The HCA Healthcare Third Quarter 2023 Earnings Conference Call began with an introduction from Vice President of Investor Relations, Frank Morgan. CEO Sam Hazen and CFO Bill Rutherford then provided some prepared remarks, followed by a reminder about forward-looking statements and a reference to non-GAAP financial measures. Sam Hazen discussed the company's solid business fundamentals, including strong demand for services and healthy operating margins. He also mentioned continued progress with their labor agenda.

The company's results were negatively affected by their Valesco hospital-based physician venture, leading to a decrease in earnings guidance for the year. However, the decision to consolidate Valesco was necessary for the company's competitive positioning. In the third quarter, same facility admissions and revenue increased, driven by strong acuity and a favorable payer mix. The company also invested in their people, with stable turnover and strong nurse hiring.

The positive results of the third quarter have led to a decrease in contract labor costs and an increase in available bed capacity. The company's investments in networks, people, and technology are expected to improve service offerings and provide higher quality care to patients. The company's disciplined operating culture has benefited all stakeholders and will continue to do so in the future. An upcoming Investor Day will provide more details on the company's approach to driving sustained growth and shareholder value. Consolidated net revenue increased by 8.3%, driven by growth in equivalent admissions and revenue per equivalent admission. The Valesco joint venture had a negative impact on the company's adjusted EBITDA.

In the third quarter, the company saw a decrease in revenue compared to their original estimates, largely due to the negative impact of the Valesco operating results. They are working on various strategies to address these issues, including making programming adjustments, reducing costs, and negotiating with payers for better reimbursement. The company also saw an increase in subsidy requests from contracted providers, but the rate of growth has slowed. In terms of cash flow and capital allocation, the company had a strong quarter with $2.48 billion in cash flow from operations, $1.15 billion in capital spending, and $160 million in dividends. They also updated their full year 2023 guidance, expecting revenues to range between $63.5 billion and $64.5 billion and net income to range between $4.94 billion and $5.13 billion.

The company expects adjusted EBITDA and diluted earnings per share to be within a certain range for the year. They have seen growth in their core business metrics and favorable payer mix trends. Their labor and supply costs are below the previous year. They also mention notable items to consider for their adjusted EBITDA guidance for 2023, including COVID support payments and other financial impacts.

The speaker, Frank Morgan, is pleased with the company's growth rate despite a $145 million payer settlement in the first quarter. He also mentions that diluted earnings per share have grown by 7.2% year-to-date. He then turns the call over to Bill to answer questions. The first question is from Kevin Fischbeck, who asks if there is anything unusual in the company's performance this year and if it can be used as a good base for future growth. Sam Hazen responds that the demand for healthcare remains strong due to population trends and aging baby boomers, and that concerns about GLP-1 should not have an impact on demand in the near or intermediate term.

The company is encouraged by the strong demand for their services and their competitive position in the market. They have the necessary resources to continue investing in their company and achieving their objectives. The economy is strong and supports their payer mix trends. The company had strong results, but faced challenges with professional fees. The fees were higher than expected and are expected to continue in the next quarter and possibly into 2024. The DPP payment from Florida was in line with expectations.

The company's growth rate slowed in the third quarter due to issues with the Valesco operations, resulting in lower revenue than anticipated. Efforts are being made to mitigate this, but it is estimated to be a $50 million quarterly impact. The Florida DPP was slightly above expectations, but other programs were less than expected. Excluding the Florida DPP, the EBITDA margin declined by 180 basis points year-over-year, with Valesco accounting for $100 million of the decline. The remaining $200 million is attributed to higher subsidy requests and potential issues with DPP in other regions.

In response to a question about factors affecting margin, Bill Rutherford explains that the increase in supplemental expenses and the impact of Valesco account for the majority of the margin decrease. Sam Hazen adds that same facility operating margins were in line with expectations, and the pressure was mainly due to the Valesco challenge. In a follow-up question, Gary Taylor asks for clarification on the percentage of professional fees in other operating expenses, and also asks about volume strength leading into 2024.

The speaker discusses the strong performance of their core hospital business, with growth in admissions and services across all divisions and geographies. They also mention investing in labor initiatives, such as new graduate training programs, which may have created a slight headwind in the quarter but will benefit them in the long term. The speaker is confident in their ability to make adjustments and mentions positive revenue yield from acuity, payer mix, and pricing.

