliver value to our shareholders by effectively allocating capital to generate favorable returns. Diluted earnings per share, as adjusted, increased 5.4% in the fourth quarter as compared to the prior year. These results included the effects of two major hurricanes. In the quarter, we estimate the financial impact from increased costs and lost revenue equated to approximately $0.60 per share. This was in line with the estimation we provided on our previous earnings call. Revenue growth was approximately 6%. Demand, payer mix, and acuity continued to be strong across most service categories and markets. On a same-facilities basis, inpatient admissions and equivalent admissions grew 3%. Emergency room visits increased 2.4%. Inpatient surgeries were up 2.8%. Outpatient surgery cases, while down 1.3%, again, due to the strong payer mix and service mix, we had solid revenue growth in this service line. And lastly, rehab, obstetrics, and cardiac procedure volumes continued to be strong. Operating costs were well managed by our teams and remained in line with our expectations. Before I close, you will see that our earnings guidance for 2025 aligns with the preliminary outlook we provided on our prior call. And with that, I'll turn the call to Mike for details.

Thank you, Sam, and good morning, everyone. I will provide additional comments on the quarter and year and then discuss our 2025 guidance. Regarding the fourth quarter, we are pleased with the results of the quarter, which demonstrates the excellence of our teams and responding to challenges and still producing solid results. As Sam noted, we estimate that the adverse hurricane impact in the fourth quarter of 2024 was approximately $200 million or $0.60 per diluted share, in line with our expectations. These estimates do not include any insurance recoveries the company may receive in the future. Considering the hurricane impact, we had good top-line growth. Sam reviewed the volume information for the quarter. Our volume in the quarter was adversely impacted by both the hurricane impact and a depressed respiratory season compared to the fourth quarter of 2023. Same-facility net revenue per equivalent admission increased 2.9% over the prior year, in line with our expectations. Consistent with our trends all year, payer mix remained strong in the fourth quarter of 2024, with same-facility managed care admissions, up 9.2% compared to the prior year quarter. While our operations performed well in the quarter, adjusted EBITDA margin declined 60 basis points compared to the prior year quarter. This decline is primarily related to the impact of the hurricanes on our Largo Hospital in Tampa and the North Carolina division, which had a 100 basis point unfavorable impact on adjusted EBITDA margin in the quarter. Additional expenses related to these hurricanes, including repair costs for our Largo Hospital, drove the increase in other operating expenses as a percent of revenue and half of the supply increase. Adjusted EBITDA in the quarter grew 2.6% compared to the prior year quarter, which reflects the impact of the hurricanes. Diluted earnings per share as adjusted in the fourth quarter grew 5.4% over the prior year quarter, also reflecting the impact of hurricanes. Let me briefly highlight our full year results for 2024. We had strong pipeline growth of 8.7%, with revenue per equivalent admission of 3.2% and equivalent admissions growing 4.5%. We posted a 10 basis point improvement in adjusted EBITDA margin for the year. Adjusted EBITDA increased 9% over the prior year, and diluted earnings per share increased 15.5% over the prior year. We estimate that lost revenue and additional expenses from the hurricanes adversely impacted full year 2024 by $250 million or $0.73 per diluted share. Our full year incremental net benefit from supplemental payment programs was approximately $400 million, with the fourth quarter being the lowest incremental net benefit of the year. This is an increase from the $100 million to $200 million incremental net benefit we expected, largely due to one-time payments and higher-than-expected program payments in a few states. When we consider the $250 million unfavorable hurricane impact, the prior year $145 million payer settlement, and the incremental net Medicaid supplemental program benefit in the year, we are very pleased with the core operating performance of the company in 2024. Moving to capital allocation. We continue to deploy a balanced strategy of allocating capital for long-term value creation. Cash flow from operations was $2.6 billion in the quarter and $10.5 billion for the year. This represents an 11% increase in operating cash flow in 2024 over the prior year, indicative of great work by our operating and administrative teams. Capital expenditures totaled $1.29 billion in the quarter and $4.9 billion in the year, and we paid $1.7 billion for repurchases of our outstanding shares during the quarter and $6 billion in the year. We paid $165 million in dividends for the quarter and $690 million for the year. Our debt to adjusted EBITDA leverage remains at the low end of our stated guidance range, and we believe we are well-positioned from a balance sheet perspective. As a result, we are lowering our targeted leverage ratio from our current 3 times to 4 times to 2.75 times to 3.75 times. We believe this new range fits our profile and our anticipated use of leverage as a company, assuming no significant transactions or extraordinary events. So, with that, let me speak to our 2025 guidance for a moment. As noted in our guidance this morning, we are providing full year 2025 guidance as follows; we expect revenues to range between $72.8 billion and $75.8 billion. We expect net income attributable to HCA Healthcare to range between $5.85 billion and $6.29 billion. We expect adjusted EBITDA to range between $14.3 billion and $15.1 billion. We expect diluted earnings per share to range between $24.05 and $25.85. We expect capital spending to be approximately $5 billion to $5.2 billion. Our guidance assumes a growth in equivalent admissions between 3% and 4% and net revenue per equivalent admission between 2% and 3%. Regarding the effects of the 2024 hurricanes on our earnings guidance for 2025, we expect a year-over-year increase in adjusted EBITDA from the reopening of Largo and a year-over-year decline in the North Carolina division as our current assumptions in this market will have lingering effects of Hurricane Helene throughout much of 2025. The increase at Largo and the decline in North Carolina are expected to offset and not produce a tailwind for us in 2025. Regarding Medicaid supplemental payment programs. As we've said in these past, these programs are complex, variable in timing and do not fully cover our cost to treat Medicaid patients. Based on current assumptions, when we aggregate the impact of all of our supplemental payment programs, our guidance contemplates the net effect of Medicaid supplemental payment programs to range from being flat to 2024 to a $250 million headwind, driven by one-time payments received in a few states in 2024. The new Tennessee program is considered in this range. We expect full year margins to be consistent with 2024 and cash flow from operations to range from $10.75 billion to $11.25 billion. As noted in our release this morning, our Board of Directors has authorized a new $10 billion share repurchase program, and we anticipate completing a significant portion in 2025, subject to market conditions and other factors. In addition, our Board declared an increase in our quarterly dividend from $0.66 to $0.72 per share. And with that, I will turn the call over to Frank for questions.

