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Date

April 24, 2026

Call participants

  • Chief Executive Officer — Sam Hazen
  • Chief Financial Officer — Mike Marks
  • Investor Relations — Frank Morgan

Takeaways

  • Revenue growth -- Revenue increased 4.3%, driven by site-of-care network expansion, increased bed capacity, and incremental gains from Medicaid supplemental payment programs.
  • Adjusted EBITDA -- Adjusted EBITDA grew nearly 2%, while adjusted EBITDA margin declined by 50 basis points, reflecting higher operating expenses primarily from state supplemental payments and technology investments.
  • Earnings per share -- Adjusted diluted earnings per share increased 11% compared to the prior-year quarter.
  • Volume metrics -- Same-facility admissions increased 0.9%, equivalent admissions rose 1.3%, and emergency room visits climbed 0.3%. Inpatient surgeries fell 2.3%, and outpatient surgeries declined 1.7%.
  • Surgical site trends -- Ambulatory surgery center cases dropped 1%, driven mainly by gastrointestinal and ear, nose, and throat service lines.
  • Volume disruptions -- Respiratory-related admissions declined 42%, and respiratory-related emergency room visits dropped 32%, materially impacting January's performance. A winter storm further reduced admissions by 30 basis points and emergency visits by 50 basis points.
  • Supplemental payments impact -- Net benefit from Medicaid supplemental programs increased by $200 million, surpassing initial expectations by $120 million, primarily due to Georgia and Texas program changes.
  • Guidance adjustment -- Full-year supplemental payment program benefit is now expected to decline by $50 million-$250 million compared to the prior year, excluding future grandfathered approvals.
  • Payer mix movement -- Commercial equivalent admissions rose 0.6%, Medicare admissions rose 1.9%, and Medicaid admissions inched up 0.3%. Exchange equivalent admissions fell 15%, with uninsured equivalent admissions rising 16%.
  • Exchange-related headwinds -- Adjusted EBITDA impact from exchange dynamics was $150 million, with updated guidance reaffirming a $600 million-$900 million expected annual impact.
  • Cost structure improvements -- Salaries and benefits as a percentage of revenue improved by 30 basis points, and supply costs by 20 basis points, partly offsetting a 90-basis-point rise in other operating expenses.
  • Operational resilience -- Management reaffirmed a $400 million annualized benefit target for its cost resiliency initiatives, including AI-driven productivity improvements among clinical teams.
  • Capital allocation -- Capital expenditures totaled $1.1 billion, share repurchases were $1.57 billion, and dividends paid amounted to $183 million.
  • Cash flow and leverage -- Cash flow from operations reached $2 billion, up 22%, with debt-to-adjusted EBITDA leverage remaining in the lower half of the company’s stated range.
  • Network expansion -- Site-of-care footprint grew by over 4%, hospital beds increased by nearly 1% through capital projects, and emergency room capacity expanded 4% relative to the prior-year quarter.
  • Market and acuity changes -- Case mix acuity increased modestly, driven by higher cardiac, trauma (up 2.5%), and rehabilitation volumes, with patient logistics transfers rising 2.4%.
  • Contracting status -- For 2026, management stated, "[we are] pretty much fully contracted at our targeted levels," and are a third of the way through 2027 contract renewals.
  • Guidance reaffirmation -- Management confirmed all other guidance ranges for 2026 remain unchanged following first-quarter results.

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Risks

  • "Denials and underpayments are still really high," specifically driven by Medicare Advantage and requiring ongoing mitigation, as stated by management.
  • North Carolina operations experienced elevated costs to meet above-expected demand, and management said, "We are a little bit behind our expectations in North Carolina on the bottom line."
  • Management highlighted a nascent slowdown in Medicaid conversion, contributing to a 16% increase in uninsured equivalent admissions, and noted it is "too early to suggest that it has peaked or not peaked."

Summary

HCA Healthcare (HCA 8.23%) delivered revenue and adjusted EBITDA increases, driven in part by supplemental Medicaid payments that more than offset pronounced January volume headwinds caused by lower respiratory illness activity and severe winter weather. Admissions and ER visits rebounded in February and March, returning the quarter’s volume trend toward the company’s annual growth target. A significant uptick in uninsured cases and payer mix shift reflected persistent health insurance exchange attrition and slower conversions to Medicaid, dynamics fully incorporated into management’s unchanged annual guidance. Capital deployment continued apace, with substantial outlays for expansion initiatives, share repurchases, and dividends, while operational leverage improvements were achieved through ongoing cost efficiencies and technology investments. The quarter also saw modest gains in case mix acuity due to service line strength in cardiac, trauma, and rehabilitation, and the company reported that 2026 payer contracts are largely complete. Management reaffirmed that all adverse impacts from seasonal illnesses and storms are expected to remain localized to the first quarter and anticipate no material effect on annual outlook.

