HCA Healthcare, Inc. (HCA) Q3 2026 Earnings Call Transcript

Welcome to the HCA Healthcare Third Quarter 2026 Earnings Conference Call. Today's call is being recorded. After today's prepared remarks, we will host a question and answer session. We kindly ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Frank, please go ahead, sir.

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen, and our CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take your 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 ACA Healthcare Dean is included in today's release. This morning's call is being recorded and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Thank you for joining the call. The company's results in the third quarter reflected improvement in key areas of our business. First, demand for our services continued to grow at a solid rate. Adjusted admissions on a same facility basis grew 3% compared to 2.3% year-to-date. Inside this growth, insured volumes grew faster in the quarter than in the first half of the year. It reflected the 22nd consecutive quarter of volume growth for the company per adjusted admission than in the first half of the year. This increased from continued volume declines for patients who were formerly covered in health insurance exchanges and are now uninsured. Additionally, we had a modest incremental net benefit of $50 million in the quarter from Medicaid supplemental payment programs, primarily related to a recently approved Virginia program. These factors, coupled with improved cost results, contributed to solid financial performance in the quarter that slightly exceeded our expectations. As adjusted, increased almost often mentioned that HDA has strong. The important role we play in providing critical services to communities, challenges this year brought about by federal policy changes, we have continued to move the company. We are positioned to end the year positively. belief. Let me share a few preliminary observations of a full year guidance in January. I'll remind everyone we are still early in our planning process and there are several important areas that remain fluid, including the policy environment. Services to remain strong with volume growth forecasted to be two to three percent. This range is consistent with our long-term thinking. It's reasonable to assume fewer people will lose their coverage on the health insurance exchanges than we experience. We do expect to get through the fourth quarter before we can provide more details. Next, we expect to receive approximately $550 million to $650 million less in Medicaid supplemental payment net benefits that received grandfather approvals in 2026 services. We We anticipate fairly due to our ongoing enterprise-wide resiliency program and the operating leverage from the expected. When we aggregate these preliminary observations, we anticipate our earnings in 2027 will be generally consistent with 2026. Beyond 2027, we anticipate performance more in line with our long-term growth significant effects on payer mix from the exchanges to no material policy changes beyond H.R.1. And finally, we have a set of strategic initiatives, including digital transformation, network development, and ongoing resiliency programs. Believe these preliminary contexts for how we currently see the company's growth. Colleagues continue to provide high-quality care to our patients and execute our strategic plans. I appreciate their efforts and delivering on our mission. As we get further into the execution of our plan, we believe it will enhance access for our patients with our capital spending, create a better work environment for our caregivers with our AI transformation initiatives, and deliver value for our shareholders with our enterprise-wide resiliency program and balanced capital allocation. As we look to the future, I'm confident that HCA Healthcare has the right people position to achieve our long-term objective. For more details on the quarter.

