HCA Healthcare, Inc. (HCA) Q4 2024 Earnings Call Transcript

We're standing by. My name is Jeannie, 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, online for you to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. To ask questions, you press star followed by the number one on your touchstone phone. Before your question, please press star follow through the number one again. I will now turn the call over to Frank Norvins, Vice President of International 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 remained 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 and where we experience all of these facilities, including Mission Hospital in Nashville, where the community's recovery efforts continue. The 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 capabilities of a national system consistently produces better patient outcomes, drives greater innovation and efficiency, and yields stronger financial results. while gratified with these accomplishments to improve outcomes further for our stakeholders. We believe the strength of our cash flow and balance sheet position is well for investing capacity and enhanced 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 favor as adjusted increased 5.4% in the fourth quarter as compared to the prior year. These results included the effects of the two major hurricanes. In the quarter, we estimate the financial impact from increased costs and lost revenue equated to approximately 60 cents per share on our previous earnings call. Revenue growth was approximately 6%. Demand, payer mix, and acuity continued to be strong across most service categories 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 in responding to challenges and still producing solid results. As Sam noted, we estimate that the adverse hurricane impact in fourth quarter of 2024 was approximately $200 million or $0.60 per diluted shares 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 saint facility net revenue per equivalent admissions increased 2.9 percent over 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 nine point two percent 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 and the fourth quarter grew 5.4 percent over the prior year quarter also reflecting the impact of the hurricanes let me briefly highlight our full year results for 2024 we had strong top line growth of 8.7 percent with revenue per equivalent mission of 3.2 percent and equivalent missions growing four and a half percent we posted a 10 basis point improvement in adjusted ebitda margin for the year adjusted ebitda increased nine percent over prior year and diluted earnings per share increased fifteen point five percent over the prior year we estimate that lost revenue and additional expenses from the hurricanes adversely impacted full year 2024 about 250 million dollars or 73 cents per diluted share our full year incremental net benefit from supplemental payment programs was approximately 400 million with fourth quarter being the lowest incremental net benefit of the year this is an increase from the 100 to 200 million dollar 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 prior year indicative of great work by our operating and administrative teams capital expenditures total 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 three to four times to 2.75 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 earning guidance for 2025, we expect a year-over-year increase in adjusted EBITDA from the reopening at 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 are not expected to produce the 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 costs to treat Medicaid patients. based on current assumptions when we aggregate the impact of all of our supplemental payment programs our guidance contemplate the net effect of medicaid supplemental payment programs to range from being flat to 2024 to a 250 million dollar 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 66 cents to 72 cents per share and with that i will turn the caller to frank for questions thank you mike as a reminder please limit yourself to one question so that we might give as many as possible in the queue an opportunity to ask a question janine you may now give instruction to those who'd like to ask a question thank you ladies and gentlemen we will now begin the question and answer session

Should you have a question, can you press star followed by the number one on your touchstone phone? You will hear a prompt that your hand has been raised. Should you wish to withdraw, can you press star followed by the number one? If you are using a speakerphone, please leave the handset before pressing any key. One moment, please, for your first question. Our first question comes from the line of Pito Chikering from Loche Bank. Please go ahead.

Hey, good morning, guys, and thanks for taking my questions. I guess this question will be on Medicaid Supplemental, and I just want to understand a little bit on where we were in 2024 that's been bouncing around a little bit. Did that number change? Was that $400 million that you came in on the year, I guess, you sort of bridged where we were on the last time you got at us into where it is now, and then for 2005, you just sort of make sure that we bridged where we are in 2004, 2005 on what's on the low end and high end of guidance for Medicaid supplemental payments.

Hey, Fido. This is Mike. Yeah, so if you think about the net incremental benefit from our supplemental payment programs, for the full year 2024, it's about $400 million. You know, as I noted in my comments, 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 120. And so that's kind of how it 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 in 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 dollar headwind that is inclusive of you know a pretty wide range of estimation related to the new Tennessee program so that's that that's how it kind of went through the year and that's the basis of our.