  • Outgoing exchange patients and increased patient financial responsibility contributed to lower patient collections, though these shortfalls were anticipated and incorporated into models.
  • Incremental Medicaid supplemental payment recognition, including sizeable gains from Georgia and Texas, offset greater-than-normal seasonality disruptions and led to an updated full-year supplemental program outlook.
  • Active pipeline for capital projects and acquisitions persists, with $5.5 billion-$6 billion of approved network expansion scheduled to come online in the next 24 to 30 months.
  • Management stated that Florida’s pending Medicaid supplemental program, if approved, "would result not only in additional revenues, but those that may be significant."
  • Efforts to digitize payer interactions and streamline administrative processes are ongoing, aimed at mitigating persistently elevated denial and underpayment trends.

Industry glossary

  • Medicaid supplemental payment program: State-administered programs providing incremental funding to hospitals, often to offset costs of serving low-income or uninsured populations, subject to federal and state approvals and complex eligibility.
  • Equivalent admissions: Standardized measure that combines inpatient admissions and adjusted outpatient activity to capture total volume on a like-for-like basis across reporting periods.
  • ATLAS program: A specific Medicaid supplemental payment program in Texas that delivered unanticipated net benefits during the reported period.
  • Exchange equivalent admissions: Admissions for patients covered by ACA health insurance exchange plans, counted using internal equivalency methodology.
  • Ambulatory surgery center (ASC): Freestanding facility performing same-day surgical procedures, referenced as a component of outpatient volume and revenue mix.

Full Conference Call Transcript

Sam Hazen: Good morning, and thank you for joining the call. First, I want to recognize our colleagues for continuing to demonstrate a remarkable ability to adapt to changing conditions and deliver positive results for our patients, communities, and stakeholders. The start of the year presented a dynamic environment for HCA Healthcare, Inc. From a volume perspective, we did not experience the typical lift related to seasonal respiratory conditions. Compared to the first quarter of last year, our respiratory-related admissions were down 42%, and our respiratory-related emergency room visits were down 32%. Additionally, the storm that hit a few of our markets adversely impacted our volumes in the quarter.

On the positive side, however, we experienced a greater net benefit than anticipated from state supplemental programs. As a reminder, these programs are complex, variable, and difficult to predict. This benefit mostly offset the impact from the shortfall in volumes. Regarding payer mix for the quarter, the underlying shifts resulting from the changes in the health insurance exchanges were generally in line with our expectations. This area remains fluid. As we stated on our fourth quarter call, we have considered a range of potential scenarios as the effects continue to evolve.

As mentioned over the last several quarters, our teams have been focused on a broad resiliency plan designed to generate cost savings where appropriate, enhance network execution, and strengthen organizational capabilities. I am pleased with our resiliency efforts to date, and we expect they will continue to help offset some of the expected impact from the payer mix shift. Additionally, we were pleased with the volume results exiting the quarter. The respiratory-related and winter storm impacts were mostly contained to January, with February and March volumes rebounding nicely. For the first quarter, revenue increased 4.3% compared to the first quarter last year, adjusted EBITDA increased almost 2%, and diluted earnings per share, as adjusted, increased 11% versus the prior-year period.

We continue to deliver for our patients in important metrics including improved quality measures, increased patient satisfaction, and reduction in average length of stay. I remain excited about our digital transformation program and AI agenda. They progressed during the quarter with rollout of some key initiatives to more facilities. Our clinical teams continue to advance efforts to enhance quality, safety, and services to our patients with progress on broad initiatives across nursing care, hospital-based physician services, and support functions. We continue to invest significantly in network development with our capital spending and with selective outpatient facility acquisitions.

As compared to the first quarter last year, our networks expanded their overall sites of care by more than 4%, increased hospital beds through capital spending by almost 1%, and added 4% to emergency room capacity. To summarize, we view the respiratory-related volume shortfall and the increase in supplemental payment net benefits as first-quarter events. As such, we believe our assumptions for the remainder of the year related to volumes, payer mix, and costs continue to remain in line with our original guidance. HCA Healthcare, Inc. has an impressive capability to remain disciplined in dynamic environments. This is a resounding strength of our teams and what they have built over time.

It is rooted in our culture, and it helps us to execute on our mission to provide high-quality care to our patients while delivering strong financial results. With that, I will turn the call over to Mike Marks for more details on the quarter.

Mike Marks: Thank you, Sam, and good morning, everyone. Let me start by providing same-facility volume comparisons for 2026 versus 2025. Admissions increased 0.9%. Equivalent admissions increased 1.3%. Inpatient surgeries were down 2.3%, and outpatient surgeries declined 1.7%. ER visits increased 0.3%. As Sam mentioned, we had a much milder respiratory season in the quarter. This produced a drag on our quarterly volume growth in admissions and ER visits of 70 basis points and 140 basis points, respectively. In addition, the winter storm in January impacted a wide swath of our markets, including Texas, Tennessee, North Carolina, and Virginia, reducing admissions and ER visits by an estimated 30 basis points and 50 basis points, respectively.

The impact of these two factors was consistent across all payer categories and, in total, adversely impacted adjusted EBITDA by an estimated $180 million. Regarding payer mix, commercial equivalent admissions, excluding exchanges, increased 0.6%. Medicare increased 1.9%, and Medicaid increased 0.3%. We believe the variance in volume relative to our expectation was almost entirely driven by the respiratory season and winter storm. We view these factors as being temporal and not structural. Overall, taking all of this into consideration, our volume growth in the quarter was generally in line with our 2% to 3% volume growth assumption for the year, albeit at the lower end of the range. Adjusted EBITDA margin decreased 50 basis points versus the prior-year quarter.

