The paragraph is a transcript from the HCA Healthcare Third Quarter 2024 Earnings Conference Call. Frank Morgan, the Vice President of Investor Relations, introduces the call, highlighting that forward-looking statements may differ from actual results due to various risks and uncertainties. He notes that adjusted EBITDA, a non-GAAP financial measure, might be referenced, and a replay of the call will be available. Sam Hazen, the CEO, then emphasizes the efforts of HCA Healthcare staff in responding to two major hurricanes affecting their communities and facilities. He mentions the company's industry-leading capabilities and systematic approach to disaster preparedness and response, developed from past experiences.

The paragraph highlights the outstanding performance and dedication of HCA teams during recent storms, emphasizing their commitment to patient and colleague safety. The HCA way, the company's formula for success, has proven effective during normal times, the pandemic, and now hurricanes, particularly in impacted communities like Asheville and Tampa-St. Pete. The author expresses pride in the team's determination and teamwork. Despite challenges, the company achieved strong third-quarter results, with revenue growth and a 25% increase in diluted earnings per share, even accounting for the financial impact of Hurricane Helene.

The paragraph describes the impact of recent hurricanes on HCA Healthcare's hospitals. HCA Mission Hospital in Asheville, affected by Hurricane Helene, remains operational despite infrastructure challenges, particularly with water, and is expected to experience significant expenses and revenue loss through the year, with manageable impacts extending into 2025. HCA Florida Largo Hospital, hit by Hurricane Milton, is currently closed due to flooding and infrastructure damage, with repairs ongoing to reopen by late December. Despite these challenges, HCA Healthcare anticipates recovery based on past experiences with similar events. Meanwhile, the company experienced strong volume growth across most service lines during the quarter, with increases in inpatient admissions, emergency room visits, and various procedures, although outpatient surgery volumes declined by 2%.

The paragraph discusses recent financial improvements and future growth plans for the company. Revenue in a specific service line increased by 5% due to changes in acuity and payer mix, contributing to a 7.1% growth in same facilities revenue. The company is expanding its facilities, expecting to add approximately 600 inpatient beds and 100 new outpatient facilities by the end of the year, with $6 billion worth of projects under development. These expansions intend to meet the increasing demand for healthcare services. The company anticipates volume growth of 3% to 4% in 2025 and expects earnings to grow near or above the upper end of their long-term targets. Formal guidance for 2025 will be provided in January.

In the third quarter, Mike Marks reported growth despite challenges from two hurricanes, Helene and Milton, which impacted hospitals in Florida, Georgia, and North Carolina. Hurricane Helene caused significant financial losses, including $13 million for water supply issues at Mission Hospital, with an overall estimated impact of $50 million. Hurricane Milton also affected over 34 hospitals, with ongoing repairs anticipated at HCA Florida Largo Hospital. The expected total financial impact from both hurricanes in the fourth quarter of 2024 is projected to be $200 million to $300 million, excluding potential insurance recoveries.

The paragraph expresses gratitude to care teams and HCA colleagues assisting communities affected by storms and discusses 2024 guidance, indicating results may be in the lower range due to hurricane impacts. It highlights a 7.9% revenue growth driven by strong volumes in the quarter, with an improved adjusted EBITDA margin and better labor costs compared to the previous year. Contract labor costs decreased by 18%, while supply and other operating costs slightly increased. Professional fee cost growth moderated, and Medicaid Supplemental Payment Programs contributed modestly to the results. Overall, there was over 13% growth in adjusted EBITDA, indicating solid performance across markets.

The paragraph discusses a company's financial performance and capital allocation strategy. In the quarter, they had $3.5 billion in cash flow from operations, spent $1.19 billion on capital expenditures, repurchased $1.79 billion in shares, and paid $169 million in dividends. Their debt to adjusted EBITDA leverage is at the lower end of their guidance range, indicating a strong balance sheet position. They estimate 2024 capital expenditures to be around $5 billion due to the timing of projects. Frank Morgan then opens the call for questions from analysts, starting with AJ Rice from Credit Suisse, who seeks clarification on 2025 outlook numbers, factoring in hurricane impacts and growth estimates. AJ Rice also inquires about the company's volume strength post-pandemic.