Thank you, Sam, and good morning, everyone. As Sam noted, demand for our services continued to grow. Prior to the prior year quarter, equivalent admissions increased 3%, and ER visits increased 5.1%. Inpatient surgeries were down 1.4%. Outpatient surgeries were down 3.7%. Regarding surgical volumes, consistent with the second quarter, we continue to see solid growth in our emergent surgical volumes and pressure in electives. Same facility equivalent admissions in our insured population, excluding exchanges, increased approximately 3% in the third quarter. Exchange equivalent admissions declined approximately 19%. For context, the third quarter of 2025 was our high-water mark for exchange volume, making for a difficult comparison. However, we did see sequential improvement in exchange volume from 2Q to 3Q of 2026 of approximately 8%. Like the second quarter, we continue to see patients who have lost coverage on the exchanges migrate almost one-for-one to uninsured. This one-for-one migration makes up approximately 80 percent of our uninsured volume growth, with the remaining 20 percent primarily related to a decrease in Medicaid conversions and mostly in taxes. Our uninsured volume in third quarter 26 represented approximately 10.5 percent of total equivalent admission versus 8.5 percent in the prior year quarter. We estimate the payer mixed shift from exchanges to insured resulted in an unfavorable impact on adjusted EBITDA of approximately $400 million in a quarter. We now expect the full-year unfavorable impact on adjusted EBITDA from payer mixed shifts to be at or slightly above the upper end of the range of our previously updated estimates. For Medicaid supplemental payment programs, the company recognized approximately $50 million of incremental net benefit during the third quarter. We now expect the incremental net benefit from Medicaid supplemental payment programs to be between $600 million and $800 million for the full year 2026. This increase in our estimated range was driven equally by the grandfathered application from Virginia and one-time payments from across our other programs. We were pleased with our cost results in the quarter. Same facility cost for equivalent admission, when excluding Medicaid supplemental payment programs, was essentially flat versus prior year quarter, and it improved 40 basis points sequentially. As we typically see an increase sequentially from second quarter to third quarter, this outcome reflects strong operating discipline, moving to capital allocation and cash flow. Capital expenditures totaled approximately $1.36 billion in the quarter. Additionally, we purchased approximately $3 billion of our outstanding shares, and we paid $165 million in dividends. The cash flow from operations was approximately $4.5 billion in the quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet remains strong and well-positioned for the future. We currently expect to complete most of the existing authorized share repurchase subject to market conditions and other factors as noted in our release we are reaffirming our estimated guidance range given our third quarter performance we currently expect to be in the upper half of our guidance ranges without hand call back to frank morgan for questions thank you mike as a reminder please limit yourself to one question so we might give as many as possible in the queue an opportunity to ask a question christine you may now give instruction to those who would like to ask a question.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of aj rice with ubs aj your line is now open uh thanks hi everybody um maybe just to i know it's early to be given a lot of comments about 2027 but uh uh and you're thinking about uh consistent uh eva versus this year um it sounds like you're thinking there is a fairly substantial incremental public exchange headwind that you've got to overcome and you're also talking about incremental savings from ongoing resiliency programs I wonder if there's any way to flesh out sort of a order of magnitude of what you think that incremental public exchange headwind might be next year even if it's a wide range and similarly so should we look for cost savings similar to the 400 million resiliency program you announced this year next year well AJ I think what What we try to do in preparing our early book comments is give you the best information we have.

As Sam noted in his prepared comments, we still are in the early stages of our planning cycle. And as we kind of finish fourth quarter, we're really studying two key components. Number one is our core performance continues to mature. In third quarter, we need to validate that we get sense of our core growth as we kind of step into 2027. The second thing that we've got to study is the exchange environment. We'll have better information about how our exchange volumes perform here in the last quarter of the year. But we'll also have better intelligence about enrollment. The enrollment period starts, you know, mid-January. And so with those two things, you know, we'll be in a much better sense of this, our fourth quarter call for 27 guidance. But I think as you think about core growth, you think about the headwinds that we have disclosed related to Medicaid state supplemental payment programs, and then what ends up happening with the exchanges in 27. Those are the big moves as we get on our fourth quarter.

On the cost side, AJ, let me add to the cost. I mean, we see our resiliency agenda broadly as a strategic program for the company. We now have new capabilities. We have new technology. We're able to move radically as a company today, and heretofore, we didn't have that ability because we didn't have the capabilities nor the technology. And I think the mindset to accomplish it as a result of that, in 27, as I mentioned in my comments, we do anticipate more value coming from our resiliency program broadly within our networks and from a cost standpoint overall for the company. strategic agenda item that will carry itself into the future and be a part of our programmatic efforts as we move beyond 2027. I think the other point, Mike, is the Medicaid Supplemental Payment Program is related to some payments from prior year as we think about 2027 also.

Our next question comes from the line of Anne Hines with Mizuho. Anne, your line is now open.

Great. Thank you so much. I just want to ask about 340B. I know there's a regulation out there that if it goes into effect as is, should benefit the for-profits that don't participate in that program. And I know that would probably be challenged at some point in the legal system, but does that flat guidance assume any change in that program or any potential benefit? And if it does have you size that? Thanks.