Salaries and benefits as a percentage of revenue improved 30 basis points, and supplies improved 20 basis points. Other operating expenses as a percentage of revenue increased 90 basis points primarily due to an increase in cost related to the Medicaid state supplemental payments, professional fees, and technological investments. As Sam noted in his comments, volumes continued to improve throughout the quarter, and we noted a similar progression of operating leverage and cost trends. Regarding Medicaid supplemental payment programs, while we expected an increase in net benefit of $80 million, we realized an increase in net benefits of approximately $200 million to adjusted EBITDA versus the prior quarter.

This was primarily due to the grandfathered approval of Georgia, the reinstatement of the ATLAS program in Texas, and the year-over-year benefit of the Tennessee program that was approved in the third quarter of 2025. We are adjusting our full-year range to reflect a decline in supplemental payment program net benefit between $50 million to $250 million versus prior year. This updated guidance does not include any potential impact from additional approvals of grandfathered applications. We continue to monitor the ongoing developments related to these programs and, particularly, Florida. We continue to feel positive about the prospects for the approval of the Florida program, which covers the period of 10/01/2024 to 09/30/2025.

If approved, we believe it should result in additional revenue, which may be significant. Now let me provide additional information regarding the exchange environment. As we stated on our fourth quarter call, the complexity of the exchanges is significant. We are tracking several areas within the company. For the quarter, we estimate our same-facility exchange equivalent admissions declined approximately 15% versus the prior-year quarter. This represents our comprehensive evaluation of patients that presented with exchange coverage that ultimately will not be covered for their episodes of care. Using the same analysis, we estimate same-facility uninsured equivalent admissions increased approximately 16% versus the prior-year quarter. Over half of this implied increase relates to the movement from exchanges and normal uninsured growth.

The remaining portion reflects a slowdown of conversions to Medicaid from patients who were not willing to fill out applications. We estimate the adjusted EBITDA impact from the exchanges to be approximately $150 million in 2026 versus the prior-year quarter. Given our experience to date, we still believe our full-year range of $600 million to $900 million expected impact on adjusted EBITDA is appropriate. However, the exchange environment remains dynamic and has not fully settled. We will continue to track the fluid nature of this reform and will provide further commentary on our second quarter call. Moving to capital allocation. Capital expenditures totaled $1.1 billion in the quarter.

Additionally, we purchased $1.57 billion of our outstanding shares, and we paid $183 million in dividends for the quarter. Cash flow from operations was $2 billion in the quarter, representing a 22% increase in 2026 versus the prior-year quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well positioned for the future. As noted in our release, we are reaffirming our estimated guidance ranges for 2026. I will now hand the call back to Frank Morgan for questions.

Frank Morgan: Thank you, Mike. We will now open the call for questions. As a reminder, please limit yourself to one question so that we might give as many as possible in the queue an opportunity to ask a question. Operator, 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. 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 to join the queue. And our first question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open.

Ben Hendrix: Thank you very much. I appreciate the color on the respiratory, DPP, and other components. Maybe you could just give us a rundown broadly of how your results compared to your internal expectations for the quarter?

Mike Marks: Thanks, Ben. Our results were a bit short in terms of adjusted EBITDA versus our internal expectations. I would size our internal expectations as being pretty consistent with the midpoint of our guidance in terms of growth and pretty consistent, actually, with consensus coming into the call. Really, two main drivers in terms of the shortfall to internal expectations. The first one is the shortfall in the seasonal volume uplift from respiratory and the winter storms, which was mostly offset by the net benefit from the supplemental payment programs. A little detail here on seasonal volumes and the expense side. As we were coming into January, our respiratory season was actually strong at the beginning of the year.

However, later in January, it became apparent that the respiratory season was ending abruptly, and we were then hit with a significant January winter storm across several of our states. The quick ramp down of the respiratory volume as well as the winter storm delayed our ability to flex down our seasonal cost in the quarter. We were ultimately able to do so as we moved through the quarter, but there was a delay. Switching now to the supplemental payment program activity, as noted, Medicaid supplemental payments net benefits were better than expected.

As we came into the quarter, we did anticipate an increase in the supplemental payment net in Q1 of $80 million, largely due to the increase in the Tennessee program that was approved in 2025. So the $200 million in net benefit in the first quarter was about $120 million higher than our internal expectations in the quarter and, again, resulted from the approval of the grandfathered Georgia program as well as the reinstatement of the ATLAS program in Texas. So in summary, Ben, we were just a bit short in total, but the temporal factors of the lack of seasonal volume uplift and the pickup in net benefit from supplemental payments were really the main drivers in the quarter.

Ben Hendrix: Thanks. Appreciate that color. And then as a quick follow-up, can you just give us an update on the moving pieces that get you back to the initial guide? Maybe walk us through the components of the EBITDA bridge as you see them today after such a dynamic first quarter? Thanks.