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

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Pito Chickering from Deutsche Bank. Please go ahead.

Good morning, everyone. Thank you for taking my questions. I would like to ask about Medicaid supplemental and clarify where we stand for 2024. It seems that the figures have been fluctuating a bit. Has the amount changed from the third to the fourth quarter? Was it $400 million as forecasted for the year? Can you help me understand the difference between the last guidance you provided and the current figures? Additionally, for 2005, could you clarify the low and high end of the guidance for Medicaid payments in relation to what we saw in 2004 and 2005? Thank you.

Pito, this is Mike. Yes. So if you think about the net incremental benefit from our supplemental payment programs for the full year 2024, it's about $400 million. As I noted in my comments, the fourth quarter was the lowest incremental net benefit of the four quarters in the year. You may recall from our second quarter that the second quarter of 2024 was the highest benefit at $125 million. And so that's kind of how it's spread out. The driver was really largely related to one-time payments that came in, in a few states and a couple of our state programs that came in a little more favorably than we expected. So that's where we landed. And then as you start thinking about 2025, as I noted in my guidance, when we consider all the various programs, noting the complexity and the variability and the moving parts, we are projecting and estimating that our net effect of supplemental payment programs will range between flat to 2024 to upwards of a $250 million headwind. That is inclusive of a pretty wide range of estimation related to the new Tennessee program. So that's how it kind of went through the year and that's the basis of our projections for 2025.

So Mike, actually, just all, I guess, for 2024, are you saying it's $400 million? The highest in 2Q is $125 million and lowest in 4Q. I guess, can you just actually give us just a quarterly benefit because $400 million with 2Q $125 million, that seems it's not that high versus the rest of the quarter. So any color on sort of how that flows through the whole year? Thank you.

Well, I mean, I think you can take Q2, Pito, at $125 million as the high watermark. And then obviously, first and third quarter would be a little bit higher and fourth quarter will be the lowest. I mean, that's the best I can give you in terms of the flow through the year.

Great. Thanks so much.

Thank you. Our next question comes from the line of A.J. Rice from UBS. Please go ahead.

Hi, everybody. It appears that same-store admissions for Managed Care were robust. With all the publicity surrounding MCOs this quarter, can you share your pricing outlook for 2025 and 2026? Are there any updates on utilization review, denial rates, or related matters?

Hello A.J., this is Mike. We have secured 80% of our contracts for 2025, 60% for 2026, and about 20% for 2027. We are still achieving our pricing targets within our estimated range. Regarding denials and underpayments, there has been significant activity, but we have invested a lot over the past few years to strengthen our capabilities in managing the denial and underpayment process. For both the fourth quarter and the entire year of 2024, we do not anticipate that growth in denials will materially affect the company at this time.