So Mike, actually just all I guess for 2024, you're saying it's 400 million, the highest in 2Q is 125 and lowest in 4Q, I guess. Can you just actually give us just a quarterly benefit because, you know, 400 million with 2Q 125, that seems it's not that high the rest of the quarter.

I mean, I think you can take Q2, Peto, at 125 is the highest. First and third quarter would be, you know, a little bit higher and fourth quarter would be the lowest. I mean, that's the best I can give you in terms of the flow through the year.

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

Hi, everybody. It sounds like the MA, or managed care, rather, same sort of missions were strong. I wonder, because there was so much publicity in the quarter around MCOs. Did you, where are you at in your pricing for 25, 26? Anything new or different you're seeing in terms of utilization review, denial rates, anything along those lines?

So, hi, AJ, this is Mike. In terms of our contracting, we are 80% contracted for 25, of 60% contracted for 26, and I think it's 20% contracted for 27. We're still on top of our range estimates, our targets in terms of pricing. And if I think about denials and underpayments, clearly a lot of activity, but we put a lot of effort over the last couple, two or three years in really beefing up our capabilities and managing through the denial and underpayment process, I would say when we think about not only fourth quarter, but the full year of 24, we are not seeing growth in denials being a material impact for the company at this point.

Okay, thanks.

Thank you. Our next question comes from the line of Wittnail from Leering Partners. Please go ahead.

Hey, thanks.

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?

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. You know, specifically when I think about 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, you know, our length of state performance in the year has been solid, and we are, you know, we're forecasting another good year.

And let me add to that, Mike. So, Whit, I mean, we have a number of initiatives that are, you know, 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. or our capital, as well as some incremental acquisitions in 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 sort of 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 our 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 draw 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 of the company. We're investing heavily back in the business. We'll invest somewhere between $5 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. our next question comes from the line of ben hendrix from rbc capital markets please go ahead uh great thank you very much uh after another strong year of state exchange enrollment growth just wanted to get your thoughts on how you see commercial mix uh progressing and how uh you know how enrollment uh fared for you guys uh in your opinion how it's going to impact florida and texas and then uh 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.

All right. Thanks, Ben. Clearly, the enrollment inside the exchange has continued to strengthen. We think it's somewhere around $25 million at this particular juncture, so it's up 12% to 15%, I think, over 24%. And we're seeing consistent growth across a number of HCA states. So that's a positive, we believe. It's a positive outcome. We think politically it's an opportunity for the Trump administration, we believe, to sustain and ensure that families have coverage, they have affordability, and they have the opportunity to achieve positive outcomes for their, and really for any current insights into where they are due to expire at the end of the next year. We think the backdrop of growth, the backdrop, and we see opportunities to work with the Trump 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 revenue. Thank you very much.

Thank you. Our next question comes from the line of Anne Hines from Missoulo Securities. Please go ahead.

Great. Thank you. I just want to ask about the Medicare 2-minute 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 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.

Hey, this is Mike. So, in terms of the impact, if I look at, you know, kind of the movement from observation to inpatient status, consistent with the Medicare Advantage 2 Midnight Rule, for the full year 2024, you know, we estimate that it was equivalent to approximately 50 basis points of our overall admission growth. I would say that that's remained pretty consistent over the four quarters. So, you know, I don't think that it's going to be, you know, you'll see much more movement as you go, you know, into 2025. As to the comparison of Medicare Advantage Observation mix to traditional, I would note that, you know, the Medicare Advantage Observation, you know, is a percentage of total to OBS to N is approximately 20 percent higher than traditional Medicare. But I don't suspect at this rate that we're going to see material changes. You know, at this point, we're really focused on, you know, collecting on that revenue and working through the denial and appeal processes associated with the Medicare Advantage program. I don't think you'll see a material change in kind of the volume trends that we've seen so far this year as we head to 25.

Thank you. Our next question comes from the line of Andrew Mock 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 impact that had on same store volumes in the quarter and the pace of recovery throughout 2025, including any explicit EBITDA functions around hurricanes in the guidance. Thanks.