Mike Marks: Sure. If you go back to the release, the only change to our key assumptions for the 2026 guidance relates to the supplemental payment programs. We estimate that the Georgia approval and the re-ATLAS program previously discussed will provide approximately $200 million of incremental net benefit for the full year that was not originally included in our guidance. I would note that the $120 million for Georgia and Texas that we talked about for first quarter had a prior-period impact in it. The component that applied to first quarter and for the full year of 2026 really makes up that $200 million.

And so that is why we are adjusting our assumption for full-year net benefit to now be a decline of $50 million to $250 million. That assumption does not include any additional approvals of grandfathered applications. Thinking about the rest of our assumptions, on the impact of the exchanges, we still believe that the $600 million to $900 million range is appropriate based on what we learned in first quarter. Resilience assumptions that were in guidance also remain reasonable and appropriate. At the end of the day, we felt it was appropriate not to change our total guidance range, even with the $200 million improvement in first quarter.

A chunk of that really goes back to this temporal nature of the headwinds that we saw in first quarter being related to the seasonal volume impacts and winter storm, and the related cost impacts. As we think about how we progress through the quarter, as we exited the quarter in March, volumes were improving, largely back to our original plan. We also saw the same thing in our cost structure. As we got through March, our cost trends really reflected good performance in March and were largely on plan. That is the walkthrough on guidance.

Operator: Thank you very much. And our next question comes from the line of A.J. Rice with UBS. Your line is open.

A.J. Rice: Hi, everybody. Just to put a finer point on what we are discussing with numbers flying back and forth. Am I hearing you say you basically had $180 million of negative impact from flu and weather in the first quarter, you picked up $120 million of benefit from DPPs in the first quarter that was not expected, so the net was a $60 million drag net of the unusual items or weather and flu?

And then on the $180 million versus the $200 million of DPP in the full-year impact, you are ending up roughly $20 million better for the year if you maintain your guidance for Q2, Q3, Q4 because of the incremental impact of DPP over the course of the year? I just want to make sure that is the right take from what you are saying.

Mike Marks: I think you are generally in the zone. We view the $180 million headwind in the quarter as being temporal and not structural, so we do not think that repeats. The $200 million improvement for full-year 2026 from supplemental payment benefits reflects Georgia and Texas. Broadly, we are not changing our full-year guidance on earnings, and I think that is the way to read that. I would acknowledge there is a little bit of softness versus consensus that may be not fully explained, but it is pretty close from the moving factors in the first quarter.

When we look at the rest of the year and the demand that we are seeing in the marketplace, we believe we will be able to run between 2% to 3% volume growth in the next three quarters over prior year. Our original assumption around the exchanges, around revenue, and our cost trends suggests the balance of the year is largely back on our original plan.

Sam Hazen: This is Sam. We do a business analysis of the company in the first quarter. It is pretty much where we expected, save the respiratory dynamic. We believe the business outcomes of the company in the first quarter are in line with the guidance we provided just 90 days ago. We are judging that and trying to influence what we can on the edges, and put ourselves in a position where we get to where we need to be by the end of the year. There are always puts and takes with the supplemental programs. We have talked about that for years.

What we are trying to judge is whether the business is functioning and performing as we thought, and generally that is the case, save the one item associated with the respiratory activity.

A.J. Rice: Okay. As a follow-up, your $400 million resiliency program, I know you have a lot of AI initiatives but some of that is other stuff. Can you update us on where you are at with the AI initiatives? And is that $400 million a pretty firm number? Is there a range around that as to what you might ultimately realize this year?

Sam Hazen: In the quarter, as Mike indicated, we get operating leverage when we get volume. Whether it is respiratory volume or surgical volume, we get operating leverage, so we lost a little bit of that in the first quarter. When you normalize for that, as we exited the quarter, we felt good about the leverage we were seeing in the subsequent months. When you merge that with the maturing of our resiliency program over the course of the year, we think we can get where we need to be with our cost objectives for 2026. Are there opportunities for more? Possibly. Could we find pressures that we have not anticipated? Of course. Our artificial intelligence agenda is getting implemented.

We have productivity with our physicians with our ambient listening capabilities and the documentation associated with that. We are rolling out our nurse handoff program, with new initiatives rolling out to more facilities. That has more patient safety and nurse engagement, with some productivity to it. We are really excited about what the artificial intelligence program can do to complement our caregivers, help us provide better care, do it more cost effectively, and run the business better. We are seeing it in case management. We had good outcomes with case management, as we talked about with average length of stay. All of this is coming together. Does it have some upside in some areas? Yes.

Could there be some pressures in other areas? Of course. When we net it together, we feel like we are on the program that we estimated at the beginning of the year.

Operator: And our next question comes from the line of Ann Hynes with Mizuho Securities. Your line is open.

Ann Hynes: Great. Good morning, and thank you. I just have a quick follow-up from a comment you made in the prepared remarks, and then I have a question. On the Florida DPP, I think there is some anxiety in the market because it is taking so long to approve. Do you have any color on timing for when that could be approved? And then my real question is on ACA. With the increase in the uninsured and the bad debt, is that coming in line with your initial expectations? And can you remind us, does your guidance assume a deterioration in the collectibles of copays and deductibles of the insured, and what change is embedded in your guidance? Thank you.