Okay. Thanks.

Thank you. Our next question comes from the line of Whit Mayo from Leerink Partners. Please go ahead.

Hey. Thanks. Good morning. I just wanted to hear maybe some of the internal initiatives that may be moving to the forefront this year. I feel like you guys have been talking a lot about throughput, ER optimization for a while, case mix, length of stay, all that. Anything on the back end with discharge management? Anything around length of stay and bottlenecks that you might be seeing around post-acute? Thanks.

So yeah, case management, inpatient throughput has been a really strong initiative for us over the last couple of years. We even mentioned it in the Investor Day conference last year. And our work continues and continues to strengthen. Specifically, when I think about the going forward into 2025, we have a number of initiatives within our case management infrastructure focused on improving the post-acute care placement and discharge process. And I might say even especially with our Medicare Advantage payers. And that work continues and it's important. But if I kind of take stock of where we are today, our length of stay performance in the year has been solid, and we're forecasting another good year for length of stay management as we head into 2025.

Yes, and let me add to that, Mike. So I mean, we have a number of initiatives that are progressing across the company. And when you think about our network development initiatives, we continue to add facilities. You'll see that we've got more facilities at the end of this year than we did last year. So our capital as well as some incremental acquisitions and some key markets is allowing us to expand the reach of our networks. That's showcasing itself in growing market share. What we're seeing in our market share data is really encouraging and lends itself to continued opportunities in that particular initiative. In addition to the case management operational initiative that Mike was talking about, we've had tremendous success with our emergency room operational improvement plan as well. And that's yielded throughput improvements, patient satisfaction improvements and growth, allowing us again to extend the reach of that channel and meet the needs of the community in an effective way. And again, as we push into 2025, we'll see more emergency room bed supply inside of our networks as a result of the investments that we're making, and then the ability to use those beds productively with our ER revitalization program. We're carrying the elements of success from that program to our operating rooms. We have an operating room optimization initiative that we think is going to be very beneficial to our surgeons and also our patients. And it mirrors a lot of the efforts and the progress we've seen with our emergency room. And this involves turnaround time, staffing, other elements of OR efficiency that's important to our physician partners as well as our patients. And then finally, I will say that our labor agenda continues to improve. This past year, I'm really proud of our accomplishments as a company. Our employee engagement broadly across all colleagues and especially inside of nursing is at an all-time high for the company. That has allowed us to reduce turnover and really improve the capabilities of our facilities with having continuity and staffing, a more competent workforce and the necessary capacity to really meet the demand. So we have a number of what I call winning plays that are beneficial to the organization, responsive to the communities and really position our company for success. As we push forward, we've talked about our longer-term initiatives. Our longer-term initiatives are geared toward technology and using technology. We're on a journey. We're already seeing early signs of success with how AI can improve aspects of our organization, administratively, operationally inside of our facilities, and we think clinically as well. So that's a very exciting agenda. And I know others speak of AI, but within the processes that exist for us as a healthcare provider, we see a lot of potential to drive better quality, greater efficiencies, and even better management of our business. And so those things continue. I think our capital allocation is another important initiative for the company. We're investing heavily back in the business. We'll invest somewhere between $5 billion and $5.2 billion this year. And then we've got the ability to use the cash flow and our balance sheet to deliver even more value through shareholder programs that Mike alluded to earlier. So all of these combined, we believe, to create value, value for our patients, value for our employees, and value for our shareholders.

Thank you.

Thank you. Our next question comes from the line of Ben Hendrix from RBC Capital Markets. Please go ahead.

Great. Thank you very much. After another strong year of state exchange enrollment growth, just wanted to get your thoughts on how you see commercial mix progressing and how enrollment fared for you guys. In your opinion, how it's going to impact Florida and Texas? And then any thoughts broadly on the fate of the enhanced subsidies under the new administration and any efforts you've made with lobbyists or whatever in that regard? Thank you.