Let me just talk about volumes overall, Andrew, as we think about fourth quarter um you know with three percent uh same facility admission and equivalent admission growth to prior year in in the quarter the first thing i might mention is it was a little bit of a tougher comparison to fourth quarter of 23 which had strong growth um 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 24 compared to 4th quarter of 23. You know, our estimates is that this depressed respiratory season had about a one-point drag on same facility admission growth to prior year and about a two-point drag on same facility emergency room visits growth to prior year. You know, overall, as a company, the hurricanes as well had an impact on volume growth, you know, primarily in October. but but for the whole for the whole quarter our estimates are somewhere between 20 and 40 basis points of drag on volume in the quarter related to hurricanes you know it's and that's directly attributable you know I'd also mentioned that you know in the month of October if you look at the rest of the state of Florida there was there was clearly some some lingering effects as they kind of recovered and then we saw good recovery in November and December so you know that's that's kind of a tail of the tape on volume in the quarter.

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

Yeah, so if you go back to my comments, Andrew, you know, the way that we are guiding for hurricane impact into 2025 is this, that, you know, if you think about, let's start with Largo, if you think about the Largo Hospital, you know, we do expect a year-over-year increase in adjusted EBITDA from the reopening at Largo, and a year-over-year decline in the North Carolina division as our current assumption is this market will have lingering effects of the hurricane throughout much of 2025. The guidance really contemplates that the increase at Largo and the decline at North Carolina are expected to offset and are not expected to produce a tailwind for us in 2025. So that's the way to think about the hurricanes and their impact into 2025.

Great. Thank you.

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

Hey, good morning. Thank you for taking that question. So I guess on the somewhat related question, I guess on the cost side of things, so thanks for the color and 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, you know, this for quite some time, but, you know, most recently your peer highlighted the higher than expected professional fees to continue into 25. So can you talk about what you're seeing there, what do you assume in your guidance? We heard maybe radiologists are the next group of doctors that are asking for higher fees. So that's what you're seeing, and also can you help us maybe also size that line in your other OPEX line?

So professional fees are about 24% of other operating expenses. So that's how you would size it. You know, as we've mentioned in the last several calls, you know, 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 24, really due to these efforts. So, as I think about, you know, the guidance into 2025, I would say it like this. You know, we expect the cost pressures related to physician costs to moderate a bit further in 25, but it's still going to be higher than just normal inflationary cost trends. And that's how you would think about that flow to, you know, into the next year. maybe a double click on radiology you know 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 you really especially given the significant work HCA has done with the acquisition and integration of Valesco with 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.

Thank you. Thank you. Our Our next question comes from the line of Matthew Gilmore from KeyBank. Please go ahead.

Hey. Thanks for the question. I wanted to see if there was any commentary on the California wildfires. I know you've got a couple of facilities in the LA 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 in 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. You know, we're fortunate that's a horrible event, as everybody knows, but we were on the other side of the canyon with our…

Got it. Thank you.

Thank you. Our next question comes from the line of Ryan Thanquilic from Jefferies. Please go ahead.

Good morning, everyone. This is Megan Holtz on for Brian. As we think about Q1 EBITDA, are there any moving pieces, including some seasonality or non-reoccurring 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 handle the second one first. So in the Tennessee program, we have been notified of approval of a partial year and so we have we see an approval that would in effect cover July 1 of 24 through December 31st of 24 and then they are transitioning that to a calendar year program beginning in 25 the 2025 calendar year program which is new has not been approved and so you know the the new administration will be addressing that so that's the status we don't give a quarter by quarter guidance so you know our normal advice is just to follow our historical and we would stick

with that so the 25 guidance is for thank you thank you our next question comes from the line of justin lake from wealthy research please go ahead hi thanks it's anna on for justin um 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, you know, let's start with just stating the obvious, you know, we're against program implementations that would cut Medicare hospital outpatient reimbursement, nor do we think that, you know, 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 by 7 basis with full capabilities of physicians and staff and equipment. You know, if you'll compare that, for example, to our surgery centers who, you know, generally operate 8 to 4 Monday through Friday and do much less complex work, you know, 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 you know the past as you've seen various proposals and discussions around this there's been a range of procedures being considered for met here 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 um given how we structure our physician clinics and other draft proposals you know we've seen certain outpatient surgical procedures being considered for cuts to hospital outpatient reimbursement you know we would expect that those would have a bit more notable impact to hca but you know like a lot of these uh you know healthcare policy debates that are going uh you know going through the government right now we continue to monitor them closely as i'm sure you do and And we'll be tracking.