In the discussion, Mike Marks and Sam Hazen address the company's performance and outlook, particularly in relation to the impacts of hurricanes in 2025, which are expected to be manageable and mainly affect North Carolina. They believe their Tampa facility will be operational by late 2024. They also mention positive trends in service line volumes, with a 1.4% increase in same-facility admissions from Q2 to Q3 2024, which aligns with past trends. Both Marks and Hazen highlight strong growth in most service categories, particularly the emergency room and cardiac business, reflecting broad-based geographical growth with few challenges. Finally, the operator introduces Ben Hendrix from RBC Capital, who asks about claim denial trends, a topic of interest during the earnings season.

In the paragraph, Mike Marks discusses the issue of claim denials, particularly related to the "2 midnight" rule. He notes that while there's been an increase in denial activities by payers over recent years, their organization's strategies have helped to moderate the growth in denial write-offs in 2024. During the third quarter, denials did not significantly impact HCA. Marks also provides an update on Medicare to Medicare Advantage transitions, noting a 5.3% increase in total Medicare admissions, with an 11% rise in Medicare Advantage admissions, partly due to the 2 midnight rule. While there's been a slight reduction in prior authorization denials for stays of two midnights or more compared to the previous year, there are still too many denials, particularly from a few large Medicare Advantage payers.

The paragraph discusses challenges and strategies related to Medicare Advantage compared to traditional Medicare. It highlights that Medicare Advantage now accounts for 58% of total Medicare volume and has a higher observation-to-inpatient ratio than traditional Medicare, even after the implementation of the 2 midnight rule. Additionally, Medicare Advantage's case mix index (CMI) adjusted length of stay is about 10% higher than traditional Medicare due to payer-driven discharge delays, creating cost burdens for providers. To address denial and cost burdens, they are focusing on the adjudication process, which includes pursuing dispute resolution that may take 1-2 years. A question from Ann Hynes touches on pricing assumptions for 2025, considering factors like the shift from Medicaid to commercial and incremental DPPs. Mike Marks begins to respond to Ann's question.

The article paragraph discusses the company's early financial projections for 2025, anticipating a 2% to 3% growth in cash net revenue per adjusted admission. It also mentions the status of payer contracting, with completion rates of 80% for 2025, 54% for 2026, and nearly 20% for 2027. In response to questions from Pito Chickering of Deutsche Bank, the company representatives indicate that detailed margin assumptions for 2025 will be shared in January, as they are still in the planning process. They highlight the challenges with Medicaid, which remains one of their most difficult payers alongside uninsured patients, despite growth in Medicaid supplemental payment programs. These programs are noted as complex and inconsistent, and Medicare reimbursement still falls short of covering the costs for Medicaid patients.

The paragraph discusses the financial performance and future projections related to Medicaid supplemental payment programs and overall operating conditions. It notes that these programs provided a modest benefit this quarter due to changes in accrual and new programs in Nevada. The company projects a tailwind of $100 million to $200 million for 2024, leaning towards the higher end. Sam Hazen comments on anticipating a stable operating environment for 2025, with consistent demand and pricing, reimbursement, and inflationary trends in line with 2024. Following this discussion, Andrew Mok from Barclays asks about a slowdown in inpatient revenue growth in the third quarter, seeking clarification on the factors like acuity, mix, and rate that contributed to this change.

In the paragraph, Mike Marks discusses the National Recovery Agency's (NRA) growth rates in the third quarter of 2024, emphasizing that the decline compared to earlier in the year is largely due to state supplemental programs. Although there was growth in Medicaid supplemental program revenues in the third quarter, it was below the growth rate seen in the first half of 2024. The payer mix and acuity growth remained strong in the third quarter.

Joanna Gajuk from Bank of America asks for details on the payer mix and volume growth by payer. Mike Marks provides data on equivalent admissions year-over-year: Medicare is up 5%, Medicaid is down 8.5%, managed care excluding exchanges is up nearly 4%, exchange volumes are up 43%, and uninsured volumes are up 7.2%, resulting in a total growth of 4.5% in equivalent admissions.

Justin Lake from Wolfe Research inquires about the company's long-term debt, leverage, and considerations for the next year, noting the year's end leverage around 3x, and briefly mentions an earlier question about the hurricane impact.

