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Date
Friday, July 25, 2025 at 2:00 p.m. ET
Call participants
Chief Executive Officer — Sam Hazen
Executive Vice President and Chief Financial Officer — Mike Marks
Vice President, Investor Relations — Frank Morgan
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Risks
The expiration of Enhanced Premium Tax Credits (EPTCs) at year-end 2025 could result in some patients losing insurance coverage, which management acknowledged and is preparing resiliency efforts to offset.
Medicaid equivalent admissions declined 1.2% year-to-date through June 2025. Growth fell below expectations, representing a volume and reimbursement headwind identified by management.
The company has two underperforming divisions impacting results, with one affected by competitive dislocation and the other by service mix shifts that led to a sharper drop in performance in the second quarter.
Same facility professional fees increased about 10% over the prior year, reflecting ongoing cost pressures in physician-related expenses. These fees remain elevated relative to general labor trends, per management commentary.
Takeaways
Diluted earnings per share-- Adjusted diluted EPS rose 24% to $6.84, reflecting strong margin improvements and revenue growth.
Revenue-- Total revenue grew 6.4%, surpassing the long-term guidance range (4%-6%), attributed to higher demand, better payer mix, and stable patient acuity.
Adjusted EBITDA margin-- Adjusted EBITDA margin expanded by 30 basis points year over year. This was driven by lower salary and benefit ratios, and reduced contract labor costs.
State supplemental payments-- Net benefit increased by approximately $100 million compared to fiscal Q2 2024 due to prior period reconciliation payments and timing; supplemental payment full-year net benefit now guided to flat to $100 million favorable for 2025.
Tennessee Directed Payment Program-- Approved in late June, with benefits not accrued and to be recognized upon cash receipt in the second half of 2025.
Equivalent admissions-- Grew 1.7%, and 2.3% equivalent admissions growth year-to-date through June 2025, trailing the original 3%-4% guidance due to weaker Medicaid and self-pay volumes.
Managed care and exchange admissions-- Managed care equivalent admissions (including exchanges) increased 4% year-to-date through June 2025; exchange equivalent admissions rose 15.8% year-to-date through June 2025, comprising about 8% of total equivalent admissions and just over 10% of net revenues.
Commercial managed care volume-- Medicaid volume declined 1.2% year-to-date through June 2025, slightly below internal expectations.
Adjusted EBITDA-- Adjusted EBITDA increased 8.4% compared to the prior-year quarter, with a substantial portion attributed to core operations.
Labor costs-- Contract labor as a share of total labor dropped to 4.3%, approaching pre-pandemic levels (4.1%-4.2% contract labor as a percent of salary, wages, and benefits (SWB)).
Supply expense-- Rose slightly as a percentage of revenue, chiefly due to higher spending on cardiac-related devices.
Cash flow and capital allocation-- Operating cash flow was $4.2 billion; capital expenditures were $1.2 billion for 2025, share repurchases were $2.5 billion, and dividends were $171 million.
Tax deferral-- $850 million in tax payments deferred to Q4 2025 due to IRS relief for Tennessee, improving near-term cash flow.
Debt to adjusted EBITDA leverage-- Remained in the lower half of the company’s stated guidance range.
Full-year 2025 guidance-- Revenue projected at $74-$76 billion, net income (GAAP) at $6.11-$6.48 billion, adjusted EBITDA at $14.7-$15.3 billion, and diluted EPS is projected at $25.50–$27; capital spending forecasted at $5 billion.
Volume guidance update-- Equivalent admissions now guided to 2%-3% growth, reduced from the previous 3%-4% expectation.
Hurricane-impacted markets-- Recovery in hurricane-impacted markets outperformed original projections. There was $100 million of incremental improvement versus prior flat guidance, although some headwinds persist in select regions offsetting these gains.
Outpatient and inpatient surgery-- Outpatient surgery case volumes declined 0.6%, driven by Medicaid and self-pay, but outpatient surgery revenue grew 7.5%-8%. Inpatient surgery volumes were flat.
Occupancy-- Inpatient side operated at 73%-74% occupancy year to date, supporting ongoing capital pipeline deployment.
Managed care contracting-- 2025 is largely contracted; 2026 contracts are 80% complete, and 2027 is one-third complete, with targets achieved for each cohort.
One Big Beautiful Bill Act impact-- Policy changes are considered manageable near-term due to grandfathering and phasing related to supplemental payments and Medicaid requirements.
Resiliency program-- Management is “develop and execute resiliency programs” focused on operational benchmarking, automation, digital transformation, and shared service leverage to offset policy and reimbursement risks.
Summary
HCA Healthcare(HCA 0.18%) reported adjusted diluted EPS growth of 24% and raised full-year 2025 financial guidance following a quarter of revenue and adjusted EBITDA increases above long-term targets. Strategic efforts, including state supplemental payment program benefits, cost controls, and portfolio diversification, are driving improved financial performance. Management highlighted a $100 million net improvement from hurricane-impacted markets. This was offset by underperformance in two divisions, and management addressed Medicaid and EPTC policy uncertainties with ongoing resiliency initiatives.
Executive management stated, “our financial resiliency program should offset the exchange provisions” but the longer-term impact from EPTC expiration remains undetermined and will be revisited with 2026 guidance.
Medicaid admissions declined 1.2% year-to-date through June 2025. Both Medicaid and self-pay volumes were identified as the main shortfall compared to volume guidance for year-to-date June 2025, together explaining roughly half of the deviation from original expectations.
Chief Financial Officer Mike Marks said, “As it relates to tax policy, this act was positive for HCA, making 100% bonus depreciation permanent and effective back to inauguration date.”