And so this is part of the Medicare OPTS rule that's proposed at this point. We were pleased with the construct that is a part of budget neutral reallocation of 340. We have not, and you know, as we think about kind of our early look statements, just keep in mind the idea of being generally consistent is where we are standing with more detailed information as we get on our fourth quarter call.

But I would say, I mean, we view the OPTS rule Our next question comes from the line of Ben Hendricks with RBC Capital Markets. Ben, your line is now open.

Great. Thank you very much. I appreciate the demand comments for next year and the expectation for 2% to 3% volume growth. I'm wondering how the surgical backdrop is fitting into your thoughts there. I know you had said that you didn't expect any recovery of the kind of weaker elective trend through the end of this year. But as we think about next year, is there demand getting pinned up there that they could unwind? And would that be upside to that 2% to 3% or would that be considered in there? Any thoughts on how you're thinking about surgical progression for next year?

Ben, we haven't landed on components of that growth just yet. We have some viewpoints. I think, again, we need to get through the fourth quarter, see how the seasonality on surgery plays out in the fourth quarter. I think, you know, our emergent business continues to be strong. We see some macro forces impacting the elective business, coverage being the primary macro force, and then just sort of general affordability across the economy being a second one. So I think from that standpoint, we haven't landed on any surgical viewpoints. But I think it's important for everyone to understand that our composition of volume is fairly diverse. I mean, we have cardiac, we have women's, we have NICU, we have transplant programs, we have surgery, yes, medicine, critical care. All of these components are attributes of our company that we think give us an ability to navigate through a component not being as productive as we want, and that's what we're seeing. We're seeing more growth in other services that are compensating for some of the surgical growth or surgical declines that we're experiencing. For example, our neonatal activity in the quarter was very strong. Our cardiac business continues to be strong. Our trauma business, strong. EMS traffic to our hospitals, up significantly. So there's all of these elements that go into our volume assumption. We're not ready to sit there and call out surgery specifically for 2027 until we get a better viewpoint of it through the seasonality patterns that typically exist in the fourth quarter.

Your next question comes from the line of Brian Tankulit with Jefferies. Brian, your line is now open.

Hey, good morning, guys. Maybe, Mike, as I look at the SWB and the operating expense lines, SWB up sequentially, other OPEX down, anything you can call out there, especially as we think through TEP staffing, we're seeing indicators that it looks like TEP versus TEP orders are picking up. So just curious what you can share with us on those two line items, especially given resiliency efforts. Thanks. Sure.

And I mean, that's part of this answer is consistent with, you know, typically when we go from second quarter to third quarter, that is the timing of when we do a lot of our merit adjustment. We typically see, you know, even 100 basis point increase in our expense per AA overall. And that's one of the factors. And so we were actually really pleased when we looked at our expenses per equivalent emissions. you know, one, they were essentially flat to prior year, but two, they were 40 basis points sequentially down, you know, we think really reflects the strength of not only our resiliency plan, but also the operating leverage we're getting from states of most payments. I mean, if you look at SWB on a margin basis to prior year, even with, you know, the softer overall revenue, we had a 40 basis point. We were pleased with that. And the same thing, you know, had good performance and supplies as well. You know, in other operating expenses, you know, if you just look at third quarter to prior year, you do have a bit of cost.

Keep that in mind. Professional fees continue to be a pressure point for the company.

We were up about 12% versus prior year quarter. Fees now represent about 24%. And I would note that those, you know, continue to be driven by radiology. So that's a, Brian, that's a bit of a rundown on the cost side.

Your next question comes from the line of Peto Chikering with Deutsche Bank. Peto, your line is now open.

Hey, good morning, guys. It takes TJ's question a little differently. You know, you quantified the $600 million payments. You talked qualitatively about $27 adjusted.

Well, you know, Peto, resiliency is, you know, resiliency is in managed to come. When I think about core growth in third quarter, I think that reflects, I think is useful. And then, you know, we'll give you kind of our thinking in more detail about 2027 when we get on our board. I think about core growth. You get a sense from the upper half.