Mike Marks: That is a multipart question, and it was impressive. On Florida, the size of the Florida program is such that HHS/CMS is thoroughly reviewing this program. Based on our sense of things as we sit here today, we feel positive about the prospects of approval for the Florida program. If approved, as noted in my prepared comments, we believe it would result not only in additional revenues, but those that may be significant. We will be watching this and keep you informed as that moves. As it relates to the exchanges and what we are seeing related to patient amounts due, as we came into our modeling, our models included some shift from silver to bronze.

What we are seeing in our patients so far is that there has been a bit of a shift from silver to bronze in the patient selection of metal tier. I would not say, however, that the shift is significant at this point, but there is some. We are also noting that even within silver, if you compare the benefit designs 2025 to 2026, the amounts patients owe within silver are also increasing. All this is leading us to conclude that we are seeing a growth in patient amounts due on the exchanges.

As we have noted in the past, we see a lower collection rate on patient balances from the exchange plans as compared to traditional managed care patients, and this shift will have an impact on patient collections on care. But from a context standpoint, I do not think that the impact of the shift and the growth in patient amounts due is going to be overly material, given the relatively minor portion of our patient cash collections that relate to exchange patients. We did include in our original estimate of $600 million to $900 million this increase in patient amounts due on the exchanges. It is within the range of our models based on what we are seeing.

On the broader part with the exchanges, we did anticipate movement out of the exchanges to uninsured. We thought that we would lose about 15% to 20% of volume of people leaving the exchanges, and we think we saw about a 15% decline in first quarter, so at the lower end of that range. You may recall that our assumption was about 15% to 20% of those who lost coverage on the exchanges would migrate to employer-sponsored insurance, and the rest to uninsured. As we are studying the patients during the first quarter that previously had exchange coverage, we are noting that patients converting to employer-sponsored are generally within the estimated range that we built into our guidance model.

Interestingly, patients migrating to uninsured are just a little bit less than expected, as we are seeing some individuals converting to Medicare or Medicaid due to age or changes in life circumstances. This is a slight improvement and was not significant, and overall the payer mix deterioration from these changes is generally in line with our expectations for the quarter. If you think about the growth in the uninsured that I highlighted in my prepared comments, a little more than half of that 16% growth was from the movement from exchanges, and that is generally in line with our expectations. The other factor that showed up as growth in uninsured volume was the slowdown in Medicaid conversions that we highlighted.

Broadly, those were the components in our uncompensated care results for the quarter and largely in line with our expectations.

Operator: And our next question comes from the line of Brian Tanquilut with Jefferies. Your line is open.

Brian Tanquilut: Hey, good morning, guys. Hey, Mike, maybe to follow up on your comments on Ann's question, how do you want us to think about the sequential move from Q1 EBITDA to Q2, factoring in the recovery in volumes and then your expectations on mix and how that is all going to play out?

Mike Marks: We do not generally give guidance by quarter, other than pointing back to normal seasonality. Clearly, as noted from our comments, we view the volume shortfall in first quarter as being temporal and not structural. Broadly on the exchanges, you get a sense of what we saw in the first quarter. It is dynamic. We are going to continue to learn more as we go along. We will be studying how much of the anticipated 2026 full-year volume decline came through during the first quarter, which is a bit difficult to fit. Certain individuals were in their grace period throughout the quarter, and they may drop coverage after the first quarter.

We make an estimate for those patients in both our equivalent admission statistics and our financials. Based on the data we have seen to date, we believe that our assumption of a 15% to 20% volume decline continues to be reasonable. Those would be the thoughts I can give you now related to the progression through the year. Thank you.

Operator: Our next question comes from the line of Whit Mayo with Leerink Partners. Your line is open.

Whit Mayo: Hey, thanks. The health plans are on an organized campaign today on prior authorization. Could you talk about any payer behavior changes, particularly post-discharge denials, anything new that you saw emerge within the quarter or year to date? And I know you have been working with a number of plans to streamline this back-and-forth. Any color would be helpful.

Mike Marks: Thanks, Whit. We continue to experience increased activity levels with our payers on denials and underpayments pretty broadly across payers and across products. I would continue to call out Medicare Advantage as being the specific driver within the product mix. We have been working really hard over the last several years to strengthen our revenue cycle. We have added resources, technologies, and a lot of capabilities around speed of resolution to really go after the root causes of denials. That work has continued to pay dividends.

Even with the significant increase in activity around denials and underpayments that we are seeing, our recoveries, our work around dispute resolution, and our work around appeals and getting these overturned are such that we were able to mitigate and not see a lot of year-over-year impact to earnings. But the denials and underpayments are still really high, and it is a key part for our industry to continue to work together on. As you noted, we have launched over the last 18 months a series of partnerships with many of our strategic payer partners.

These partnerships focus on digital integration to share more digital and structured data back and forth between us and our payers; eliminate faxes and paper; and a lot of work around administrative simplifications for both us and our payers to deal with the really significant administrative cost burdens associated with health care in America. Lastly, management of disputes. Those are good early work products, but we have a long way to go as we continue to move that forward. That is a bit of an update on denials and underpayments.

Operator: And our next question comes from the line of Andrew Mok with Barclays. Your line is open.