Labor cost stabilization was achieved with contract labor costs reduced to pre-pandemic proportions, while elevated physician cost escalation was acknowledged as an ongoing constraint for expense management.
Industry glossary
Equivalent admissions: A company-defined metric adjusting for both inpatient admissions and certain types of outpatient encounters, incorporating case mix and intensity for comparability across reporting periods.
State supplemental payment programs: State-run Medicaid payment programs providing additional funding to hospitals above standard Medicaid reimbursement, often variable in timing and subject to federal approval.
Enhanced Premium Tax Credits (EPTCs): Temporary increases in federal subsidies for health insurance exchange plan enrollees under the Affordable Care Act, scheduled to expire at year-end unless extended by further legislation.
Tennessee Directed Payment Program: A new state-approved Medicaid supplemental payment initiative intended to provide additional reimbursement to hospitals serving Medicaid patients in Tennessee.
Full Conference Call Transcript
Sam Hazen: Alright. Thank you, Frank, and good morning to everybody, and thank you for joining the call. The company's financial results for the second quarter were strong, with a 24% increase in diluted earnings per share as adjusted to $6.84. The results reflected solid revenue growth of 6.4%, which was driven by greater demand for our services, improved payer mix, and consistent patient acuity levels. In the quarter, we also experienced a stable operating environment, which allowed us to produce better margins. Because of the team's great start to the year, we increased our guidance for 2025 as reflected in our earnings release this morning.
This updated outlook also reflects the positive demand environment we expect in our markets, the effectiveness of our strategic initiatives, and the momentum we see in our business. During the quarter, we also improved quality outcomes, throughput measures in our emergency rooms, and patient satisfaction. We believe the HCA way of combining our high-quality local health networks with the capabilities of a national system will continue to reinforce our competitive position, help us respond effectively to evolving market dynamics, and meet the needs of our patients. As a team, we remain relentless in our pursuits to innovate using technology, finding ways to increase efficiencies, and hold ourselves accountable for delivering results for our stakeholders.
I want to thank our colleagues again for their outstanding work and their ongoing pursuit to deliver on our mission. Now let me transition to the federal policy environment and the recent passage of the One Big Beautiful Bill Act. With respect to the Medicaid component in this act, we believe the adverse impacts over the next few years are manageable. This belief is based on the grandfathering provisions for supplemental programs, which include a number of previously submitted applications for state-directed payments and the timelines for phasing in work requirements and supplemental payment program changes. I will also note that the bifurcation of the policy between expansion and non-expansion states lessens the expected impact to HCA Healthcare.
Approximately 60% of our Medicaid volumes and revenue are in non-expansion states. With respect to the exchange provisions in the act, we do anticipate that some people will lose insurance coverage over the next few years. But we believe our financial resiliency program should offset these effects. We are also mindful of the scheduled expiration of the enhanced premium tax credits at the end of this year. We continue to advocate strongly for their extension, but at this point, we do not know what the outcome will be. Recent polling indicates that many Americans want them extended. Many believe they need them for their families, and many say their voting patterns could hinge on their ultimate fate.
We are working to develop and execute resiliency programs to offset as much as possible any adverse impact should they expire. Let me close with this. Regardless of the outcome, with these federal policies, we are optimistic about the future of HCA Healthcare. Our balance sheet is strong, we have an experienced, capable, and disciplined team, and where appropriate, we will adjust as we can and continue delivering on our mission. With that, I will turn the call to Mike for more details.
Mike Marks: Thank you, Sam, and good morning, everyone. We are pleased with our second quarter earnings. Equivalent admissions increased 1.7% for the quarter, and 2.3% for the year. Year-to-date managed care equivalent admissions, including the exchanges, grew 4%, which is in line with our expectations. Medicare grew 3%, which is slightly below our expectation. Medicaid was down slightly, and self-pay was up slightly. Both were below our expectations and represent our lowest reimbursing payers. However, given the payer mix and acuity of our patients, we had revenue growth of 6.4%, slightly above the top end of our long-term 4% to 6% guidance. Adjusted EBITDA margin improved 30 basis points compared to the prior year quarter.
Salary and benefits, along with other operating expenses, both improved as a percentage of revenue when compared to the prior year. Same facility contract labor improved from the prior year quarter and represented 4.3% of total labor costs in the second quarter of 2025, versus 4.6% in the second quarter of 2024. Supply expense increased slightly as a percentage of revenue, due primarily to increased spending on cardiac-related devices. Adjusted EBITDA in the second quarter grew 8.4% over the prior year quarter, and we were pleased that a substantial portion came from core operations.
Regarding Medicaid supplemental payment programs, as we have said in the past, these programs are complex, variable in time, and do not fully cover our cost to treat Medicaid patients. Considering Medicaid state supplemental payments and related provider taxes in isolation, we saw an approximate $100 million increase in net benefit in 2025 compared to the prior year quarter due to prior period reconciliation payments and program accrual timing. The new Tennessee directed payment program was approved in late June. As this is a newly approved program, we did not accrue any benefit from this program in the second quarter of 2025 and will record as we receive cash.
Moving to capital allocation, we continue to deploy a balanced strategy of allocating capital for long-term value creation. Cash flow from operations was $4.2 billion in the quarter. Capital allocation in 2025 was $1.2 billion in capital expenditures, $2.5 billion in share repurchases, and $171 million in dividends. We were able to defer approximately $850 million in tax payments to the fourth quarter due to the IRS providing relief to Tennessee taxpayers in the aftermath of severe weather in early April. Our debt to adjusted EBITDA leverage remained in the lower half of our stated guidance range, and we believe our balance sheet is strong and well-positioned for the future.