Your next question comes from the line of Matthew Gilmer with KeyBank. Matthew, your line is now open.

Hey, thanks for the question. On the pricing topic, you called out an acceleration in assured revenue per equivalent admission. It sounded like that was better than expected. Can you talk about some of the drivers of that acceleration?

So, Matthew, if I look at kind of net revenue per unit and I think about the insured book, excluding the exchanges that we're dealing with in the prior year, number one is really the strength of our commercial volume. Our commercial excluding exchanges volume was up 2.7. The component of our payer mix is definitely a part of why our net revenue per unit was a bit stronger in third quarter. The second, we continue to see solid rate growth. And then really third, you know, Paralon, we see continued strengthening in their abilities to collect our net revenues and yield our contracts. Their work to continue to strengthen our abilities to deal with the nulls and underpayments continues to improve. And so I think, you know, overall, we had a good, you know, net revenue per unit performance in the third quarter, especially kind of given the headwinds from our payment.

Your next question comes from the line of Sam Dodge with BMO Capital Markets. Sean, your line is now open.

Yeah, thanks. Good morning. Maybe just on the 2026 guidance, Mike, you said you're now pointing to the upper half of the range. I think that still implies core growth in Q4 will accelerate some from Q3. Maybe if you could just walk us through the visibility you have and what's going to drive that. Is that just incremental gains from resiliency you're expecting to come through? And Sam, you also mentioned volume growth in Q3 broadly improved from the first half of the year. Is that part of the assumption, too, that volumes also continue to improve into Q4?

Well, at first, I would say, I mean, I think if you look at the upper half of our guidance ranges, that largely implies the core growth is fairly consistent in fourth quarter and third quarter. And then I think the drivers are similar. You know, number one is we did see strength in volume and third quarter and and so that's encouraging for sure we've already mentioned a little bit on the net revenue per unit side there there tends to be a step up from third quarter to fourth quarter um in normal course and so we expect that that normal seasonal trend to apply broadly and then we do believe as even sam mentioned not only in his opening but in his as we were talking about in the first question that our performance around our resiliency plan our ability to manage costs we continue to see strength across our resiliency plan in third quarter in fourth quarter and into 27 28 and beyond so i think those are the key components sean that are that are kind of

making up our your next question comes from the line of with mayo with lee rink but your line is now open yeah thanks did the um did the hicks headwind get larger in any particular market and any comments around uh ar collectability balance after collectability be helpful and and any of the 400 million is that related to prior quarters thanks well i would say uh with it that our uh our hicks results in third floor were a little bit higher than we estimated um you know we would

have estimated a third based on our guidance that we gave the second quarter the third quarter would be you know 15 16 percent decline you know just reflects the sustained decline in the same in our exchange volumes uh i like to put that in context though i mean you know that's that two or three points is about 2 000 adjusted emissions you know just we have about a million adjusted emissions in the quarter so you know these aren't perfect uh estimates but it gives you a sense of kind of the numbers we're looking at here you know our experience in third quarter and i mentioned this in my prepared comments number one you know third quarter of last year was our high water mark so there was a bit of a prior year comparison difficulty we did see however a sequential improvement in exchange volume from second quarter to third quarter 26 of about eight percent and so all of that when we brought it together you know it is now you know we'll be at to maybe slightly above the top end of our previously updated range. That's kind of how the numbers pull through here in third quarter.

Your next question comes from the line of Ryan Langston with TD Cohen. Ryan, your line is now open.

Great, thanks. Appreciate the commentary on elective versus emergency surgical procedure trend growth. Can you maybe update us on what ASC versus HOPD surgical volume look like in the third quarter? Thanks.

So the ASC surgery volumes were down 5.4 percent on surgery. Overall case volumes were down about 3.7 percent. The primary pressure is related to the exchanges in our ASC book, very similar to the. I would note, however, that, you know, Even in light of the earnings did so, some growth to prior year.