And, Mike, I don't see that any site-neutral policy, per se, will patient networks. We believe we are 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%.

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

Hi, thanks. Good morning. I wanted to stick on the policy side and was curious just in understanding it's clearly still very early, but if you've done any type of preliminary analysis around Trump's 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, you know, tossing out at a brisk rate, you know, as it relates to, you know, 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.

Now, on tariffs, our Health Trust Group Purchasing Organization has been working on tariff mitigation strategies for many years, including, you know, actions like fixed price contracting, supply chain mapping and risk assessments, and a lot of work on sourcing. Many of our key suppliers have been working on de-risking and diversifying their supply chains over the last many years, you know, 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 health care related items i would note that for 2025 we have about 70 percent of our supplies being contracted with firm pricing as it relates to kind of sizing it you know 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, you know, estimates of impact. On the other related items, you know, we're tracking those carefully, as all of you are. You know, we don't hire undocumented workers. You know, the impact would be more on supply and demand for labor in those skill mixes, and we're tracking it like you are, but no special insider 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 want to clarify, again, the bridge on the equivalent of missions going from the four and a half to the three to four. 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 bits from a non-repeative 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?

So, you know, when I think about our 25 guidance on volume, and so we're, you know, projecting a 3% to 4% growth in equivalent admissions for 25. And as you noted, you know, we ran higher than that through September year-to-day, call it a 5% growth. And then fourth quarter was a little bit more in line with that at a 3% growth, although, as I noted on an earlier question, we did see in fourth quarter a bit of impact with depressed flu season, sorry, respiratory season, and a little bit of drag in fourth quarter related to hurricanes. As I bridge our volume into 25, I mean, I might note a couple of things, you know, one would be, and probably the big one, is just the healthcare exchanges. We had big enrollment growth in 2024, you know, or call it 30%, and we had big volume growth in 2024, you know, 44, 45% growth in exchange volume in 2024. As we look at enrollment into 2025 on the healthcare exchanges, you know, we're seeing, you can call it 13, 14, 15 percent growth in enrollment in our states for 2025. And so we do expect that, you know, that there'll be less volume growth in 2025 related to healthcare exchanges than we saw in 2024. And that's one of the big drivers of the pullback there. I mentioned earlier that we had an admission benefit related to the Medicare Advantage 2 Midnight Rule in 24 that I don't think repeats in 25. And so, you know, and then the other thing would be the Medicaid redetermination process that, you know, was down this year. I think it flattens out next year. So, you know, all in, we're still forecasting what we think to be a strong demand for health care services in 25. You know, a 3% to 4% growth is still above our long-term guide of 2% to 3% and feels rational as we think about the balance of 2025 compared to where we landed in 2024.

Thank you. Our next question comes from the line of Jamie Paris 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, you know, including adding scale in existing markets or, you know, going to new markets and just the, you know, aggressiveness that you guys, you know, could show on the deal front in 2025.

So, our primary growth is going to be through 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 – We have, as you've mentioned, added when we can to our existing networks. We've 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're 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, if we think, overall southern New Hampshire network. But most of our investments are going to go toward, 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 Collins. 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 was 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.

So this is Sam. On, you know, the inpatient side, we did see a very solid growth in the quarter, you know, fairly broad-based. Again, I think our diversified array of service offerings allows us to cycles and then also have less risk. But we saw strong neuroscience, orthopedics, on the inpatient side. On the outpatient side, again, it's driven largely by Medicaid declines, which were down 10%. Our commercial and 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 type of cases. So, we're not concerned about the outpatient surgery activity in the company when we look underneath the hood.

The line of Steve Baxter from Wells Fargo. Please go ahead.