Sam discussed the health policy implications of the One Big Beautiful Bill Act. I will provide a few more detailed notes. As it relates to tax policy, this act was positive for HCA, making 100% bonus depreciation permanent and effective back to inauguration date. This is helpful given our capital investment program. The act did not include policies that would have materially increased our tax liability. We continue our work to develop and execute resiliency plans to offset as much of any adverse impact as possible from the act, the potential expiration of the EPTCs, and other administrative actions such as tariffs.
We will provide more information on our resiliency efforts during our fourth quarter 2025 earnings call when we issue our 2026 guidance. So with that, let me speak to our 2025 guidance. As noted in our release this morning, we are updating the full-year 2025 guidance as follows. We expect revenues to range between $74 billion and $76 billion. We expect net income attributable to HCA Healthcare to range between $6.11 billion and $6.48 billion. We expect adjusted EBITDA to range between $14.7 billion and $15.3 billion. We expect diluted earnings per share to range between $25.50 and $27. We expect capital spending to be approximately $5 billion. We are updating our guidance to project growth.
Equivalent admissions to be between 2% and 3% for the full year 2025. With the approval of the Tennessee program and with updated information from across our programs, we now anticipate our supplemental payment full-year net benefit to be between flat and $100 million favorable year over year. This projection does not include any potential impact in 2025 from the grandfathering of applications under the act. We believe one of the underlying strengths of HCA is our diversified portfolio of markets. The recovery in our facilities impacted by Hurricane Saline and Milton in 2024 is going better than anticipated.
However, we have a couple of markets below our expectations that are offsetting some of the better performance in the hurricane-affected markets. We understand the challenges in these markets and have confidence in the plans in place to address them. Ultimately, the increase in our earnings guidance is equally weighted between the updated net benefit from the state supplemental payment programs and the improvement in our overall portfolio operational performance, including the hurricane-impacted markets. With that, I will turn the call over to Frank for questions.
Frank Morgan: 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. Abby, you may now give instructions to those who would like to ask a question.
Operator: Thank you. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is 1 if you would like to join the queue. And our first question comes from the line of A.J. Rice with UBS. Your line is open.
A.J. Rice: Hi, everybody.
Frank Morgan: Just maybe just asking around the guidance update. So you raised
A.J. Rice: your EBITDA guidance, adjusted EBITDA by about $300 million at the midpoint. I think that is roughly the amount of outperformance that you saw in the first half. Just a couple of questions around that. Obviously, you now have the Tennessee DPP program. Should we think of that as reflected in this updated outlook? And then second, I know you are making a modest tweak on the admissions number.
Frank Morgan: Down.
A.J. Rice: You are not alone in that. Some of your peers have already reported and have done that. Any commentary on what you are seeing in terms of underlying demand on the volume front? AJ, good morning. Let's talk about guidance first. So if I think about the $300 million increase in guidance, at midpoint, as I noted in my comments, about half of that is from state supplemental payment programs, and that does reflect the approval of the new Tennessee program. We expect to start receiving cash in that here in the back half of the year. And probably a material chunk of that in the third quarter likely.
It also reflects just better visibility as we always have here at midyear about the rest of our programs. So that is about half of the increase. You know, if I think about the other half of our guidance increase, it really relates to our portfolio. And, again, as I mentioned in my opening statement, about $150 million of that increase is related to the portfolio. And I would size that for you as follows. It is about $100 million better in our hurricane-related markets. You know, you will recall that we originally guided that to be flat to prior year. So that is $100 million of it.
We have a couple of markets that are underperforming, roughly in the $50 million range of impact. So those two markets are offsetting some of the hurricane market improvements. And then, really, the rest of our portfolio is performing better than anticipated. So the net combined effect of our combined portfolio, including the hurricane market, really results in the other half. I might mention, though, just so that you guys can think through this, as you prepare your comments. But I think third quarter the guidance, the earnings growth will be a little bit lower and fourth quarter is likely going to be a little bit higher. In terms of growth rate compared to that midpoint of the guidance.
That is largely related to both the timing of supplemental payment program payments and, you know, specifically to fourth quarter, you may recall that we received one-time payments, fourth quarter of last year that do not repeat. And then we believe our hurricane markets, you know, the recovery that we are showing is largely going to be in fourth quarter, if not entirely. So a couple of notes on that. So on volume, let me start, and then, Sam, please feel free to jump in. I know you will.
The bit when I think about our volume year to date through June, of 2.3% equip growth, and I compare that to our original 3% to 4% guidance coming into the year, there are a couple of moving parts that I would mention. The first is that Medicaid, you know, for June year to date, Medicaid is down 1.2% to prior year. And we, originally, believed and built into our guidance the notion that Medicaid would flatten out this year, if not even show a bit of growth coming off of the Medicaid review determination program. And then our self-pay charity volumes are only up 1.5%.
June year to date, and we had believed originally that they would at least grow at the overall rate of volume growth. And, you know, just for context, our self-pay volumes were up almost 7% in 2024 over 2023. So the combined of Medicaid and self-pay being below our expectations explain about half of the difference of our current year to date volume growth. Versus our 3% to 4% original guidance. And really, the other half is Medicare. We originally expected Medicare to grow a bit faster than it is. Although I would note that a 3% growth in year to date through June is still premium.
So those are the two main categories of our volume that are trailing our original expectation of three to four. And, Sam, I do not know you Yeah. Let me just add a couple of comments here. Mike, because I think context is always important.
Frank Morgan: You know, you look at the headlines on volume metrics as Mike just suggested, there is one metric what everybody looks at and we get it, but when you start reading through the full story and not just focus on the headlines, you start to see the productive aspects and the qualitative value of the underlying business. For example, we had 14 out of 15 divisions that grew their admissions. 14 out of domestic divisions grew their adjusted admissions. Our cardiac procedure volume was up 5%. Our obstetrics volumes were up 3%. 13%, so the details, in many respects, reflect the power of a diversified portfolio of markets, and services.