The high, we're down 2.9%. ...ASC platform, and that informs at some level for us the macro forces that are out there with elective care at this particular juncture. And so when you sort through certain issues in some segregated level, it informs a little bit of our macro thinking for all demand.

Your next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah, your line is now open.

Thank you. I'd like to keep going on that topic. So is there a way to unpack how much of the inpatient and outpatient surgical trend pressure so far this year is exchange-related versus how much is affordability and things that may be continuing? And then given your comment on affordability pressure, are you assuming any stronger than normal tailwind in 4Q ahead of the deductible reset?

We are not, at this particular juncture, assuming anything outside of normal seasonality, but your point is relevant. It could be that some folks are making decisions. We've seen that on the margins in other years, but at this particular point in time, we are not. care explanation, it goes back and it creates access, affordability, and elected. It's a very fundamental individual's abilities to get the health care they need. And so it's a large piece of the elective equation is the covered in the Hicks environment percentage here in front of you, but it's a very significant piece of vacations as well as we talk about the affordability more broadly.

Thank you. Your next question comes from the line of Justin Lake with Wolf Research. Justin, your line is now open.

Good morning. A couple quick number follow-ups. First on 2027 DPP, appreciate the 550 to 650 number. I was hoping you can isolate your estimate here of how much of that number comes from the Q4 DPP cut as H.R. 1 gets implemented versus the 2026 at a period. That doesn't reoccur. And then on the exchange impact for Q4, can you tell us how much your guidance assumes that that sequential exchange volume growth occurs from Q3 to Q4 this year? I know you just gave us the Q2 to Q3 number, curious on Q3 to Q4. Thank you.

Well, let me start with the first part of your question. So, as Sam noted in his comment, we expect to receive $50 to $650 million less in Medicaid state supplemental payment net benefit in, you know, in 27 versus 26. And that's because of the grandfather approvals that happened in 26 that were really related to prior. The predominance of that, you know, the rest is really related to the other Virginia. You know, that's really the makeup of those kind of the out-of-period state supplemental payment programs. If I think about what the guidance implies over the fourth quarter, you know, we are finishing September 26th year to date with $650 million. So if you think about the full year guidance range that we just updated to $600 million, thinking about fourth quarter, you know, at midpoint it would be another $50 million net incremental benefit, and then you can see the range. And so that's kind of how we're thinking about that. And then on exchanges, not ready to quote a sequential move from Q3. I would note, and we noted this, you know, I would point you back to fourth quarter of 25, where we did see a slowdown occur in our exchange volumes from Q3 to Q4 last year. And so we do think there is a bit of a benefit comparison given that fact.

Your next question comes from the line of Kevin Fishback with Bank of America.

Kevin your line is now open great thanks I just a lot of moving pieces here so I just want to make sure I understand you know the new guidance versus the old guidance is the right way to think about it that the new guidance includes about 300 million dollars more of STPs and a hundred plus million more of headwinds from payer mix and then that combination is largely the increase in guidance from the prior? Is that the right way to think about it? And then just a clarification on the Hicks headwind that you guys are talking about. Is it purely just an uninsured number, people coming in and not paying, or are you also kind of thinking about the implication of lost surgery from people losing Hicks coverage in that number? Thanks.

Well, let's walk to guidance first, Kevin. So yes, I mean, from supplemental payments, we've raised our net benefit guidance about the exchanges, you know, with this idea of kind of ag release estimates, you know, you're in the $100 to $200 million increase in headwinds related to that. And then the third thing I would call out is just the net of those three factors really let us end, which will give you a sense of, so that would be the.

Your next question comes from the line of Scott Fidel with goldman sachs scott your line is now open hi thanks uh good morning um the question is uh just first on the um i know there's been some questions around it on on the third quarter and next year but on the fourth quarter just um maybe the visibility and expectations that you have uh around elective procedures um and sort of how scheduling seems to be playing out in terms of just normal seasonality. And then I just wanted to also ask in terms of the headwinds that you've laid out for next year relating to OB3, whether there's anything specifically relating just to the CMS policy that now is requiring all the 1115 waivers to be budget neutral from a federal perspective and just whether your intel from the states, are you seeing any change in sort of approach or in terms of applications or, you know, sort of anything that you think could be sort of play out, you know, relating to that policy that that could impact fundamentals in 27. Thanks.