The speaker expresses confidence in their organization's ability to adapt and find solutions to complex problems. They discuss a recent business consolidation and their plans to improve reimbursement from payers. The company's balance sheet remains strong and they are encouraged by their performance in the quarter and for the year. They decline to provide 2024 guidance at this time, but mention a payer settlement recorded in the first quarter and the potential impact of a new UPL program in Nevada.

The operator asks a question about the ER revitalization program and how Valesco plays a role in it. Sam Hazen explains that the program was initiated about a year ago to improve the operations of their emergency rooms due to the high demand for services. The program includes retraining new leaders, including physicians through Valesco, and has resulted in positive outcomes such as increased patient satisfaction and improved throughput times. Hazen also mentions that they are continuing to expand the program and see opportunities for further improvement.

The company is confident in their decision to acquire Valesco and is learning more about the business as they go. They believe there are opportunities to improve staffing and overhead costs in the future.

The speaker acknowledges that they will need to be paid appropriately for their services, and while they have some contracts currently, they may need to be adjusted in the future. They are confident that they can achieve appropriate reimbursement and are working on rationalizing operations to address this issue. However, they are still facing challenges in the current environment, particularly with anesthesia, and it is uncertain if they will be able to manage this issue going forward.

The company is facing challenges with subsidy requests, but they are managing through it and working to slow the rate of growth. The pressures from contract labor and nurse shortages have been managed well and they hope to apply the same learnings to the current situation. The fourth quarter is historically their best margin performance quarter and they believe their guidance is reasonable based on their outlook.

The speaker discusses the current financial challenges and expectations for the fourth quarter, mentioning that the loss of $50 million per quarter from Valesco is expected to continue into next year. They also mention that the primary issue is revenue shortfalls and that they are working on mitigating the problem through cost adjustments and managing the revenue cycle. They express confidence in being able to overcome the challenge.

The speaker believes the company is well-equipped to assess and respond to current trends. The next question is about the performance of service lines and the potential impact of GLP-1 on the company's business. The speaker explains that it is too early to determine the effects of GLP-1 and that the company has a diverse mix of revenue. They also mention that bariatric surgeries make up a small portion of revenue and that overall, the company has seen solid performance in most service categories.

The company had a strong performance in the quarter despite facing a calendar headwind with one less surgical day. The service volume growth was consistent across inpatient and outpatient areas, and the company is pleased with the overall results. The market for labor has normalized and there is not a significant impact from minimum wage laws, although unionization is a concern in the healthcare industry.

The company has successfully dealt with organizational issues and is in a good position for the near future. The market is dynamic, but there are positive signs in terms of turnover, hiring, and enrollment in nursing programs. The company is paying attention to potential issues, but overall, they are confident in their people and efforts. In response to a question about long-term margins, the company has a track record of consistently producing strong margins and is confident in their ability to continue operating efficiently despite potential cost pressures.

The speaker discusses the company's initiatives around technology and innovation in resiliency programs, which have led to increased efficiency. The company's historical performance is a reasonable expectation for the future, and there are opportunities to drive even more efficiency. In response to a question about a drop in revenue in the third quarter, the speaker explains that it was due to the company putting providers on new contracts and not yet receiving claims payments. Going forward, the company expects to generate around $200 million in revenue per quarter, with a $50 million EBITDA.

During a Q&A session, John Ransom asks about the $200 million revenue and $250 million cost business that is included in the company's forward guidance. Bill Rutherford confirms that this is a consistent estimate. Justin Lake also asks about the discrepancy between expected and actual revenue in the physician business, to which Rutherford explains that they are expecting pro-fee growth rates to decrease in the future. He also mentions that more details about their ‘24 guidance assumptions will be shared on Investor Day.

The paragraph discusses the company's recent integration of Valesco and its impact on revenue. The company is working on initiatives to offset the shortfall and expects growth to decline in the future. The company is also seeing strong volume and reasonable pricing in its core business, and expects these trends to continue. However, they are not commenting on current quarter activities. Overall, the company is pleased with its core fundamentals and same facility operations.

The speaker addresses a decrease in revenue due to Valesco integrations and assures that core trends will continue at a reasonable pace. A question is asked about the reduction in revenue, and the speaker attributes it to various factors. They mention initiatives to address the issue and prefer to be in-network to avoid surprise billing. The speaker then closes the call, thanking everyone for their participation.

The speaker offers to answer any further questions and wishes the listener a great day. The operator ends the conference call and thanks everyone for participating.

This summary was generated with AI and may contain some inaccuracies.