I think another point for us, and this is how we look at it, we have had six consecutive quarters of volume growth. And so that consistency tells us that the network model that we are investing in very heavily and we are focused around execution on it, allows us to compete effectively. It has allowed us to sustain market share gains, and we think it adds value for our patients. It adds value for our physicians, and we think it adds value for our shareholders. So, yeah, the number is 1.7%, but when you look underneath at the productive and qualitative aspects of it, are more impactful than maybe first understood.
A.J. Rice: Okay. Thanks a lot.
Operator: And our next question comes from the line of Ann Hynes with Mizuho. Your line is open. Hi. Good morning. Thank you. You just provide more details on your resiliency programs. I think the street really, at this point, does not believe that the subsidies will be extended. How much of a headwind do you think you can offset in 2026?
Ann Hynes: Is any of this benefit embedded in your 2025 guidance, or will it all be incremental to 2026? And any other incremental details about what type of cost savings you will be doing, that would be great. Thank you.
Mike Marks: So let me, let me kind of summarize our thinking about the One Big Beautiful Bill Act, the EPTCs, and how we are thinking about a resiliency program. And then and as I mentioned in my comments, we will comment further and provide more details related to this in our fourth quarter 2025 earnings call when we give guidance for 2026. First, let me start with the act itself. You know, I do believe in and off the near term. That our financial resiliency program should offset the exchange provisions in the act.
In the longer term, as it relates to the act specifically, with both the delayed start and the phased-in nature of these provider tax and state-directed payment reimbursement reforms, along with the potential for the approval of the submitted supplemental payment applications, we believe HCA will be able to generally manage these impacts with our resiliency efforts without material impact to our long-term guidance. Specific to EPTCs, at this point, we do not know what the outcome will be. As noted, we are working to develop our resiliency programs to offset as much as possible any adverse impact should they expire, and, again, the potential approval of the grandfathered application would certainly help.
We will comment further as noted when we do our 2026 guidance. Suffice it to say, our resiliency efforts as we continue to work through them, and we have been working on them as you as we have talked about over the last year, in a very diligent way, address both benchmarking our corporate departments and shared service organizations that gives best practice in finding operational improvement opportunities. We are deep in the middle of our field-based resiliency efforts, many of which we commented on before from a link to stay improvement opportunities with our case management operations, through significant opportunities around both our automation and our digital transformation agendas.
And our labor and supply-related resiliency plans are also very developed and mature. We will give more updates on that, Anne, when we get to the fourth quarter call, but hopefully that helps.
Ann Hynes: Thanks.
Operator: And our next question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open.
Frank Morgan: Great. Thank you very much. I appreciate all the color about trends in the various payer classes. I was wondering if you could comment a little bit on commercial volume you are seeing. One of your peers talk about waning consumer confidence, driving some weakness in their book. But wanted to see what you are seeing in kind of that weighed against any for a pickup in activity, you know, assuming people are trying to get procedures done toward the end of the year in anticipation of losing the enhanced premium subsidy. Any thoughts there on what we can expect through 4Q and commercial? Thanks.
Mike Marks: So I will give you, Ben, the June year to date are maintenance care in Hicks. So equivalent admissions are up 4% over prior year. If you think about how that compares to our expectations coming into the year, it is right there. I mean, that is about what we expected for as part of our original 3% to 4% guide. I would say that health care exchanges, which are up 15.8% through junior to date, are a little better than our original expectation. And our commercial managed care book, you know, excluding the exchanges, which is up just short of a point to prior year. Maybe a little below our original guidance, but that is how we read it.
We are pleased with the payer mix through the second quarter. Sam, I do not know if you have any comments about consumer No. I do not think we can make any
Frank Morgan: comments yet about consumer confidence. I think, again, the demand for health care largely over time appears to have been inelastic. I do not know that anything is necessarily changing that. And so, it is difficult for us to point to consumer confidence at least across our portfolio, as a driver of activity. Again, we had good commercial growth in a lot of categories, we had declines in areas, as Mike mentioned, that were government or no payer-sponsored business. We saw declines in pediatrics. We can point to a respiratory environment last year. That we did not have this year that influenced our overall statistic. Behavioral health admissions were down in our company.
Some of that was because we shrunk supply in certain facilities. Again, that does not have as good a payer mix as the rest of our business. So I think from that standpoint, we are still pretty, you know, confident as we mentioned in the demand
Mike Marks: for health care across our markets, and we do not see that being disrupted too much in the short run here. You know, Ben, the only other thing I might mention is that it is a pretty tough prior year cost to year, and I think everyone realizes that the prior year had really robust volume growth. You know, just a couple of notes here when you think about this the first half of this year compared to the 50 basis points. Of volume impact. Medicaid redeterminations last year were fueling, you know, big exchange growth last year. You may recall that our exchange, you know, volume growth last year was robust over 40%. Kind of an interesting statistic.
From the first quarter to the second quarter of 2024, our exchange equivalent emissions increased 14%. This year from the first quarter to the second quarter of 2025, they are up about 3%. We still saw growth sequentially from the first quarter to the second quarter, but I think the prior year just had robust exchange, you know, volume growth. And then just the other thing just to keep in mind when you are thinking about the prior year comp is that the Medicare Advantage two-midnight rule did impact admissions in 2024. And that has sunset into 2025. So I think the prior year comparison is also a bit of a story. Here.
Frank Morgan: Great. Thank you. Thank you.
Operator: And our next question comes from the line of Brian Tanquilut with Jefferies. Your line is open.
