HCA Healthcare, Inc. (HCA) May 20, 2026 Conference Transcript

Great. Thanks, everybody, for joining us today. My name is Ben Hendricks. I'm the healthcare services and managed care analyst here at RBC. Very pleased to host Chris Wyatt, SVP and controller from HCA Healthcare with us. Thank you very much.

Thanks, Ben. Good to be here.

Great. We're getting a lot of questions this week on your EPTC expiration assumptions. I know that we have got 6 to 900 in adjusted EBITDA headwind. We're kind of baked into your bridge. And, you know, I think that people saw the 1Q, 150, and wanted to get a little bit of insight into how you're thinking about the remainder of the year, where we're kind of falling in your expectations at this point versus that 750 midpoint.

Yeah, just to level set, everybody, I think you know our assumptions. We assume 15% to 20% decline in our exchange volume, much of that going to uninsured with the rest employer-sponsored insurance. During the first quarter, we saw about a 15% decline. That decline represented both patients that we actually saw in the system that were no longer exchange patients, but then an estimate that we made about patients that we treated that presented with Higgs coverage that we think will no longer ultimately have it because they won't be able to make their premium. So we made an estimate of that in the first quarter. So both in our statistic and in our financials, we made that estimate in the first quarter. And so we said about $150 million unfavorable impact to adjusted EBITDA was what we assumed in the quarter. We reaffirmed our $600 million to $900 million for the year. I think the variables that we are watching very closely, of course, are just how does that volume decline progress through the year? We're kind of at the low end of the range that we anticipated in the first quarter. How much of that moves to uninsured versus employer-sponsored insurance? It moved at about the rate that we expected in the first quarter. we'll see how that progresses as well as just some of the underlying dynamics around patients paying their co-pays and deductibles we've seen a bit of a metal tier shift as we expected all that was in our 150 million dollar thinking in the first quarter so we're watching that closely we know about the grace periods that people were in in the first quarter you think about someone that would auto re-enrolled on the exchanges so which we think is about 40 percent of the population they were in a grace period during the first quarter we'll see if they are able to sustain their premiums when we look historically the second quarter is when we've seen a bit of an uptick of patients that aren't able to maintain their exchange coverage that's historically we'll see if that dynamic repeats itself as we go through the second quarter of this year and beyond but again we're we're on what we anticipated for the year in the first quarter I don't know that you can necessarily just multiply that times four because of some of these uncertainties that we see as we continue through the year around people not being able to sustain their premiums. But we still think that we're in the range that we outlined and we'll see as things progress as we move through the balance of the year. So fair to say that we're still tracking towards the midpoint at this point? I think it's fair to say we're tracking in the range, in the $600 to $900 million range for the year. Again, the first quarter indicates more toward the lower end of that range, but we've just got to see how things play out. I think the second quarter is going to be really important to see just how people are able to sustain their premiums as we go through the second quarter.

Yeah, you mentioned that effectuation and you mentioned your assumptions on the continuity of the member, but maybe you can kind of think about the biggest swing factors in that range. Maybe you can kind of give us a little bit of insight and how you're thinking about those and if there's anything that's weighing one way or the other or there's another one that's offsetting it or how do we think about that balance?

Yeah, again, I think maybe three items that I would highlight again what is the decline in volume we were at the lower end of the range in the first quarter so what is the decline in exchange volume we see where does that volume migrate to that generally tracked with our expectations in the first quarter in terms of we think about 15 to 20 percent employer sponsored with the balance moving to uninsured that happened at about the rate we expected and then again this metal tier shift that we see underneath that affects our ability to collect what is patient due amounts. All of that, again, largely tracked with our expectations, but those are the swing factors. To state the obvious, more volume decline, more uninsured, that's going to move us toward the higher end of the range. Lower is going to keep us in the lower end of the range. So we're just going to have to see, Ben, how that progresses.