I think Sam mentioned this when he was answering the previous question of surgery. At this point, we did not assume, you know, any pickup demand related to, you know, copays and deductibles in the fourth quarter. I think, you know, we expect a normal seasonal move from Q3 to Q4, but we did not build into our guidance thinking some kind of improvement or pull forward of demand from another. When I think about H.R. 1 for 2027, and we continue to monitor all the rulemaking, we know that our states continue to file their applications. I would mention on H.R. 1 that, you know, the big changes really work requirements for able-bodied adults in our expansion states, you know, I might mention just for context that expansion states are 40% of our Medicaid volumes and revenues. And when you think about work requirements targeting able-bodied adults in those expansion states, you know, when you take out the seniors and the disabled and the kids and those that are medically frail, we think that work requirements would be, you know, kind of applicable to about 15 to 20% of our Medicaid volume. And so, you know, But the net of all of that, while we're not quite ready to size it, work requirements specifically would have a bit of a modest impact. That's the main things we're watching for HR1 next year, and I think that wraps up.

Your next question comes from the line of Stephen Baxter with Wells Fargo. Stephen, your line is now open.

Hi, thanks. Just a couple of follow-ups on the breakout of adjusted admissions. I think you gave us the commercial exchange number already, but could we get the Medicare year-over-year-AA growth, Medicaid? And then I guess you gave us the exchanges on a quarter-over-quarter basis. If you also had the year-over-year basis, that would be helpful.

So these are same facility-adjusted admissions compared to prior year for third quarter. Medicare is up 3.2%. Medicaid is up 2.7%. Commercial excluding the exchanges are up 2.7%. and then the exchanges are down 19% to the primary quarter. As I noted in my commentary, though, that is an 8% sequential improvement.

Our next question comes from the line of Jason Casorla with Guggenheim Securities. Jason, your line is now open.

Great, thanks. Good morning. I wanted to turn back to the volume discussion. You guys have seen pretty solid volume acceleration over the past couple of quarters that clearly stands out. You're talking about 2% to 3% volume growth next year. I was just hoping if you can give us a little more in terms of what you're attributing the volume strength to. I mean, you've talked to the solid demand environment, but can you help quantify maybe like how much you're thinking is coming from the benefits of in-market initiatives, all the work you've done to expand capacity and the like, and how that kind of fits into that 2% to 3% mold that you're looking forward for next year would be helpful.

At the top here, I mean, it's our belief that there's sort of inherent demand growth in the markets that we serve, coming from population growth, aging baby boomers, chronic conditions, new technology even, all of this sort of convert movement in demand in the markets that we employ. As a starting point, we do think across a lot of our markets, you know, we're gaining market share incrementally. We do have some markets to do different dynamics and respond. But when you look at it in the main, over time, our networks is continuing to affect to 3,000 units through acquisition of urgent care, ambulatory surgery centers, and other outpatient facilities that complement our hospital's ecosystem and create for our patients a more convenient and accessible location and efficient service. That continues to evolve in our networks, and as we mature on that platform and leverage the restructuring that we did with one of our group presidents, Charles Gressley. I anticipate that we're going to be able to move and create even more growth out of it. Again, meeting our customers, our patients, where they live so that we can create convenience and so forth for them. A second important initiative for us is creating patient coordination once they do hit one of our ambulatory facilities. And through patient coordination, we think we can create a better experience for the patient and ultimately integrate them into our system. And if, in fact, they need acute care services, we're helping them achieve that in an efficient and transparent way. So that's evolving also. Clearly, we're investing in our hospital. We are adding bed capacity within our facilities to manage the demand. And we're running the company at an all-time high when it comes to occupancy levels, pushing 75% on our inpatient platform. We're benefiting, however, through patient flow initiatives where we're able to improve the flow for our patients and get them to the care sites they need. That's creating capacity for us as we evolve also. So all of these things combined are yielding our company. And then lastly, it's how we engage with our physicians and support our physicians with their practices, meet them where they are, and find ways to invest in clinical capabilities, be very effective and efficient in how we process their patients, and then ultimately give them a voice in what's going on. That's allowing us to respond largely to our physician requirements as well. So all of those things, it's impossible to point to one thing, and each market's slightly different. We have to nuance our approach in each market to address those differences. That's why we're organized as we are with our divisions. But I think with 22 consecutive in volume, which is quite impressive from my standpoint, and then with the return on capital, and then with the improvements in quality and service for our patients. We feel like our model works and gives us, again, the staying power that I mentioned in my comments. It allows us to push into the future with confidence and a belief that we can achieve our objectives.