All right. Thanks, Ben. Clearly, the enrollments inside the exchanges continue to strengthen. We think it's somewhere around 25 million at this particular juncture, so it's up 12% to 15%, I think, over 2024. And we're seeing consistent growth across a number of HCA states. So that's a positive, we believe. It's a positive outcome for families. It creates greater access to care. It improves outcomes. So all of that as a backdrop, we think politically, is a positive and presents an opportunity for the new administration, we believe, to sustain and ensure that families have coverage, they have affordability, and they have the opportunity to achieve positive outcomes for themselves and really for their family. So we don't have any current insights into where this is going. All we know at this particular juncture is that they are due to expire at the end of next year. We think the backdrop of growth, the backdrop of satisfaction within the enrollment is a positive. And we see opportunities to work with the administration to find a pathway forward to continue what's been a very positive community benefit, we believe, with the exchanges. We have a very robust agenda to partner with other organizations, to work within our coalition to support advocacy here to achieve the outcome that we think makes sense for the different communities that we serve. So it's too early for us to call anything on that, but we are active in the process as you would expect.

And Ben, in terms of your question about payer mix and where it landed, healthcare exchanges now represent 7.5% of our equivalent admissions in 2024 and about 9% of our revenues.

Thank you very much.

Thank you. Our next question comes from the line of Ann Hynes from Mizuho Securities. Please go ahead.

Great. Thank you. I just want to ask about the Medicare Two-Midnight Rule. How much impact do you think that had on inpatient admissions in 2024? And do you think it will continue to be a benefit? I think in the last earnings call, you gave a stat that detailed the difference between Medicare Advantage observation versus traditional Medicare fee for service. Can you remind us of what that stat is? And do you think over time, you can close that gap? That would be great. Thank you.

Yes, this is Mike. Regarding the impact, if we analyze the shift from observation to inpatient status in line with the Medicare Advantage Two-Midnight Rule, we estimate that for the full year 2024, it accounted for about 50 basis points of our overall admission growth. This trend has remained quite stable over the past four quarters, so I don't expect much additional movement as we move into 2025. In comparing the Medicare Advantage observation mix to traditional Medicare, the Medicare Advantage observation represents approximately 20% more of the total opt-in compared to traditional Medicare. However, I don't foresee any significant changes at this stage. Currently, our focus is on revenue collection and managing the denial and appeal processes related to the Medicare Advantage program. I don't anticipate any major changes in the volume trends we've observed this year as we approach 2025.

Thank you. Our next question comes from the line of Andrew Mok from Barclays. Please go ahead.

Hi, good morning. Hoping you could spike out the performance of Mission Hospital in the quarter and help us understand what impacts that had on same-store volumes in the quarter and the pace of recovery throughout 2025, including any explicit EBITDA functions around hurricane in the guidance? Thanks.

Let me just talk about volumes overall, Andrew, as we think about fourth quarter. With 3% same-facility admission and equivalent admission growth to prior year in the quarter, first thing I might mention is it was a little bit of a tougher comparison to fourth quarter of 2023, which had strong growth. We did experience, I mentioned this overall, and again I'm speaking overall, not just related to North Carolina division, but overall, we did experience a depressed respiratory season in fourth quarter of 2024 compared to fourth quarter of 2023. Our estimate is that this depressed respiratory season had about a 1-point drag on same-facility admission growth to prior year and about a 2-point drag on same-facility emergency room visits growth to prior year. Overall, as a company, the hurricanes as well had an impact on volume growth primarily in October, but for the whole quarter. Our estimates are somewhere between 20 and 40 basis points of drag on volume in the quarter related to hurricanes and that's directly attributable. I'd also mention that in the month of October, if you look at the rest of the State of Florida, there was clearly some lingering effects as they kind of recovered. And then we saw a good recovery in November and December. So, that's kind of a tale of the tape on volume in the quarter.

And was there any explicit EBITDA assumption for hurricanes in the guidance?

Yes. So, referring back to my earlier comments, Andrew, our guidance regarding the hurricane's impact extending into 2025 is as follows: when we consider Largo Hospital, we anticipate a year-over-year increase in adjusted EBITDA due to its reopening, while we expect a year-over-year decline in the North Carolina division. Our current assumption is that this market will continue to feel the hurricane's effects throughout much of 2025. The guidance takes into account that the increase at Largo and the decline in North Carolina are expected to offset each other and will not provide a tailwind for us in 2025. This is how we view the hurricanes and their impact into 2025.

Great. Thank you.

Thank you. Our next question comes from the line of Joanna Gajuk from Bank of America. Please go ahead.