Great. And then you also reaffirmed the $400 million resiliency program for 2026. Now that We've got one cue behind us. Can you provide any additional breakdown of how we're thinking about that 400 distributed across those four pillars that you talked about, the revenue, integrity, asset optimization, fixed costs, and variable costs?

Well, we would say, first of all, we were pleased with resiliency and how it played out across those four pillars during the first quarter. We see a lot of opportunity underneath each one on the revenue cycle, ensuring that we are paid appropriately for the services that we provide. Asset optimization, we think from a length of stay standpoint, we saw a 2.8% decline in length of stay in the first quarter. We think we've still got some good opportunity as we look across our portfolio to continue to work on length of stay. Variable cost, we have great benchmarking opportunities inside of the company where we've got 190 hospitals that we can benchmark against each other from a performance standpoint and drive to the best performance inside of the company. And then our fixed costs, thinking about our shared service platforms as we continue to tuck more services up underneath those. So we think all of those continue to create or continuing to see opportunities in those for the company. In the first quarter, you know, as we think about cost overall, you say, well, could you see it in the income statement the way you wanted to in terms of our resiliency? It was a little bit muted by what we saw with the respiratory dynamic being a quick ramp and then staffing to that and then seeing some of the dissipation and then the winter storm kind of hurting our ability to quickly flex our costs. But as we went through the corridor, our cost trends really continued to improve. Our resiliency actions continued to take hold. And we felt really good about how we exited the corridor from a resiliency standpoint as it relates to what we want to achieve. We think the $400 million is still a really good number as we go through the year. And I just want to remind everybody that resiliency is not a 2026 thing. This is a long-term program that we have structured to continue to build upon itself, and we'll continue to have actions that we think will run well beyond 2026 to provide benefit.

If I can just dig into one of those points, I know that you and your colleagues have talked a lot about benchmarking over the last several years. Can you maybe kind of talk about maybe over the last two years, you know, the big advancements you've made there and kind of where we are and kind of the benchmarking, what inning we are in the benchmarking process?

Yeah, I would say, first of all, one is just getting better tool sets across our company and then democratizing those tool sets across all of our operating leaders. And we've had a significant focus on that over the last couple of years, really putting these better tool sets in place and then driving accountability to ensure that our leaders are reviewing those tool sets, seeing where they're, we challenge all of our operating leaders, know your performance. You need to know it and then you need to know where you need to be. If you're in the bottom quartile, you need to move to the next quartile and so forth and so on and just keep moving through those quartiles of performance. And so we think we've made good strides. I talked about length of stay. And we'll take certain assets inside the company that we think are performing well. We'll study those assets. We'll take assets that are not performing as well. And we will form collaboratives to make sure they're figuring out how to improve themselves, again, from a length of stay standpoint. We do it with supply costs, for instance. We do it for certain labor metrics. So all of these have advanced. I would say, you know, we're getting into probably the middle innings of these opportunities, but we're still we still see a lot of opportunities from a benchmarking standpoint as we think about moving the company forward. So we still see good runway left.

Great. I want to switch gears a little bit and talk about some of the volume trends. I know it's been a high area of focus with some of the disruption we saw in the first quarter. The same shortage yesterday admits 1.3 percent in 1Q and admits we're up just under a percent with a respiratory shortfall. The winter storm accounting up, I guess, about 100 basis points of drag there. February and March volumes reportedly recovered in your plan. Can you give us a little bit more color on the exit run rate from 1Q and kind of how you're thinking about confidence into the 2Q in the second half to that 2% to 3% target you've talked about?

