The HCA Healthcare Fourth Quarter 2023 Earnings Conference Call began with an introduction from the Vice President of Investor Relations, Frank Morgan. He reminded listeners of the risks and uncertainties associated with forward-looking statements and mentioned that the call would reference non-GAAP financial measures. CEO Sam Hazen then provided an overview of the company's strong performance in the quarter, with increased demand and improved cost trends leading to a 27% increase in diluted earnings per share.

The company is pleased with their operational performance and believes it sets them up well for the future. They experienced strong growth in diluted earnings per share and are proud of their team's ability to adapt and execute. Same-facility volumes were strong, with growth in admissions, emergency room visits, and surgeries. All domestic divisions saw growth. Revenue also increased, with improvements in payer mix and acuity levels.

In the fourth quarter, the company saw improved operating margins due to increased revenue and successful execution of their human resources plan. They plan to continue investing in workforce development and expansion of their networks to meet demand and increase market share. They also expect to integrate newly acquired hospitals and facilities.

The second opportunity for the company involves utilizing advanced technology to enhance operational potential and improve overall management capabilities. The third opportunity involves using the company's strong financial position to invest in the business and shareholders. The company's strategic plan aims to benefit patients, physicians, and stakeholders, and is guided by the principles of the HCA way. This approach has helped the company navigate economic cycles and challenges like the COVID pandemic.

The company has a strong plan for future growth and is confident in its ability to continue delivering value to stakeholders. The formula of strong operational performance and disciplined capital allocation has been successful in the past and will continue to drive results in the future. The company's 2023 results showed strong top line growth and improved acuity and payer mix, leading to an increase in revenue. Operating costs were also well managed, resulting in improved margins.

In the fourth quarter, contract labor declined by 20% and accounted for 5.3% of SMEB. The company managed supply costs well, resulting in a 40 basis point improvement. Professional fees and hospital-based physician costs also saw an improvement in growth. The Valesco joint venture was in line with expectations, and the company is confident in their plans to address industry-wide pressures. Overall, the company had solid margins and a 5.5% increase in adjusted EBITDA for the full year. In the fourth quarter, adjusted EBITDA grew by 14% due to strong revenue growth and expense management. There was also a significant increase in adjusted EBITDA from supplemental payment programs and a decline from recently acquired or divested entities.

The quarter was the strongest of the year, with growth from supplemental programs and new/divested facilities. The company had a balanced allocation of capital in 2023 and expects to continue this in 2024. They provided guidance for 2024, including revenues, net income, adjusted EBITDA, and capital spending. The guidance assumes a growth in admissions and revenue per admission, but also notes the complexity of state supplemental programs.

In 2024, HCA is anticipating benefits from a new program in Nevada, but also expects some modest headwinds from the aggregate impact of all supplemental programs. They project full year margins to be within historical trends and cash flow from operations to range between $9.5 billion and $10 billion. The company's Board of Directors has authorized a new $6 billion share repurchase program and an increase in quarterly dividends. CFO Bill Rutherford has decided to retire after 34 years with the company, and CEO Sam Hazen thanks him for his leadership and impact on the organization's culture.

The company's CEO, Sam, introduces their new CFO, Mike, who has been with the company for 28 years and has a strong understanding of their culture and ability to execute. The moderator, Frank, opens the floor for questions and the first question is about volume trends and whether there has been a return to normal seasonality, as previously expected. There is also a mention of potential changes in utilization review management by health plans.

Sam Hazen discusses the normal seasonality trends in the company's business, with a return in the latter half of 2022 and continuation into the latter half of 2023. The impact of new policies and pent-up demand is uncertain, but the company remains optimistic about their strategy and partnerships with physicians. Utilization of policies and procedures from payers and changes in policies may have an effect, but the company is focused on the demand for healthcare in their markets. Bill Rutherford adds that they view supplemental payments as part of their overall Medicaid revenue portfolio.

The speaker discusses the complexity and timing of recognizing benefits from the supplemental payment programs in 17 or 18 states. They mention the impact of the new North Carolina program, a settlement in Texas, and accruing Florida accounts. Despite this, the core operations of the business remain strong with growth in revenue and revenue per unit. The next question is about Medicare, specifically Medicare Advantage trends and revenue and volume growth in the quarter. The speaker also addresses the impact of the two-midnight rule in 2024 and any early benefits seen in 2023.

The company has seen a 10% increase in Medicare Advantage admissions, which is consistent with previous quarters. They believe this is due to a combination of conversion from traditional Medicare and volume gains. They have not seen any significant impact from the two-midnight rule yet, but believe there could be some modest benefits in the future. The company plans to allocate their $5 billion in capital spending between inpatient, outpatient, and technology, with a focus on developing new outpatient facilities in 2024 and 2025.