Andrew Mok: Hi. Good morning. Wanted to follow up on the slower conversion to Medicaid. Curious which states you are seeing that slowdown, whether you view that as a temporary issue or a durable trend. And when you take a step back on the broader uninsured and ACA population this year, did you make any changes to your bad debt accrual process? Thanks.

Mike Marks: Thank you. On Medicaid and the slowdown in the conversions, we think—it is still early and there can be other contributing factors—but we largely think about this as people who this year are less willing to fill out Medicaid applications. We suspect that could be driven a bit by concerns around immigration and the like. We are studying that. It may not be the full reason why, but that is a piece of the story in terms of the year-over-year growth in slowdown in Medicaid conversion that is impacting our uninsured volume increase. Broadly, our budgets and plans for 2026 reflected the payer mix shifts and the patient amount-due collections that we anticipated being impacted by the exchanges.

That was reflected both in what we anticipated related to uninsured volume growth and related to the potential impacts in terms of patient due collection. That was built into our models for 2026.

Operator: Our next question comes from the line of Matthew Gillmor with KeyBanc. Your line is open.

Matthew Gillmor: Hey, thanks for the question. I wanted to ask about the hurricane-impacted markets. I think guidance did not assume any continued improvement from those markets. Could you give us an update in terms of how things are playing out, if there are any signs that those markets are improving, particularly in North Carolina?

Sam Hazen: This is Sam. North Carolina—here is the short story. Demand is above our expectation. It is costing us more to serve that demand because Western North Carolina has a significant workforce deficit. We are having to bring in labor, nursing and non-nursing, to support the demand. We have a very aggressive recruitment campaign and compensation program to service that demand, and we are hopeful over time we can mitigate the cost. We have seen more volume. It has cost us more to service. We are a little bit behind our expectations in North Carolina on the bottom line.

Mike Marks: The other thing we are seeing is the payer mix change in North Carolina. It clearly has been disrupted in terms of that workforce disruption. It has also impacted us in a less favorable overall payer mix. Broadly, thinking about the hurricane-related markets, in our guidance we indicated that we did not think we would see any material improvement in year-over-year earnings from the hurricane markets. Our Tampa facility, Largo Medical Center, is largely recovered and in flight, but we do not think we are going to see any net material increase in year-over-year earnings from hurricane markets due to the reasons that Sam articulated.

Operator: And our next question comes from the line of Ryan Langston with TD Cowen. Your line is open.

Ryan Langston: On the impact from winter weather, should we expect any lost procedures in January to come back through the year? I think you said February and March volumes were more in line. Did you pick those January volumes up already? And can you quantify the impact from weather to the same-store inpatient and outpatient surgery growth?

Mike Marks: When I think about the winter storm specifically, in my prepared comments, we indicated that it was a 30-basis-point impact on year-over-year volume growth on admissions and a 50-basis-point impact on year-over-year ER visits. From a recovery standpoint, we believe that from the winter storm, we largely recovered the surgical component within the quarter. What was not recovered, and what drove the net volume impact, was really the emergency and the related emergency admissions where there was not a second chance to recapture that volume. I do not think the winter storm was really an impact on our surgical volumes in the quarter to a material degree.

Sam Hazen: It is not going to be notable over the rest of the year. We will likely recover some volume, but it will be sprinkled into our mix in a fashion that we will not be able to really discern it.

Operator: And our next question comes from the line of Justin Lake with Wolfe Research. Your line is open.

Justin Lake: Thanks. Good morning. Wanted to follow up on your comments around exchange patients sitting in the grace period in February and March that you might not get paid for. My understanding is that managed care will let you know who these patients are in real time and that their coverage is suspended. Is that right? And just to be clear, how do you treat these patients within the exchange volume decline of 15% in the first quarter? And maybe share a little more color on how you accounted for this utilization during the quarter from a revenue recognition perspective. Thanks.

Mike Marks: Sure, Justin. On the verification process with our payers, we have some payers where we receive some premium status information through our verification process, but the information we are able to access is not consistent and it is not standardized across exchange payers. As a result, we generally do not have reliable third-party visibility at the time of service as to whether a premium has been paid. When the information is available, it certainly helps inform further patient engagement to encourage these patients to maintain their coverage. Generally, I would not characterize the eligibility and verification information received at the time of service as comprehensive, consistent, or largely accurate as a verifiable data point.

On the grace period, patients that receive premium assistance—whether they are auto-reenrollees, new exchange enrollees, or switching plans—generally have a three-month grace period after the coverage is effectuated. For the first month of the grace period, the payer is required to cover the care. For the remaining two months, the payer is not required to cover any care unless the premium was caught up by the enrollee.

Our work was to first look at every patient that came in with exchange and try our best to understand whether or not they had attrition during the quarter, at which point we recognized that revenue impact during the quarter, or to make an estimate of those that we believe will lose and come out of their grace period with attrition, where we will not get paid and we will know that in second quarter and beyond. For that last part, we have made an accounting evaluation and a business evaluation that we included in our analysis of both equivalent admissions and revenue.

When we articulate that 15% drop in equivalent admissions, it contains both of those components, and the same with the impact on our revenue and earnings.