Hi. Good morning. Thank you for taking the question. So I guess on the somewhat related question, I guess, on the cost side of things, so thanks for the color on the impact from the hurricane in the quarter in Q4 to the other OpEx line. So I want to ask about professional fees. You've been talking about this for quite some time, but most recently, you highlighted the higher-than-expected professional fees to continue into 2025. So can you talk about what you're seeing there? What do you assume in your guidance? We heard maybe radiologists or the next group of doctors that are asking for higher fees. So is that what you're seeing? And also, can you help us maybe also size that line in your other OpEx line? Thank you.

So professional fees are about 24% of other operating expenses so that's how you would size it. As we've mentioned in the last several calls, our operating teams have continued to work diligently to address the subsidy pressure from the hospital-based physician group component of our business. And as we've noted, as we've gone through the year, we have bent the cost curve. On professional fees, as we've moved through 2024, really due to these efforts. So as I think about the guidance into 2025, I would say it like this. We expect the cost pressures related to physician costs to moderate a bit further in 2025. But it's still going to be higher than just normal inflationary cost trends. And that's how you would think about that flow into the next year. Maybe a double-click on radiology. When you're looking at our hospital-based physician categories, clearly, the emergency room and the hospital medicine segments have moved more fully through the business challenges that we see in this segment, really especially given the significant work HCA has done with the acquisition and integration of Valesco. As it relates to radiology, we did see pressure as we've gone through 2024, and we expect that to continue into 2025. But keep in mind that radiology is a much lower portion of our hospital-based physician subsidies. I'll just finish with this, is that our teams have focused efforts between both our operating teams and our physician management teams focused on addressing radiology, and we do not expect it to be a material impact in 2025.

Thank you.

Thank you. Our next question comes from the line of Matthew Gillmor from KeyBanc. Please go ahead.

Hi. Thanks for the question. I want to see if there's any commentary on the California wildfires. And I know you've got a couple of facilities in the L.A. area, but any impact there to call out or is it just not big enough at the consolidated level to make a real difference?

This is Sam. We had no impact at our Southern California hospitals as a result of the fires. We did have one of our facilities in Ventura County on notice, so to speak, in the sense that there was the Kenneth Fire, I think it was, that was in Ventura County. The Palisades Fire did not reach through the valley into Ventura County. But we're on high alert, and we have fire mitigation tactics in that particular hospital due to its location and so forth. And we continue to evolve that just like we do with hurricanes and making sure that we can protect our patients and protect our colleagues and protect the asset. And we're iterating, if you will, on our plan there to advance it even further. In Riverside, California, there's been some fires in the proximity that have produced some smoke issues in the community, but no issue whatsoever on our facility there. So we're fortunate. That's a horrible event, as everybody knows, but we were on the other side of the canyon with our facility in Thousand Oaks.

Got it. Thank you.

Thank you. Our next question comes from the line of Brian Tanquilut from Jefferies. Please go ahead.

Good morning, everyone. This is Meghan Holtz on for Brian. As we think about Q1 EBITDA, are there any moving pieces, including some seasonality or non-recurring items that we should be considering? And then just a quick clarifying question on the supplemental payments. You referred to the new Tennessee program. Does that mean it was approved recently?

Let me address the second question first. In the Tennessee program, we have received notice of partial year approval, specifically covering the period from July 1, 2024, through December 31, 2024. Following that, it will transition to a calendar year program beginning in 2025. The 2025 calendar year program is new and has not yet been approved, and the new administration will be taking that up. That's the current status of the Tennessee program. We do not provide guidance on a quarterly basis, so we recommend following our usual seasonal trends, which we will continue to adhere to. The guidance for 2025 pertains to the entire year of 2025.

Thank you.

Thank you. Our next question comes from the line of Justin Lake from Wolfe Research. Please go ahead.

Hi. Thanks. It's Anna on for Justin. Have you guys attempted to size the potential impact of site neutral payments? And if so, does that sort of alter your strategy at all surrounding your outpatient ASC footprint? And can you tell us where also the same-store ASC revenue growth was in the quarter? Thanks.

So, on site neutral, let's start with just stating the obvious. We're against program implementations that would cut Medicare hospital outpatient reimbursement, nor do we think that programmatically that it makes sense to pay the same rate for a hospital. And I'll use surgery, but you could use all of our service that operates on a 24/7 basis with full capabilities of physicians, of staff and equipment. If you'll compare that, for example, to our surgery centers, who generally operate eight to four Monday through Friday and do much less complex work, the idea of paying the same rate for those does not seem to make a lot of sense to us. As it relates to sizing the potential impact, we have not seen a bill yet that would give us enough information to estimate a potential impact. In the past, as you've seen various proposals and discussions around this, there's been a range of procedures being considered for Medicare site neutral. On one end of the range would be proposals around hospital based physician clinic visits and outpatient infusion facilities. At that end of the range, HCA would not be materially impacted, given how we structure our physician clinics. In other draft proposals, we've seen certain outpatient surgical procedures being considered for cuts to hospital outpatient reimbursement. We would expect that those would have a bit more notable impact to HCA. But like a lot of these health care policy debates that are going through the government right now, we continue to monitor them closely, as I'm sure you do, and we'll be tracking.