Yeah, like you said, whether you look at emissions or adjusted emissions, around a point of growth in the first quarter just on what we reported. And then we had about a point of impact from the respiratory and the winter storm. So if you put those together, we were right about the low end of where we thought we would be for the full year. But as we studied, as we went through the quarter, and we talked about this on our call, we saw good volume progression in terms of growth as we went month by month through the quarter. January was most affected by some of these dynamics that we talked about to put pressure on our volume. February was better than January. March was better than February. So as we watched the run rate of volume through the quarter and then as we exited the quarter, it gave us confidence to think that our 2% to 3% is still appropriate, that we saw a temporal dynamic from a volume standpoint in the first quarter. We layer on just our views of demand, our network development initiatives, and then capital that we see coming online this year. We continue to believe that the 2% to 3% is achievable, and that's why we reaffirmed that's where we think we'll be for the full year.

Great. I want to drill in a little bit on the outpatient surgeries. We saw about 1.7% decline in the quarter. Hospital-based ortho was called out as a specific pocket of weakness in the inpatient side, and low-acute ASC lines, ophthalmology, and ENT on the outpatient side. Maybe you can talk about what drove the overall surgical demand softness and then how we're seeing case mix evolve on a 1Q exit rate.

Yeah, on outpatient surgeries, you know, we've seen some volume declines in outpatient surgeries for a number of quarters. I think we had maybe one quarter of growth last year. It's been more of a statistical dynamic for us. Our outpatient surgical revenue growth has been pretty solid as we look out over the last several quarters. And it's been more of a statistical than a revenue impact because of the payer mix. It's been self-pay and Medicaid or because of the acuity of the procedures. It's been, like I said, ENT, ophthalmology, some of the lower acuity on the outpatient revenue side. The first quarter, I would say, was different. The dynamic that was different is just the exchanges. And we saw some of the exchange declines inside of outpatient surgical volume as well. And, again, that was all in our thinking that we've already talked about on the $150 million impact. But that's really what's different. Our ASCs, we saw a little less volume decline, and then a little bit more on the hospital outpatient-based side. Still revenue growth in both platforms, but the HICS dynamic is what I would say is a little bit different on outpatient surgery this quarter.

And maybe you can talk a little bit about your capital spending expectations here.

You know, five, five and a half is about kind of what we typically think, and that's kind of where you're guided. with uh you know with about five and a half to six billion improved projects coming online the next 24 to 30 months you know how many uh how much uh how do you think about that translating to volume and and and where we will see where i guess what what uh categories will we see that in yeah so just some context uh we for the last several years have brought on about 600 inpatient beds online each year about 250 emergency room beds 2025 was a little bit lower we we were below average on inpatient beds we were about in line on ER in terms of what we brought online that was nothing other than just kind of timing of the way our capital projects have worked out as we come to 2026 we're going to be much more in line with those historical averages in terms of the inpatient beds we're going to be a little above on ER beds coming online so we think that is going to provide us some lift in terms of our volume in in our results as it relates to 2026 so spoke to that when we talked about volume earlier and that's why we also as we continue to look at opportunities we see the pipeline uh the five and a half to six billion dollars that you referenced uh both uh to invest in our inpatient facilities and continue to grow our service lines but then also our outpatient networks as we continue to deploy for instance freestanding emergency rooms we continue to see a strong pipeline and we're going to continue to invest in that and that's why we bumped our you know capital spending we spent a little less than five billion last year we expect to be in that five to five and a half billion dollars range this year and seeing good opportunities. I think it'll provide a bit of a tailwind for us.

Great. I appreciate that. And then thinking about, you know, the market share goals, I think you guys have talked about increasing your market share through 2030, increasing the number of outpatient access points. What's the market look like right now? Is it, you know, getting more favorable, less favorable in terms of valuation and opportunities, you know, for whether it be urgent care, freestanding ASC, or what have you?

I mean, I guess two elements to that. One, we've kind of talked about capital. So our own, building our own de novo freestanding emergency rooms, for instance, or building our own urgent care practices. So there's one, what are we doing to deploy our own capital? Then there's the M&A landscape that I think you're referring to as well there, Ben, and we've talked about. That is where we're seeing more opportunity during the first quarter. We spent about $260 million on acquisitions, which were primarily freestanding emergency rooms, urgent care platform, and an ASC. So we continue to see opportunities, probably a little bit more so on the outpatient side. It's not that we don't continue to look for inpatient opportunities. We did close two hospital acquisitions last year. So we'll continue to look for opportunities in that space. But outpatient seems to be what's presenting itself just a little bit more right now. And, you know, what we're able to bring to bear is certainly in this last quarter.