The speaker discusses the expected growth in hospitals and ER capacity in 2024, which is consistent with previous years. They also mention their focus on meeting demand and expanding networks in fast-growing communities. There is a clarification about the net Medicaid, DPP, EBITDA outlook for 2024, with a projected decrease of $100-200 million. The speaker also mentions efforts to reduce operating losses in Valesco.

Bill Rutherford, CEO of HCA, discusses the company's performance in the past year, including the impact of DPP and Valesco programs. He acknowledges that DPP may be a potential headwind due to settlements and accruals, while Valesco performed in line with expectations and is expected to continue improving. Rutherford also mentions the company's success in managing labor costs during the recent inflationary period and expects to see 2.5% to 3% wage inflation going forward.

The company believes there is room for improvement in contract labor and has plans to execute this throughout 2024. They are also working on initiatives to integrate professional fees into their operations and have seen a decline in sequential growth. The managed care pricing yield assumptions for 2024 are conservative, but the company may benefit from the two-midnight rule and shifts from Medicaid to commercial. It is still early to determine the impact of Medicaid redeterminations on the company.

The speaker states that the topic is not yet significant and will continue to be monitored in 2024. They also mention that their financial guidance does not include a significant amount for this topic. They touch on the two-midnight rule and believe it will have a positive impact on their company and patients. They have not factored in any major changes for this rule in their 2024 numbers. The speaker also mentions a financial resiliency program and a case management initiative that has shown early success in reducing length of stay and increasing case mix. They believe these initiatives will be beneficial for their company.

The company has implemented initiatives to improve efficiency and benchmarking, resulting in successful transitions and improved operating leverage. They are also investing in technology and care transformation for long-term value. The company's disciplined culture allows them to continuously find better ways to improve processes for all stakeholders.

The speaker discusses the company's mindset for success and how it will carry into future years. They are proud of their team's execution and believe it is an essential ingredient for success. The next question is about volume expectations for 2024 and the speaker explains that they are expecting faster growth due to strong demand for services in their markets, successful capital programs, and favorable economic indicators. They also mention strong enrollment in health insurance exchanges and access to contract and lives remaining well.

The speaker discusses the factors that will impact surgical growth in 2024, including current trends and investments in programs. They mention a slower growth in the fourth quarter due to a difficult December calendar, but overall, there is no indication of significant changes in surgical volume. The company has seen solid growth in both inpatient and outpatient surgeries and plans to continue investing in these areas in 2024, with the opening of new ambulatory surgery centers.

The company has made acquisitions in certain markets and is investing in hospital operating suites and emergency room processes to improve patient and physician satisfaction. The growth in cardiac volumes is also reflective of the organization's program development and expansion into new service lines. There has been a deceleration in professional fee spending growth, but the company expects this to improve in the future. Valesco is expected to generate $150 million in negative EBITDA next year, with a gradual improvement throughout the year.

The company has multiple initiatives in place to control professional fee growth, with a goal of achieving a step change in the trend line. The current trend shows an acceleration in Medicare utilization, likely due to aging baby boomers and market share gains.

In the paragraph, the speaker discusses the impact of the two-midnight rule on utilization and the difficulty in predicting structural changes. They also mention that the rule will be implemented in January and that the impact may ramp up over time. The speaker also mentions working closely with payers to ensure smooth administration of the rule. In response to a question about labor supply, the speaker mentions that there has been demand turned away at hospitals in the past, but it is unclear if this is still happening.

The speaker, Sam Hazen, addresses a question about hiring pipelines and the availability of resources in different areas. He mentions that the company had a 90% acceptance rate for patients referred to them in the past year, but this has improved throughout the year. However, they are still below their 2019 numbers. He also discusses their efforts to improve turnover and create a better work environment for employees. The speaker believes that with the upcoming capital and hiring, they will be able to receive more patients in the future. The next question is about the increase in CapEx guidance, which has been a trend for multiple years.

Bill Rutherford explains that returns on CapEx have remained solid and in the upper teens, with a disciplined process of evaluating projects and validating assumptions. The growth in capital spending reflects the opportunities for growth. Sam Hazen adds that the mix between inpatient and outpatient facilities is mostly similar, with newer outpatient facilities having good and quick returns. The outpatient platform has short cycle returns, while investments in hospitals have longer cycles but are important for navigating patients further into the healthcare system.

Bill and Josh discuss the strong returns and high occupancy levels at their inpatient hospital, which they attribute to their network model and integration with outpatient facilities. They also mention the potential benefits of Medicaid redeterminations, which could have a modest impact on their 2024 guidance but may have a larger impact in 2025. They briefly touch on the COVID acuity levels seen in the quarter, with one payer reporting higher costs per case.

The speaker discusses the number of people who have been able to reapply for Medicaid, as well as the potential benefit of converting to HICS or employer-sponsored plans. They also mention that COVID has not had a significant impact on their operations and that they are available to answer any further questions.

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