Frank Morgan: Hey, good morning, guys. Maybe Sam, just to follow-up on some of these discussions on appreciate your comments on the growth rates. That you saw with the different regions. But how are we thinking about market share that you are seeing in the local market? Maybe also in the context of you know, the payers are talking about high utilization rates and you know, that translating to the volume trends that you are reporting. So just curious if you are seeing any dynamics at the local level you could share with us. Well, that is Yeah. Brian, thank you. As I mentioned, we have had sustained market share gains, and we think we have continued to,
Mike Marks: accomplish that, with the most
Frank Morgan: recent data that we have seen in our market share, if you really sort of, you know, exclude behavioral health, given that we put some pressure ourselves. We are above 28%, and we are showing signs of broad-based market share growth across service lines as well as across many of our markets. Do have a few markets as we always do. We have 43 US markets that we focus our share on, and some are doing better than others. But, you know, we are fairly agile in responding to those dynamics. I mean, there are a lot of investments that we are making in our business.
We still have about five and a billion dollars worth of capital that is in flight that will add to our networks both with outpatient facilities as well as inpatient capacity where appropriate. We think that will continue to produce the necessary overall capacity to meet the demands as well as the share gains that we anticipate with our initiatives. So we continue to find ways to improve what we call the integrity of our network and keep patients inside the system where appropriate for them. And that is an area of focus for us also.
So I am pretty pleased with how our teams are executing on the ground, so to speak, to deliver value for our patients, grow their business, and so forth. We recently finished our mid-year reviews with all of our divisions, and, you know, we are optimistic that their sets of the markets are continually favorable. And will, you know, allow us to achieve our objectives as we push forward.
Operator: And our next question comes from the line of Pito Chickering with Deutsche Bank. Your line is open.
Frank Morgan: Good morning, Thanks for taking my questions. One quick clarification and then a real question. Clarification on supplemental payments, I believe you raised the annual guidance by about $170 million at the midpoint. I believe the first quarter is $80 million ahead, the second quarter was $100 million ahead. It is confirming that you were not changing supplemental payment guidance for the back half of the year. And then the real question is, give any color of how many of your Hicks patients have access to employer-sponsored health care but have chosen Hicks due to lower cost.
I am just struggling as I look at the millions of jobs created in The States, and yet the employer-sponsored growth is tracking below job growth. Thanks.
Mike Marks: Thanks, Peter. Let me start with guidance. It would As I noted in my comments, about half of our increased guidance at midpoint is coming from state supplemental pay. So a $150 million increase of our guidance is coming from state supplemental payments. That reflects not only the fact that the Tennessee program has improved, it has been approved, but that we expect to start receiving cash here in the back half of the year. I would think about it this way. As you think about the first second half of the year versus the first half of the year.
In terms of the first half of the year, we have had a $180 million of supplemental payment net benefit to year-over-year earnings in the first half. In the second half of the year, we anticipate a $130 million decline in net benefits. Compared to the second half of 2024 and really entirely in the fourth quarter.
And so, you know, just as you think about the inside guidance rate in our revised guidance, the second half, after considering the hurricane market improvement in the fourth quarter and the state supplemental payment, declined in the back half of the year, we think that the second half of the year's growth rate is roughly comparable to the first half after considering those factors. We do not, at this point, have good enough insights relative to what percentage of the people who potentially would leave the exchanges if the EPTCs expire, it would go back to employee-sponsored insurance.
Other than to say that we believe that there would be a component of those people who lose EPTCs would go back to employee-sponsored insurance. And as you noted, in our key states, especially our non-expansion states, given the job growth that we have seen over the last several years in places like, you know, Florida and Texas, we believe it would be a component of the story. A little early to try to get insights yet until we know what happens with APTCs.
Operator: And our next question comes from the line of Whit Mayo with Leerink Partners. Your line is open.
Mike Marks: Just wondering if there are any changes that you guys are seeing in MA behavior denials, anything to call out that maybe changed versus last year? And any investments maybe that you have made around documentation or revenue cycle that has also changed? Thanks.
Frank Morgan: So just on Medicare Advantage, just a couple of numbers here. So Medicare Advantage now represents 58% of our total Medicare admissions at, you know, just one note on the two-midnight rule. That seems to be fully implemented in 2024. We are really not seeing any, you know, additional movement from observation to inpatient there. As it relates to the payers with, you know, we are not seeing, you know, any significant impact on our results from denial activities. But I think that does reflect the significant work that we have put into our revenue cycle over the last couple of years. You know, to strengthen our organization's management of denials.
I will mention that we have over the last year or so, we have initiated several partnership activities with our key partners and our key managed care payer partners. These partnership activities focus on things like digital integration, administrative simplification, and better management of disputes. I think there is a lot of good work in flight between us and our payer partners and hopeful that we can continue to manage through these things and as we have been in a really meaningful way. We need them. They need us. And I think we have a good relationship with FLY to work through these areas.
Operator: Thanks.
Operator: And our next question comes from the line of Andrew Mock with Barclays. Your line is open.
Frank Morgan: Hi. Good morning. Maybe just one quick info request
Mike Marks: and then a question. Can you give us the latest quote on ACA revenue and admissions? And maybe just a question on the hurricane performance the color there. But I think the headwind, at least to start the year, was $250 million versus last year. Now you are attributing $100 million of the guidance raised to hurricane. So does that mean there is still $150 million of continuing headwinds embedded in the guidance for the back half? And can you give us a sense for how occupancy, payer mix, and profitability stand in that Mission North Carolina market versus pre-hurricane? Thanks. Let me start with the exchanges. About 8% equivalent admissions and just a smidge over 10% on net revenues.