Your next question comes from the line of Raj Kumar with Stevens. Raj, your line is now open.

Maybe on the pricing conversation, just curious on, I know you're mostly contract on the commercial side for 2027, but you kind of think about 2028 or payers starting to, you know, embed any explicit assumptions around, you know, coding and more accuracy on that front. And just curious across, you know, one of that node and in terms of how diffused it is across the platform, or is it still in early stages around kind of the coding on that front?

You know, this is Sam. Let me lift up a little bit on this point. It's important for us to have with the major payers in our community, and we do that. And we're able to meet their objectives and meet our objectives in most circumstances. And that's been, I think, part of our ability to execute our strategy and help them, excuse me, execute their strategy. Our contracting process is transparent with our major payers, and that naturally occurs over time. We're deep into 2027, and we're not as deep into 2028, but we are making progress on 2028 as contracts mature and move into the cycle that naturally occurs. We're able to achieve our objectives and then support the objectives of the major payers. Our teams are working to come up with solutions, the patient, the providers, and the beneficiaries that are all connected to what we do administratively between the insurance companies and the hospitals. HCA and many of the major payers are working diligently to create a more cost-effective solution and sort of reduce the administrative complexity that exists within the system. We're making, I'm encouraged by the attitudes of many of the payers, and I think we're going to progress over the next year or so and really create value for our patients and for the beneficiaries in a manner that starts to change the paradigm a little bit between with HCA. Come on that, but addressing on just about every front.

Your next question comes from the line of Benjamin Rossi with J.P. Morgan. Benjamin, your line is now open.

Hey, good morning. Thanks for the question. Following up on your market-specific commentary, with some of the broader operational pressures you're facing, I appreciate that you're still adding inpatient capacity and outpatient density. But as you assess your options, are you at all considering any market exits or potential changes to your footprint? Or with these pressures hitting everyone, do you consider yourself a potential buyer as competitors similarly face these headwinds? I guess just curious where you stand on market positioning at this juncture. Thanks.

We compete in 43 markets roughly in the U.S. Some of them are smaller, and they get counted in that, and then some are mega markets. And over the last seven, eight years, we have been fairly intentional about looking at our individual markets and determining whether or not we can execute our model and be successful and meet the needs of our constituents. And we've largely pruned the portfolio of HCA down to the markets that we think can go the distance. And today, the markets that we have are ones that we're investing in at the different circumstances from one market to the other, the different opportunities that exist. So I don't see any significant change market configuration at this particular point because we've been intentional over the past few years to, if you will, and put ourselves in a position where we can succeed to our patients and adds value to the organization as a whole. That allows us to focus our capital spending, to focus our talent and our resources on, you know, but with a very company. We always have one or two items here or there. With regard to new markets, you're right, we're built to be bigger. We know that, But we just haven't seen a lot of opportunities yet. Opportunities do develop. As usual, we'll be opportunistic and take a look at whether or not it's affordable, whether or not we can execute our model, and make the right decision at that particular juncture. About patient activity, as I mentioned earlier, that is important to building out the network overall so that it is accessible for our patients and we continue to invest in those opportunities as they develop as well.

Your next question comes from the line of Andrew Mock with Barclays. Andrew, your line is now open.