And Mike, I don't see that any site neutral policy per se will force us or cause us to rethink our strategy around building out our outpatient networks. We believe we are finding opportunities to extend the reach of our networks into new communities, again, make it more convenient and more efficient for the patient, and then fully integrate that particular facility into the larger hospital-centric health system is part and parcel to our network development strategy. So I don't see any changes to that as a result of a Medicare site neutral provision if one were to be implemented.

And to your question around the growth in ASC revenues, it's about right at 5% to 6% growth over prior year.

Thank you. Our next question comes from the line of Scott Fidel from Stephens. Please go ahead.

Hi. Thanks. Good morning. I wanted to stick on the policy side. And was curious just, and understanding it's clearly still very early, but if you've done any type of preliminary analysis around tariff proposals and if you think there could be any net effect or economic impact from that. And then also from some of the recent executive orders that he's already been tossing out at a brisk rate as it relates to foreign workers and immigrants, et cetera. Just curious if you think any of those may have an effect on either the labor or demand environment. Thanks a lot.

On tariffs, our HealthTrust great purchasing organization has been working on tariff mitigation strategies for many years; including actions like fixed price contracting, supply chain mapping and risk assessments and a lot of work on sourcing. Many of our team suppliers have been working on de-risking and diversifying their supply chains over the last many years, really kind of especially away from China. Like you, we are closely monitoring the announcements on tariffs from the new administration, including, which countries are targeted, the rate of tariffs being implemented, and potential tariff exclusions for healthcare-related items. I would note that for 2025, we have about 70% of our supplies being contracted with firm pricing. As it relates to sizing it, we need more specific information on the details of these tariff policies as noted, and we're going to need that before we can produce additional estimates of impact. On the other related items, we're tracking those carefully as all of you are. We don't hire undocumented workers, and so the impact would be more on supply demand for labor in those skill mixes, and we're tracking it like you are, but no special insight or note that we can give you at this point.

Thank you. Our next question comes from the line of Sarah James from Cantor Fitzgerald. Please go ahead.

Thank you. I just want to clarify again the bridge on equivalent admissions going from the 4.5% to the 3% to 4%. So it sounds like you're implying Mission and Largo offset each other explicitly on EBITDA but sort of implied on volumes. And then we're calculating 27 bps from a non-repeated leap year. And I'm not sure, if you're assuming any pull forward of procedures from consumers that may be concerned about expanded subsidies going away. So I'd love to know that. And then just the rest of it, is that just conservatism going back to the mean? Or is there anything specific exiting 4Q that you saw that led you to be conservative?

When considering our guidance for 2025, we anticipate a 3% to 4% increase in equivalent admissions. Year-to-date through September, we've experienced higher growth, around 5%, while the fourth quarter aligned more closely with our projections at 3% growth. However, we did witness some impact in the fourth quarter due to a subdued respiratory season and challenges from hurricanes. As we project our volume for 2025, a significant factor to note is the healthcare exchanges. In 2024, we saw substantial enrollment growth of about 30% and volume growth of roughly 44% to 45%. For 2025, enrollment growth in the healthcare exchanges in our states is expected to be around 13% to 15%. Consequently, we anticipate less volume growth in 2025 from healthcare exchanges compared to 2024, which is a primary reason for the adjustment. Additionally, we had a benefit from the Medicare Advantage Two-Midnight Rule in 2024 that is unlikely to recur in 2025. The Medicaid redetermination process, which saw a decline this year, is expected to stabilize next year. Overall, we remain confident in strong demand for healthcare services in 2025, with our forecast of 3% to 4% growth still exceeding our long-term guidance of 2% to 3%, which we believe is reasonable when considering the dynamics of 2025 in relation to our performance in 2024.

Thank you.

Our next question comes from the line of Jamie Perse from Goldman Sachs. Please go ahead.