For the exchanges as a percentage of total. So on the hurricane market, remember, if you think about last year, third and fourth quarter of last year, a piece of that $250 million were lost revenues, and a piece of that was additional expenses. And I think it is roughly $60.40 additional expenses, 40% lost revenue. So you do not get the lost revenue back, Andrew, and, clearly, you get you do get to go year over year. On the additional expenses for the prior year. When we were constructing our original guidance for the hurricane market, you know, we had pretty good confidence and insight that the Largo hospital would have year-over-year growth in earnings.
Because it reopened on December 1. And a lot of the impact there was repairs and maintenance expenses to reopen that facility. And then in our North Carolina division, you may recall we were concerned because we did not we never closed operations. But we were concerned about the lingering effects of the hurricane in that market because of the broad impact the population in Western North Carolina. And so our best estimate at the time when we issued our original guidance was that we thought that, that when combined, the hurricane markets would be flat year over year, 2025 compared to 2024.
As we have gone through the first two quarters, you know, what we have seen is a little better recovery than our original anticipation. You may recall that in the first quarter, the year-over-year impact of those two markets was relatively flat. The second quarter was a bit negative. I mean, there was a decline in earnings year over year. It was not material at the company level, but it was certainly a bit negative. We think the third quarter could be a bit negative as well, and then we see a recovery year over year in the fourth quarter. But for the full year, we believe that the hurricane-related markets will come in at about $100 million better.
Year over year, which is, again, is compared to our original thought of flat. Hopefully, that helps on the Yeah. And, Mike, let me add one thing. I mean, what we have seen in North Carolina is greater demand than we anticipated. Unfortunately,
Frank Morgan: we have seen the labor market get more tight, and that has required us to use more labor in North Carolina to service that demand. And so those are really the two big items there. Again, this is still a very short period after the storm. We do not
Mike Marks: know the long-term effects
Frank Morgan: on Asheville, North Carolina in particular, and what it means to economic development and tourism and so forth. But we are really pleased with how our teams have dealt with the operational requirements, the patient requirements with the situation there. And they continue to push on in a very effective way. And we remain very bullish about our system in North Carolina and we continue to add where we can underneath the rules in that state. We continue to improve the quality and we continue to engage with our stakeholders in a very effective way.
So we are excited about the position of Mission Hospital in particular and where it stands, and we will continue to execute on the plan that is in front of us. Great. Thank you.
Operator: And our next question comes from the line of Justin Lake with Wolfe Research. Your line is open.
Frank Morgan: Thanks. Good morning.
Mike Marks: I am going to try to get at this resiliency stuff in maybe another way without trying to pin you down on it. The you know, if the world looks at your you know, at what is coming, right, there is going to be a bunch of lost revenue. When we think about exchanges and these provider taxes, they are certainly very high margin revenue. Right? So if that goes away, there is the potential for a big impact. Right? I do not think telling you anything you do not know.
The I think the main question I would love to get from you guys here is just you know, you do an incredible job over time in different operating environments. Staying around a 19% to 20% margin. And is that a reasonable framework? Like, look. We are going to lose revenue, but we are going to stay at, you know, we stick with the resiliency efforts. We keep within that typical margin target. Is that a reasonable framework to think about the next few years?
Frank Morgan: You know, Justin, this is Sam. I do not know if I am going to put a frame of reference on any of that at this particular juncture. We need to get through the last half of the year to understand exactly where these premium tax credits land. We will score that. We are actively developing our, you know, cost plan in order to respond to that. I will tell you this. We have a pattern of owning our realities, whatever they happen to be, and finding pathways forward to a
Mike Marks: our financial objectives, our growth objectives, our on capital objectives, our quality objectives,
Frank Morgan: and I am confident that we will do that in an appropriate fashion as we push forward. And so we are not ready to give you a margin range. We are not ready to give you a revenue implication just yet because it would be inappropriate for us to do that until we have greater clarity on exactly how this lands where some of these people go if they do, in fact, lose coverage. And we understand everybody's concern and desire to want to try to score it. You have to give us some sense of time here and ability to sort of process it.
But when I pull up and I think about who this organization is, the people we have on our team, the position we have in the markets that we serve, I am pretty confident that we will get to where we need to be.
Operator: Thanks.
Operator: And our next question comes from the line of Matthew Gillmor with KeyBanc. Your line is open.
Frank Morgan: Going back to the guidance discussion, there was a comment about a handful of markets that were underperforming.
Mike Marks: You give us some sense for the drivers of that underperformance and then the
Frank Morgan: that are underway to improve results? Yeah. This is Sam. We have 16 geographic divisions in HCA when you include the UK. We have 15, obviously, in the US. Every year, we have one or two of them that are not accomplishing what we hope they accomplish. For a variety of reasons. You know? Certain volumes do not materialize as we anticipate. Competitors do something that we did not expect, Physicians have dynamics that create flow of business. It is so variable.
So we have two divisions, I am not going to call them out on this call other than to say, we are confident in our overall positioning in both of them and what they are doing in order to respond. These are seasoned leaders in these hospitals and in these divisions. There have been some competitive dynamics in one division that has dislocated some of our business, but we are responding to that appropriately. In the other division, there was a bit of service mix change. Nothing structural, but it hit us pretty hard in the second quarter. And we are reacting to that appropriately with our cost.
But we expect fully that will recover in the second half of the year. And so this is sort of the normal give and take with what uniquely, I think, our diversified portfolio. And, again, having geography differences across the company allows us to absorb two divisions that did not have the performance that we anticipated. And that is what happened last year. We had a couple of divisions that did not meet their objectives in 2024, and we overcame it last year, and we are doing it again this year.
Operator: Got it. Thank you.