Great. Is that outpatient generally more ASC or is it going to be like urgent care? Any thoughts there?

I think just based on what we have purchased of late, it's been more urgent care and freestanding emergency room. Now, that's not to say that ASC, there are not opportunities and we are doing some ASC acquisitions. But if you just look at the sheer volume of what we've done, it's been more on the urgent care and the freestanding emergency room side.

Anything on the policy side regarding site neutrality or anything kind of changing the way you're thinking about your outpatient capital deployment?

Obviously, we're watching site neutral very closely. We're watching things like the inpatient only list. And, of course, we've been working through site of care shifts from in to out on total joints for a number of years and have been able to absorb that. We'll see how the policy environment evolves. Site-neutral has been pretty limited so far to drug administration and grandfathering of practices and things like that. They just haven't had a significant effect on us. At the end of the day, no, it doesn't change how we're thinking about our capital deployment in any material way right now. We're going to continue to just build these outpatient networks and try to grow that 14 sites of care outpatient to every one hospital. We've stated we're trying to move that up toward 20. but it doesn't materially change the company's strategy.

So digital transformation and innovation, the DT&I shift, has been a big focus of capital lately. I'm wondering if you can kind of talk about how that process has been moving forward when we can think about that as turning from a cost or a capital use to more of a margin-enhancing.

Yeah, obviously DT&I is a really important strategy for the company and we think it is going to pay significant dividends over the long run. We are in a year of investment in 2026. Part of it is as we continue to change our core clinical information system, so we're in the middle of doing that. We think that's very foundational to what we're doing. But also as we continue to build the team on our DT&I team, as we continue to deploy technologies that we think are going to make it successful in this area, that's all causing that net investment that we have to have this year. You know the domains that we're focused on from an AI standpoint, administrative, we're starting to deploy items there, operational in terms of staffing and scheduling, clinical in terms of ambient listening, and nurse handoffs. So we've got a pretty significant broad agenda there. We're investing heavily. I'm not ready to score yet exactly when it moves from net investment to net return. Obviously, you can imagine we're working as quickly as we possibly can to deliver a net return on these. and we've got expectations to do it as quickly as possible. We're just not quite ready to score when that is yet. But we think that this is going to be a differentiator for the company and something that we're very focused on in terms of what we're doing with our DT&I function.

Remind us of the relative timing of those big three buckets in terms of the clinical versus the operational versus the administrative. How do those flow naturally? I'll say, first of all, we've got actions and flight underneath all three of them.

The administrative, you know, for instance, when you think about revenue cycle and what we're trying to do to work through denials and underpayments, there are some immediate things that we're doing just to try to work through the adjudication and friction in the process there. So there's some things that we already have in flight and actually in use right now. Operationally, our staffing and scheduling, we're rolling that out across our facilities. It is one of those things. But when you're talking about staffing and scheduling for hundreds of, you know, a few hundred thousand people, that is a significant undertaking for the organization. And so we're working through that. And then clinical is the longest run poll in the tent, so to speak, here. Obviously, we have to be very thoughtful and responsible as we're thinking about all of our care processes. We think that ultimately AI is going to enhance them, but we've got to do it in a very thoughtful way. So we're still very early on, but we think we're making really good strides here.

And as we think about the opportunity in claims adjudication, just given, you know, higher claim review activity and pushback we're seeing from payers, you know, how are we thinking about where we are in the AI application to claim adjudication? Are we, is it fair to say that we're kind of in an arms race right now with payers? Or are we at a point where we can see a light at the end of the tunnel where we're actually reducing friction? Yeah.