Operator: And our next question comes from the line of Scott Fidel with Goldman Sachs. Your line is open.

Scott Fidel: Hi. Thanks. I just wanted to talk about what you saw with acuity and case mix in the quarter, maybe putting aside the lighter respiratory, which we know would probably drive a lower case mix. And then, in terms of patients and types of procedures and service lines, how is that impacting acuity and case mix as well? Thanks.

Sam Hazen: We saw increased acuity as reflected in our case mix. It was modestly up on a year-over-year basis. Inside of that, we did have the respiratory dynamic that we alluded to, but within the respiratory dynamic, we had a fairly acute component last year that was more H mix driven than maybe we had seen in the past, and yet we still jumped over that. Inside our business in the first quarter this year, we had really strong cardiac activity. Our cardiac procedures grew significantly. Trauma was up 2.5%, also driving acuity. We had rehab services grow at a very good pace.

A lot of the elements that we have had momentum in from a service line standpoint over the past few years continued into the first quarter, again influenced somewhat in total by these other factors. We continue to find opportunities in the market to develop more comprehensive programs as our communities grow and to serve our communities more effectively closer to home. That will continue to be a part of our journey. One other metric important to case mix is our receiving of patients through our patient logistics centers grew by 2.4%.

That tends to have a higher acuity level as rural hospitals and other community-based hospitals are using the deeper service offering that we have in some of our tertiary and quaternary facilities. All in all, we were generally satisfied with our case mix.

Scott Fidel: And as a follow-up, around the payer buckets on acuity and case mix, were they relatively consistent, or with the exchange disruption did you see any movement?

Sam Hazen: Pretty consistent. The case mix was consistent, and the respiratory effects were consistent. We had consistency across all aspects of our payer classes when it came to the overall story for the company.

Mike Marks: Thank you.

Operator: And our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.

Kevin Fischbeck: Great, thanks. Can you talk a little bit about the $150 million impact from the exchanges this quarter and how that compares to the $600 million to $900 million annual number? Did you assume that number would build as the year goes on? Or are you saying that you are trending towards the lower end for the year? And then on the Medicaid side, is this dynamic something that you just noticed in Q1, or has it been building for a while? And is it a dynamic that you think is peaking in Q1 or will get better or worse from here? Thanks.

Mike Marks: On the exchanges, the $150 million for the quarter is a quarter estimate. Obviously, that would put us a bit at the lower end of the full-year range, but I think it is a bit early. It is dynamic. As we have gone through the quarter analyzing all of the moving parts around the exchanges, it is probably a little early to declare that the full year would be at the lower end of the range. I would say we were pleased that in the quarter we think the $150 million reflects not only what we saw in the quarter, but our estimates of the attrition rate that we built into our accounting routine.

It is a little early to give a broader sense for the full year yet, but we think that the range of $600 million to $900 million is still a reasonable estimate for the year. On the Medicaid conversion slowdown issue, it is pretty nascent. We maybe saw a smidge of it at the very end of last year as well, but it really popped up on us here in first quarter. Given its nascency, it is a little early to call whether it is a sustained trend or something that just popped in first quarter. We are watching it and will keep you up to date as we go forward.

Sam Hazen: I would add that our Paragon teams have a robust process for qualifying patients who need support through our financial counselors and other efforts, and those continue. We are just dealing with some dynamics we have not experienced before, and it is too early to suggest that it has peaked or not peaked. We just need a little bit more time to judge it.

Operator: And our next question comes from the line of Sarah James with Cantor Fitzgerald. Your line is open.

Sarah James: Thank you, and I am sorry to circle back on this, but you mentioned that March volumes were recovering toward the range of 2% to 3%. Is that still possible for full year to hit the existing guide of 2% to 3% volume?

Sam Hazen: We could not hear what you were saying at the front end, but we think we know what you said, which is how were volumes exiting the quarter and what does that do to our full-year guidance. February and March were generally in line, when you put the two together, with our full-year guidance. January was the month in the quarter where we saw a decline in activity. When we are making a judgment about the rest of the year, we are judging what we think is going to happen in the last three quarters of the year. We think our guidance around volume of 2% to 3% in the rest of the quarters is appropriate.

Based on what we see with demand in the market, trends coming out of the quarter, capital projects, and other initiatives to develop our networks, we feel that is still a reasonable target.

Operator: And our next question comes from the line of Stephen Baxter with Wells Fargo. Your line is open.

Stephen Baxter: Yes, hi. Thank you for all the color on the moving parts in the quarter. If we think about the only sort of year-over-year number you have not given us yet on resiliency, is there any reason to think that just a quarter of the full-year impact that you talked about would not be a reasonable placeholder for the first quarter? And then if we go through and look at those moving parts, it does imply that the core growth in the quarter was probably closer to 2.5% or 3%. I think you have a bit higher of a full-year guide embedded here.

Could you help us understand what you think the shortfall was on the core, normalizing for all these moving parts? Thank you.

Mike Marks: On the resiliency plan, we are still confident in the full-year $400 million guidance, so I will leave that there as a good estimate for the full year. On core growth, our first quarter EBITDA growth was, call it, 1.9%, and the midpoint of our full 2026 year guidance is, call it, 2.8% to 2.9%. That gives you a sense. We have articulated the drivers in first quarter. We largely think that indicates we are going to be largely on plan for the next three quarters in terms of the overall makeup of volume, revenue, and earnings, back to our original plan over the next three quarters.