Operator: And our next question comes from the line of Josh Raskin with Nephron Research. Your line is open.
Frank Morgan: Hi, thanks. Good morning. Could you provide just a little bit more color on maybe surgery volumes both on the inpatient and outpatient side? And maybe any changes in trends you are seeing around site of care?
Mike Marks: Outpatient surgery is a continuation of kind of our past stories here, Josh. I mean, I would note that on the pure case count standpoint, we were down 0.6% for the quarter, which is, you know, better than our most recent trend. And still, almost entirely driven by Medicaid and self-pay and a bit of a drop in lower acuity cases. I would note, as we noted before, that we are seeing good revenue growth in our outpatient surgery book of business, you know, call it 7.5%, 8% growth here that we are seeing on the revenue side. So that is good.
And, really, if I pull up outside of this outpatient surgery and look at outpatient total, we had a good quarter. I mean, our total outpatient revenue grew, you know, almost 8%. So all four categories of our outpatient book that we track performed well. The inpatient surgery is a very similar story on payer mix. And the biggest impact was a drop in Medicaid. Cases on the inpatient side. So inpatient surgeries on the same facility were relatively flat. In the quarter it is pretty much payer mix on Medicaid DRIP.
Operator: Perfect. Thanks.
Operator: And our next question comes from the line of Sarah James with Cantor Fitzgerald. Your line is open.
Operator: Thank you.
Operator: Can you talk about how commercial exchange and self-pay compare historically on fee schedule and revenue rate? And to the degree we see some shifting in volume to self-pay in the future, is there anything that your team can do on the revenue collection strategy side to improve collection rates? On self-pay.
Sarah James: Yes, Sarah.
Mike Marks: Wait. So let me kind of double click on patient collections a bit here. When I think about the patient portion or the patient balance that is owed under our commercial contracts. You know, the first thing that we track is, you know, this idea of what do we typically see on an annual basis in terms of the increase in the average patient balance owed. Over many years, we have seen kind of mid-single-digit increase annually on the amount patients owe, as part of theirs. Kind of overall commercial increase.
And then in recent quarters, we have seen that a little higher and that has been influenced by the health care exchanges where patients do tend to have a little bit higher patient responsibilities compared to traditional commercial. Regarding collectability of those amounts owed, we have generally maintained our historical levels of collection on patient balances on our traditional commercial population. The health care exchange population, the rate of collections is a bit lower than on the traditional side, the traditional commercial side.
But overall, you know, we have not seen yet any significant impacts on the collectability of our patient receivables in the act of that is kind of an update on what we are seeing relative to patient collection.
Operator: But are you able to give us a comparison of what that looks like versus self-pay? So for the uninsured population that self-pays,
Ann Hynes: much of a delta is there on collection rates or the fee schedule charge?
Mike Marks: We collect very little cash from the truly uninsured population. There. Really, what you see with truly uninsured is you get a little bit of a pickup on DISH, but there is not any material collections that would fall into a material zone the company on the uninsured population.
Frank Morgan: And most uninsured patients in our company qualify for either our charity programs or significantly reduced amounts due to our patient protection policy. So there is not a lot of revenue produced for uninsured patients.
Operator: Yeah.
Operator: Thank you. And our next question comes from the line of Ryan Langston with TD Cowen. Your line is open.
Ann Hynes: Thanks. Can you give us an update on the
Mike Marks: commercial contracting percentages over the next couple of years? I guess,
Frank Morgan: terms of what is already negotiated and what is still kind of hanging out there? And then on CapEx, we have heard from several larger nonprofits that the outlook is very uncertain.
Mike Marks: Taking a pretty cautious approach, maybe in some cases cutting budgets. I guess, is there a scenario where you see that in your markets and actually ramp up capital spending to try to capture some of that market share maybe longer term? Thanks.
Frank Morgan: So our managed care contracting, today, was largely done for 2025. For 2026, we are about 80% contracted. Again, achieving the targets that we had established for each of those contracts. And we are about a third of the way through 2027. Again, achieving the targets that we had assigned to those specific contracts. So we are pleased with where we are in our contracting cycle. We continue to try to work with the payers to create value for them, easy access for their beneficiaries.
And then as Mike alluded to, eliminating some of the administrative friction and cost for both them and us creating a better experience for our patients and a better experience for their members and even our physicians who participate in the process. That is where we are on the managed care side, and I am pleased with our position at this particular juncture. With respect to capital expenditures, you know, the company is continuing to operate on the inpatient side at north of 70% occupancy, maybe 73%, 74% occupancy year to date. We have, as I mentioned, 5 and a half billion dollars worth of capital that had been approved, that is in the pipeline
Mike Marks: under construction
Frank Morgan: It should come online later this year or next year and on into 2027. And we continue to see opportunities for us to add to our networks, as I mentioned. I think we are today, I do not know, close to 2,700 facilities in our company. We continue to add facilities both through greenfield projects as well as acquisitions where we can, and we will look for those as well. As it relates to competitive dynamics, we do think, you know, there are opportunities for us to accelerate investments in certain situations and put ourselves in a better position to achieve our objectives, and we will sort through those in the normal course.
But I do not see anything necessarily positioning a rapid acceleration in our spending to accomplish that.
Operator: Okay. Thank you. You are welcome. And our next
Operator: question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.
Ann Hynes: Okay. Great. Thanks. Just wanted to go back to kind of think about the exchange
Mike Marks: subsidy expiration. You know, there are a few dynamics in there. I guess, one is
Frank Morgan: you just remind us what your exchange revenue was as a percent of total back in 2019 before, you know, these enhanced subsidies were in place. And, I guess, is there any reason to think that would not drop back down to that level? And you mentioned that there was the potential that might drop, but many of those people might show up on commercial. Can you is there any way to kind of go back and look and see you know, historically, if there was a shift out of commercial, what exchange? Grew and maybe help quantify, you know, what that looks like.