Hey. Thank you, good morning. Just on M&A, you guys have had a couple of smaller transactions recently. I wanted to see what you're seeing just in terms of market activity, how you're thinking about the portfolio overall, including adding scale in existing markets or going to new markets. And just the aggressiveness you guys could show on the deal front in 2025?

So, our primary growth in capacity is going to be through capital spending and, I'll call it, organic measures where we add bed supply, we add outpatient facilities, as we mentioned. Those are central elements to our network development strategies and have proven to be very successful and have proven to be very productive from a capital return standpoint. We have, as you've mentioned, added, when we can, to our existing networks. We bought outpatient businesses. We've complemented our hospital networks with rural facilities and surgical facilities and so forth. And that will continue, I think, into 2025. We don't necessarily have any significant items to point to at this particular juncture. However, we do have a new hospital acquisition that we are expecting to close in the first quarter in Manchester, New Hampshire. That will add to and round out our New Hampshire network and give us a fairly broader and more productive, we think, overall Southern New Hampshire network. We're excited about that. But most of our investments are going to go towards, I'll call it, just organic system development. We'll have to wait and see if the market starts to shift and more inorganic growth opportunities develop, but at this particular point, we're not anticipating anything material.

Okay. Thank you.

Our next question comes from the line of Ryan Langston from TD Cowen. Please go ahead.

Hi, thanks. Same-store inpatient surgical growth looked pretty strong in the quarter. Can you maybe just give us a sense on the types of procedures that were driving that? And outpatient surgical again, was down, I think the last couple of quarters. You've said that was mostly in the Medicaid and uninsured categories. Maybe I missed it in your commentary, but I'm just wondering if that's still the case? Thank you.

So, this is Sam. On the inpatient side, we did see very solid growth in the quarter, fairly broad-based. Again, I think our diversified array of service offerings allows us to move through cycles and then also have less risk with the programs that we have. But we saw strong neurosciences. We saw strong orthopedics. We saw solid general surgery and vascular. So, it's really broad-based on the inpatient side. On the outpatient side, again, it's driven largely by Medicaid declines, which were down 10%. Our commercial and exchange volumes were up a little over 1%. Self-pay was down. So, that's why we indicated that our revenue growth and our profitability growth within our outpatient surgery category was up again in the quarter and for the year because of the mix and the payer mix, and that's added to more capacity for those types of cases. So, we're not concerned about the outpatient surgery activity in the company when we look underneath the hood.

Our next question comes from the line of Steve Baxter from Wells Fargo. Please go ahead.

Hi. Thanks for the question. Just trying to understand some of the moving parts in the quarter a little bit better. I mean, it looks like broadly, you met expectations in the quarter, but the Medicaid supplemental benefit on a full year basis is now, I think, $200 million larger than what you discussed on the third quarter call. And hurricanes, I think, came in at maybe the end of guidance range that you previously provided. I think what people are trying to square those moving parts and whether that's the right way to think about it, or that's a misinterpretation of how to look at the quarter? Thank you.

Sure. Hi, this is Mike. The way I would frame fourth quarter, as you kind of think through the moving parts here, the first, as we've mentioned, would be the hurricane impact as noted. In terms of the supplemental payment benefits, I think our description of the fourth quarter having the lowest portion of the net benefit in supplement payments for the year is kind of a good way to think about that component. And then a couple of other things I might mention when you're thinking about our fourth quarter 2024 earnings growth or adjusted EBITDA growth would be one, that fourth quarter of 2023 was very strong. So it was a little bit of tougher comparison in fourth quarter of this year to last year. And then the second thing just to keep in mind, and this is somewhat related to the depressed respiratory season, is that our admission growth in the quarter was at 3% versus if you think about more akin to 5% September year-to-date of 2024. So those are some thoughts. I might mention that if you look at that kind of growth rate, we do believe it's consistent from a launching point as we think about the midpoint of our 2025 guidance range as well. So we're pleased with the quarter and felt like given everything the company was dealing with in the fourth quarter of 2024, it was a good quarter.

Thanks. And just to clarify, the Tennessee portion of the 2024 payment recognized in the fourth quarter, or is that in the 2025 guidance now? Thank you.

Yes, it was not recognized in fourth quarter of 2024. It will be a 2025 event.

Our next question comes from the line of Joshua Raskin of Nephron Research. Please go ahead.

Hi. Thanks. Good morning. Could you speak a little bit more to the ASC performance in the quarter? Maybe more specifics on rate versus volume underneath that 5% to 6% revenue growth that you talked about? And then more broadly, how you think about the opportunity. And I'm specifically interested, are there any markets where you've got significant inpatient acute care share, but maybe not there on the ASC side yet?