Hi. Thanks for the question. I'm 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, Paul, and hurricanes, I think, came in at maybe the end of the guidance range that you previously provided. I think what people are trying to square are 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. Hey, this is Mike. The way I would frame fourth quarter is you kind of think through the moving parts here. The first, as we've mentioned, would be the hurricane impact is noted. In terms of the supplemental payment benefits, you know, I think our description of the fourth quarter having the lowest portion of the net benefit in supplemental payments for the year is a kind of a good way to to think about that component and then you know a couple other things i might mention when you're when you're thinking about our fourth quarter of 24 earnings growth or adjusted eva dot growth would be one that fourth quarter of 2023 was very strong so it was a little bit of a tougher comparison in fourth quarter this year to last year um and then the second thing just to keep in mind you know and this is somewhat related to the depressed respiratory season is that our mission growth in the quarter was at 3% versus, you know, if you think about more akin to 5% September year to date of 24. 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 um given everything the company was dealing with in the fourth quarter of 2024 it was it was a good quarter thanks and just to clarify is the uh the tennessee portion of the 2024 payment recognized in the fourth quarter or is that in the 2025 guidance now thank you yeah it was not uh recognized in fourth quarter of 24 it'll be a 25 event line of josh for us after 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?

So let's kind of start with the numbers. We're at 124 surgery centers now. In my previous comment, I mentioned that the net revenue was up, you know, 5% to 6% in a quarter. The case volumes were down 1% in the quarter. You know, we feel good about our ambulatory surgery center network. They're an important part of our overall network in the markets we serve, and it'll continue to be, you know, a part of our network development and optimization work as we go through into 25 and beyond as part of that work. Sam, I don't know if you have anything.

Well, I'm sitting here just sort of canvassing across the company and thinking about the number of surgery centers vis-a-vis the number of hospitals that we have. And we do have a few markets for a variety of reasons that don't have, you know, sort of an average number of facilities per hospital. We've talked about, you know, 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 position, if you will, in this space. You know, 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 our 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 administrative process.

Helpful. Thank you.

Bernstein, please go ahead.

Great. Thanks a lot. Could you talk a little bit about the progress on labor and the labor agenda you've been making, in particular talking to the pace of hirings in nurse and support staff in 24 and what the guidance is or what's implied in 25, 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 to kind of get to an appropriate margin level there thanks yeah let's let's cover labor first um you know i think a good way to measure the the you know progress we've been making is kind of looking at our use of premium labor or contract labor and contract labor continues to improve. It was down 8% or so for the quarter to prior year. Our contract labor as a percentage of SWMD was down to 4.6%, 4.5% in the quarter. And it really represents, I think, a lot of really good work that our teams have done, both in terms of improving the retention or reducing the turnover rates we've seen over the last couple of years coming out of the pandemic and a lot of good work on workforce development including targeted hiring you know our workforce development plan is robust we've talked in the past about that we're continuing to add Galen colleges of nurses in our key markets we're continuing to see increases enrollment in in Galen and we have a robust academic medicine plan where we go out and work with other nursing schools really across our markets uh and and we're a really large hire of graduate nurses so i think overall uh the the labor agenda has gone and progressed really well in terms of wages um in fourth quarter the wages were stable wage inflation was stable and our guidance really contemplates if you think about our margin guidance really contemplates a steady operating environment as we head into 2025 including overall wage inflation being what I think is stable and rational. So, we're in a good spot on labor. On Medicaid, I'll just mention this, that when you take total Medicaid reimbursement, including the effects of supplemental payment programs on Medicaid, we're still short of covering the cost of care around Medicaid. These programs are important, And they're important to the industry, and not just HCA, but the wide range of not-for-profit. And that's where I'll leave on margins for Medicaid.

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 of Ben Rosey from JPMorgan. Please go ahead.

Good morning. Thanks for squeezing me in here for one last one. So, through 2025, CapEx got 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? Are 50-50 still a fair consideration for 2025?

I think that's a fair number. The hurricane is not changing our spending. The dynamics in North Carolina really weren't around. 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 of the clinical capabilities in the environment necessary to deliver high-quality care, so that will continue.

Got it.

Thank you.

Okay, Janine.

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

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.

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