So I would say that, one, denials and discrepancies, they're more significant than we would like to see. But we have a substantial effort internally and very proud of our teams of what they do to try to appeal or follow dispute resolution processes where we need to. And as we talked about in the first quarter, it really didn't have a material effect on us from a year-over-year standpoint. But we're trying to work with our payers on this. And we've talked about how do we integrate ourselves digitally with our payers to try to reduce the administrative burden, to try to reduce the friction, to try to reduce the costs in the system, to be able to better adjudicate claims. So we're going to continue to focus on that, Ben, and see if we can't get, you know, a better with this process together with our payers. But that is something, you know, that we're certainly focused on here, you know, with our payers in the integration.

I wanted to switch a little bit to some policy items. Medicaid work requirements under the OB-3 are set to take effect in 27 in expansion states. So you've got about 60% of your Medicaid revenue from non-expansion states. How are you thinking about the potential enrollment attrition from these administrative process failures or other impacts?

First of all, the bottom line is I think these work requirements will be manageable for us. you mentioned that our exposure to expansion states, where we think there will be more of an effect, is less, right? We have about 40 percent of our Medicaid revenue in expansion states, 60 percent in non. Obviously, we're watching what the states are doing closely as they set up processes and technologies to be able to adjudicate these work requirements. Fortunately for our states, we've not seen any early adopters. I think states have the option to move before 2027 if they want to. We're not seeing that in our states. We're gearing up our Paralon revenue cycle team to be able to educate our patients in the facilities as we go through Medicaid qualification processes, not only to qualify, but what is it going to take to be able to make sure they're meeting these ongoing work requirements. So again, we think this is manageable for us, but we are certainly gearing up to help our patients as much as we possibly can through this work requirement of transition.

Yeah, and historically you have had a really strong track record of, you know, finding out if a admission is Medicaid eligible and getting that worked out. Is there any kind of amplification of that process and what kind of developments have you done there?

I think we've got, to your point, we've got individuals embedded in our facilities that help with that process, help educate patients on how to qualify for Medicaid and do as much as they, you know, reasonably and appropriately can to help with that process. So we're certainly gearing up, again, just to make sure that people understand what the new rules will be, what the documentation requirements are, so we can educate our patients as much as we humanly possibly can. But as you can imagine, we've got work groups internally really thinking through this and how are we going to evolve to help patients through this.

And just wanted, you know, can't not ask question about DPP. So I know there's a lot of swing factors there and a lot of variation year to year. The 4% to 6% long-term EBITDA range, how are you thinking about the sustainability of that as we kind of go through the scale down of provider taxes?

So I'll go back to when the big bill was passed last year and we talked about what do we think the effect of the big bill would be honest. We said we thought the Medicaid cuts from the bill would be manageable for us, and that includes the supplemental payment cuts. And well, why did we say that? We said, well, one, there's a runway. There's a little elongated timeline for these to take effect. Two, we know we have some incremental benefit that is available to us through grandfathered programs. And three, it's our exposure, as we talked about already, to non-expansion or to expansion states where non-expansion states where we're more favorably treated in the bill. And so all those things, as we've continued to learn and understand more about the bill and the supplemental payment programs, none of that's changed our thinking at the end of the day. So we continue to think that over time, our 4% to 6% is reasonable in light of these supplemental payment changes that are coming out, or I'm sorry, that will impact us as we move forward. And so we continue to think that it's manageable and our ranges are appropriate in light of those. Any news developments from your end on Florida? Sure. Florida has been approved. You've probably seen that. It has been posted publicly. It was approved of the amount that we expected it would be. As a reminder, it's for the time period October 1, 2024 to September 30, 2025. We're going through an assessment of it right now. We expect to record something in the second quarter. I'm not ready to size that just yet for you, but we will do that when we get to our second quarter call.

Great. Well, thank you very much. I really appreciate it.