Hi, good morning. Can you talk about what you're seeing in the market as it relates to the removal of the inpatient-only list, both in terms of procedure migration today and actions taken now in anticipation of future migration? And how should we think about the impact of the inpatient-only list than potential outpatient capacity additions against the backdrop of fixed to certain.

Andrew, if I think about the inpatient-only list, obviously we're in year one. This first year is focused a bit more on ortho and musculoskeletal. I think if I look at our elected book, I would say, you know, after the exchanges, which were the biggest driver of elective surgical volume weakness, the second driver would have been Medicare and some impact of the inpatient-only list. You know, I think it's fair to say that the outpatient market for surgery is a bit larger than the inpatient market for surgery. There's more competitive. When I think broadly, though, you know, we look at ambulatory networks. We are continuing to invest in our operating rooms and our surgical platforms in the inpatient side and the hospital side for outpatient. You see platforms, you know, it's a long-term important component. I don't think that anything we're seeing would say that it would drive a material change.

And again, Mike, I think the fact that we have a company that are different gives us an ability at times to invest, just like I said, in different markets. We can invest in different services depending on demand, forecasts, population trends, competitive dynamics, and so forth. And you see that in our volume, as we've seen on elective care, we've all set that with other services that give the networks a level of resiliency, give the demand inside of the market support when it comes to our ability to provide patient care. And I'm not sure that is fully recognized in some of these isolated discussions about service A, service B. Clearly, there are always issues. We've had issues with stuff migrating from inpatient to outpatient. We've had new, over the years, we've had new technologies evolve that change the procedure for physicians and better for the patients. Obviously, we embrace that with other services, expand our markets, get into new capabilities, and ultimately keep the company moving forward in the face of those incremental changes that occur. And that's what I think is unique in many respects to our platform, the services we provide, and how we approach our business. And it gives us the diversification in some regards that allows us to navigate through these incremental issues that surface from time to time.

Your next question comes from the line of Craig Hattenbach with Morgan Stanley. Craig, your line is now open.

Yes, thank you. Mike, the comment that resiliency is part of the core now, can you just touch on some of the applications you've been able to accelerate this year, as well as any untapped opportunities you see on a longer-term basis on resiliency?

When we think about resiliency, you know, we largely think about four. Number two is asset optimization, Craig, and that's important. That's that patient flow that Sam was talking about, and certainly that's important on the inpatient side. It's also important in our emergency rooms, our operating rooms, our cath labs, and so we continue to see good performance on patient flow, and there's a lot of opportunity ahead. We are nowhere near the back innings here on asset optimization and feel good about the work ahead there. Third is variable costs, things like labor, supplies, and even some of our variable operating costs, which are performing well this year. We have a number of resiliency plans that are driven to focus on variable costs. And when we look ahead, we continue to see opportunity and the variability across the company and our benchmarking tools and advanced analytics and taking that forward. And then lastly, our fixed costs, both at corporate and in the field. So as I think about where we are today, we have good resiliency efforts that have been in our past and that are certainly improving our current year's performance. We have a great line of sight now going into 27 and into 28 and beyond. And I think about things like the digital transformation is really being a key enabler that gives us that confidence that we're going to have resiliency benefits in the years to follow. We continue to build out our global capabilities. I think about the underlying work of expanding our shared service platforms. We have a number of expansions in flight where, for example, Paralon is taking on additional administrative functions for the company and bringing shared service scale and expertise to broader parts of our work. So, as I sit here today at the end of third quarter of 26, we believe that we're in a really good spot. But we have a multi-year, multi-faceted, enterprise-wide approach to resiliency, and we believe it's going to produce great results as we move forward.

Christine, I think we're at the end of our allotted time for questions.

We have reached the end of the Q&A session. I will now turn the call back to Frank for closing remarks.

Christine, thank you for your help today on the call, and thanks to everyone for joining us. Please reach out to me if you have any additional questions. Thank you very much.

This concludes today's call. Thank you for attending. you may now disconnect.