Ann Hynes: Thanks.
Mike Marks: Hey, Kevin. As we have noted in the call, we are going to be we are not going to really give that kind of detail right now. It is pretty difficult to size that at this point. So as we get through the balance this year and we have a better understanding of what happened to EPTCs, and a little better understanding of how we think population will react to what happens. So we will be in a better position on our fourth quarter. Call to address those more detailed questions at this point. Just note again that we are at 8% of volume now with a little bit over 10% of revenues at this point.
Ann Hynes: Then maybe we could just clarify. I did I did I hear you say earlier that you think that between the bill and the expiration of the subsidies, over the longer term, you still expect to grow EBITDA 4% to 6%, like, a five-year plus time horizon. Even with the impact of all these things, you will still grow EBITDA in that range. That is the expectation.
Mike Marks: No. It is a good one. Let me go back through that just so that it is clear on what we said. So as it relates to the act itself, in the near term, we believe that our financial resiliency should offset the exchange provisions in the act. In the longer term, as it relates to the act specifically, with both the delayed start and the phased-in nature of these provider tax and STP reforms, along with the potential of the approval of the submitted supplemental payment applications. We believe HCA will be able to generally manage these impacts with our resiliency efforts without material impact to our long-term guidance.
And then regarding the EPTC, as you know, we do not know what the outcome will be at this point. But we are working to develop resiliency programs to offset as much as possible any adverse impact should they expire. And so we will roll all that together, Kevin has noted, when we comment further when we issue our 2026 guidance on our fourth quarter 2025. Earnings call.
Ann Hynes: Okay. That is helpful. So you so the mitigation is both your actions and the additional STP approvals combined. That is what gives you confidence in the four to six.
Mike Marks: Yeah. That I will say I know I am safe.
Operator: Alright. Thank you. And our next question comes from the line of Raj Kumar with Stephens. Your line is open.
Frank Morgan: Thanks for the question. Just have one on, you know, kind of frame the $600 to $800 million of targeted, you know, savings that you had over the
Operator: five years when you
Frank Morgan: did that during the Investor Day. Just trying to bogey where we are kind of at from those cost initiative standpoints. Given that we are kind of, like, a year and a half into that five-year outlook.
Mike Marks: And maybe if you have identified any additional opportunities to bolster the financial resiliency initiatives kind of given the policy unknowns that we have. Over the next couple of years.
Operator: So we
Mike Marks: we noted in our Investor Day, conference, at the end of 2023, we have been hard at work. Developing our resiliency program. Really, across three main categories of work. You may recall, you know, from the presentation. The first one is around benchmarking. And really getting to ground and benchmarking both our corporate and shared service functions against the rest of the Fortune 100, and then helping our facilities benchmark their performance across a series of both operational and cost metrics to help them find their biggest opportunities for improvement. Then we leverage our best practices to help them identify those opportunities and take action. And so that is benchmarking. Significant efforts in flight around both automation and digital transformation.
We have commented on this before. But our digital transformation agenda includes a series of focus areas in our administrative platforms and in our automate operations platforms, that we believe hold significant promise as we move forward. And, really, third is just continuing to better leverage our shared service platforms. And we are adding additional functions over time. To our shared service platforms to really drive that benefit of scale of standardization and best practices as we move forward. You know, really, since the Investor Day meeting, and as we have gone through the last twelve to eighteen months, in light of these potential challenges, we have both accelerated and enhanced these efforts.
So as we have gone through this year, we have been working very carefully with all of our teammates and colleagues across the company to ensure that we are identifying our best opportunities. And then take action as we go through the balance this year and into 2026 and beyond. And so that is a quick update on where we are on our resiliency program. And, again, as we noted here during the call, we will give a more fulsome update on that when we give guidance on our fourth quarter call.
Frank Morgan: Abby, I think we have time for just one more question.
Operator: Thank you. So our final question will come from the line of Lance Wilkes with Bernstein. Great.
Mike Marks: Could you talk a little bit about compensation ratio and labor supply and talk a little on overall how you are managing that so well if there are outlooks as far as how you are changing the number of employees relative to you are seeing with wage inflation. And if there are any expectations that you can give us for contracts and wage inflation for the second half of the year. Thanks. You know, as we noted, and even on the first quarter call, we are seeing a pretty stable labor environment, Lance. And our wage inflations are coming in about where we expected them to be.
I think we have noted before, you know, we have seen a pretty significant improvement in our contract labor as a percent of SWB here over the last several quarters. As we kind of worked off of the pandemic and moved through that in a productive way. We are down now to 4.3% Contract labor is 4.3% of SWP. And if you go back to before the pandemic, I think it was, like, 4.1%, 4.2% in that range. So you know, we are I still think there is some room for improvement, and we are working hard on that both in terms of better retention and better recruiting.
But I do think that at the macro level, the clinical labor side is pretty stable. I mean, I would note we have talked about this before that one area of our workforce that is still a bit elevated in cost pressures is our physician cost. Our same facility professional fees did increase about 10% over the prior year, which was about what we expected. So that component of business, we are still dealing with some greater than inflation levels cost pressure. But on the pure labor side, I think we are in good shape.
Operator: Great. Thanks.
Operator: And that concludes our question and answer session. I will now turn the conference back over to Mr. Frank Morgan for closing remarks.
Frank Morgan: Abby, thank you for your help today, and thanks to everyone for joining us on the call. We hope you have a great weekend, and we are certainly around to answer any follow-up questions you might have. Thanks.
Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.