Let's start with the numbers. We're currently at 124 surgery centers. Previously, I noted that net revenue increased by 5% to 6% for the quarter, while case volumes decreased by 1%. We are confident in our ambulatory surgery center network, which plays a crucial role in our overall network in the markets we serve. It will continue to be a key aspect of our network development and optimization efforts as we move into 2025 and beyond. Sam, do you have anything to add?

Well, I'm sitting here just sort of canvassing across the company and thinking about the number of surgery centers vis-à-vis the number of hospitals that we have. And we do have a few markets for a variety of reasons that don't have sort of an average number of facilities per hospital. We've talked about, on average, we have roughly 14 outpatient facilities, including ASCs, clinics, urgent care and so forth per hospital. That's an average. We have in some markets because there's no certificate of need in some markets where we can move much more quickly and aggressively to build out our outpatient network in some markets like in Georgia, where they have restrictive CON, it limits our ability to execute a strategy, the same in Virginia and in North Carolina. So you have some differences because of those dynamics. Where we have sort of control over our own destiny, if you will, we're fairly consistent with a large outpatient network, including ASCs per hospital. So I'm really struggling to point to a particular market where we feel like we're out of physician, if you will, in this space. Mike talked about 125 ambulatory surgery centers. We probably have another 20 or 25 GI centers that we don't even include in our number, and that's part of a larger outpatient network. Those continue to grow incrementally also. So I think the limitation for us is mostly regulatory, and we have to work our way through that, as you would expect, through that administrative process.

Helpful. Thank you.

Our next question is from Lance Wilkes of Bernstein.

Great. Thanks a lot. Could you talk a little bit about the progress on labor and labor you've been making? In particular, talking to the pace of hirings in like nurse and support staff 2024 and what the guidance is and what's implied in 2025. Maybe a little commentary on wage inflation? And then if you could just give a little background on what's the total exposure in the supplemental programs these days? And what would be the margin on Medicaid without those programs? Obviously, those are essential that kind of get to an appropriate margin level there. Thanks.

Let's start with labor. A good indicator of our progress is the reduction in our use of premium or contract labor, which dropped about 8% compared to the previous year. Contract labor now makes up 4.6% to 4.5% of our staffing, reflecting the strong efforts of our teams in enhancing retention and decreasing turnover rates post-pandemic, along with effective workforce development strategies, including targeted hiring. Our workforce development plan remains strong, and we continue to increase the number of Galen College nurses in key markets. Galen's enrollment is also on the rise, and we actively collaborate with other nursing schools in our regions. We are significant employers of graduate nurses, so overall, our labor initiatives have progressed well. In terms of fourth-quarter wages, they remained stable with consistent wage inflation. Our margin guidance assumes a steady operating environment into 2025, with wage inflation expected to be stable and manageable. So, we are in a good position regarding labor. Regarding Medicaid, while total reimbursement, including supplemental payment programs, is crucial, it still does not fully cover the costs of care associated with Medicaid. These programs are vital not only for us but also for various not-for-profit and public hospitals throughout the country. That's the situation with Medicaid margins.

Great. Thanks.

Janine, maybe time for one more. We're right at the top of the hour.

Thank you. Our next question comes from the line Ben Rossi from JPMorgan. Please go ahead.

Good morning. Thanks for squeezing me in here for one last one. So your 2025 CapEx guide at about $5.1 billion. I think historically, you've weighted this to 50/50 growth between CapEx maintenance and growth CapEx. Just with the hurricane recovery, is there any shift in this prioritization in the near-term or is 50/50 still a fair consideration for 2025?

I think that's a fair number. The hurricane is not changing our capital spending. The dynamics in North Carolina really weren't around physical plant destruction. It was community destruction. Our hospitals mostly were on higher levels than the community as a whole, so we didn't experience it. In Largo, where we dealt with that, that was mostly repair costs, as Mike mentioned in his commentary. So our capital spending is really consistent and it's geared toward our network development. It's geared toward making sure we have the clinical capabilities and the environment necessary to deliver high-quality care. So that will continue.

Got it. Thank you.

Thank you.

Janine, thanks for your help today, and thanks to everyone for joining the call. We hope you have a good weekend. We're around this afternoon if we can answer any additional questions. Thank you.

That concludes our Q&A session. I would now like to turn the call over back to Frank Morgan for closing remarks.

That concludes our conference call for today. You may now disconnect.