Operator: And our next question comes from the line of Jason Cassorla with Guggenheim. Your line is open.

Jason Cassorla: Great, thanks. Good morning. Maybe just a follow-up on the outpatient side. Historically, you have talked about some of the pressures you saw, but you more than made up for that on the revenue side. It looks like revenue was up just shy of 3% in the quarter for outpatient compared to the 9% or so you did last year. Can you give any impact of the weather on the outpatient side? And how trends, revenue and volume-wise, trended in the quarter with your ASCs compared to your remaining outpatient footprint would be helpful. Thanks.

Mike Marks: Let us start with the ER side of the outpatient business. Between respiratory and the winter storms, there was an impact on our ER volumes—about 140 basis points from respiratory and about 50 basis points from the storm. If you think about that compared to the 0.3% growth in ER visits, it gives you a sense that you are back at normal trends when considering the winter storm and the respiratory season shortfall. Sam mentioned this, but we did have good growth year over year in things like EMS visits and trauma visits. On the surgery side, our outpatient surgeries declined 1.7%. That was a 2.1% decline in hospital-based outpatient and 1% decline in our ambulatory surgery centers.

On the hospital side, we saw a little bit of weakness in our ortho-related cases. On the ASC side, it was more of the low-acuity service lines like GI and ENT that drove the statistical decline. We were pleased with our revenue performance in our ASCs. From a payer mix standpoint for surgery in first quarter, the two big drivers of weakness on the payer side were Medicaid and, of course, the exchanges, which we anticipated.

Sam Hazen: When you look at our outpatient revenue and its composition, about a third is emergency room, about a third is outpatient surgery, and the other third is imaging primarily driven by cardiac. The storm affects the emergency room, outpatient surgery, and imaging—all three categories. The respiratory impact is mainly the emergency room. All of it comes together in this composite view, and that is how we dissect the outpatient business. As we push into the rest of the year, we do not really have the implications of either of those for our outpatient platform, and we are confident that we will be able to generate the revenue expectation for the balance of the year.

Operator: And our next question comes from the line of Benjamin Rossi with JPMorgan. Your line is open.

Benjamin Rossi: Hey, good morning. Thanks for taking my question. Across your network development efforts, what is your current cadence of ramping new beds in 2026? How much growth is dependent on projects already coming online versus future years? Could you give an update on how you are generally thinking about M&A as a potential growth lever this year, and how inbound and outbound conversations with opportunities in your pipeline have developed to start the year?

Sam Hazen: As I mentioned in our prepared remarks, we saw a number of outpatient acquisitions close in the first quarter. Those were primarily related to opportunities in urgent care, ambulatory surgery, and our freestanding emergency room business unit. We had a number of acquisitions there. Going forward, we continue to believe most of our opportunities will be in the outpatient arena and in our hospital networks. Our pipeline has a number of promising projects, and I am hopeful we will close those as we push into the balance of the year.

With respect to capital spending, we have a significant pipeline of projects that have already been approved and are in development—almost $5.5 billion to $6 billion of approved projects that will come online over the next 24 to 30 months throughout different periods within that time. Many of those projects are long-lived projects—adding hospital capacity—which is difficult because they are big and disruptive projects to our facilities, and it takes a while to get them done. We try to build those for future growth that we anticipate in the markets. There is a component of our growth expectation in 2026 that is related to projects that have come online in 2024, 2025, and 2026.

We blend that into our expectations every year, and we do have a slightly accelerated expectation in 2026 as compared to the previous two years related to capital projects coming online. We remain encouraged with the opportunities to invest in our networks. Our occupancy levels continue to be at high levels for us, and that presents opportunities for investment and growth. As we build out our networks with outpatient facilities, as communities grow, and as our overall hospital positioning increases, we think that gives us a good opportunity to grow our share and deliver positive returns. We have had a tremendous pattern of producing positive returns on capital, and we still believe we can deliver on that.

Operator, let us take one last question.

Operator: And our final question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open.

Craig Hettenbach: Thank you. Just a question on contracting. For this year, what have you seen in the rates backdrop, as well as any visibility into 2027?

Sam Hazen: For 2026, we are pretty much fully contracted at our targeted levels. As we push into 2027 and 2028, we are in a contracting cycle as typical with our payer contracts, and we are about a third of the way through on 2027 and modestly into 2028. Right now, we are on target. We believe we are going to be able to get into a range that works for our business as we finalize these contracts with the payers.

As Mike alluded to, we have other issues that we are working with them on that we think can be additive to them, additive to us, and beneficial for our patients and their customers in a way that makes the system work better. We are confident that we will get to good answers on these contracts that we are in negotiations on currently.

Operator: And that concludes our question and answer session. I will now turn the call back over to Mr. Frank Morgan for closing remarks.

Frank Morgan: Thank you for your help today, and thanks to everyone for joining us on the call. I hope you have a great weekend. I am around this afternoon if we can answer additional questions. Have a great day.

Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.