In the paragraph, Mike Marks responds to a question about the impact of hurricanes on their financial planning and guidance for 2025. He explains that the company had a strong cash flow quarter and is at the lower end of their leverage target. They are currently evaluating their financial policies and will announce any changes in their first-quarter call. The ongoing effects of hurricanes in 2025 are anticipated to be manageable, primarily affecting their North Carolina market, as their Tampa facility will be operational by the end of the year. Marks also mentions that their early projections suggest being near or slightly above the upper end of long-term growth ranges. Additionally, Brian Tanquilut from Jefferies inquires about insurance claims and changes to the CapEx guidance, which Mike Marks acknowledges but does not elaborate on immediately.

The paragraph discusses the company's outlook on insurance recoveries related to hurricane impacts, stating that it's too early to estimate the timing or amount but emphasizing a claim is likely due to the storms' size. It mentions a slight decrease in capital expenditure (CapEx) projections for the year attributed to project timing rather than a lack of investment opportunities. Additionally, it highlights the company's focus on AI and technology investments, with efforts to enhance administrative, operational, and clinical outcomes through a comprehensive digital agenda planned to unfold over the next five to seven years, though the initiative is still in its early stages.

The paragraph discusses the promising results HEA Healthcare is seeing from using technology and artificial intelligence (AI) to improve scheduling, workforce allocation, and revenue cycle management. These early-stage initiatives are showing positive outcomes, though they are not yet materially significant. The company intends to invest more resources into these projects, expecting incremental improvements in the coming years, particularly in 2025 and 2026. HEA Healthcare believes it is at an inflection point, with a strong historical performance across its business elements, improved clinical outcomes, and better engagement with employees, physicians, and the community. The company is optimistic about the potential benefits these technological advancements can offer.

Stephen Baxter inquires about the anticipated volume growth for the next year, questioning whether it is expected to be 3% or 4%. He references previous communications that suggested the exchange could contribute 200 to 250 basis points to growth this year, and seeks clarity on how unusual coverage dynamics in exchanges and Medicaid, which is a challenge this year, are impacting volume assumptions. Mike Marks responds, noting that exchange enrollment growth will likely moderate to 8% to 10% next year, down from over 30% this year, and anticipates Medicaid volumes stabilizing in 2025 post-redetermination. The net result should be a stable payer mix between 2024 and 2025. Scott Fidel then asks about the Medicare Advantage contracting environment given recent rate and margin pressures, and seeks an update on the preliminary 2025 outlook, specifically regarding the impact of hurricanes on EBITDA recovery timing. Marks addresses the contracting issue first.

The paragraph discusses the organization's Medicare Advantage contract renewals for 2024, stating they've successfully negotiated agreements with major payers and aim to address shared challenges. They haven't specified earnings projections for 2025 yet, planning to do so in January. In response to a question about hurricanes influencing their long-term capital and acquisition strategies, Sam Hazen asserts that recent hurricanes haven't altered their approach. He cites examples of hospitals like HCA Fawcett Hospital and a facility in Panama City, Florida, which have been repaired, strengthened, and are performing better post-hurricane.

The paragraph discusses the resilience and improved performance of a hospital system after being impacted by hurricanes, notably Hurricane Harvey and Hurricane Helene. The company sees significant opportunities in regions like Florida and the Gulf Coast of Texas despite the risks associated with natural disasters, emphasizing the importance of hardening facilities. It highlights their capability to recover and grow stronger after such events, using the example of how they responded to Hurricane Helene's unexpected impact on Augusta, Georgia, and Asheville, North Carolina. The company is confident in its diversified portfolio of communities for long-term growth. Following the discussion about hurricane recovery, the focus shifts to a question from Sarah James of Cantor Fitzgerald about the negative trend in outpatient surgeries, asking if the trend is expected to stabilize or improve, and inquiring about the company's business interruption insurance coverage.

In the paragraph, Sam Hazen discusses trends in outpatient surgery, noting that while overall surgical volume is down, revenue per surgical case has increased by 7% due primarily to decreases in Medicaid and uninsured patient cases. This has led to improved payer mix, higher acuity growth, and increased profitability for outpatient surgery services. There are ongoing efforts to expand and improve outpatient surgery facilities through new developments and acquisitions. Mike Marks mentions they have business interruption coverage in their property insurance but cannot provide estimates on potential claims or recoveries at this time. John Ransom, meanwhile, reflects on concerns from five years ago, such as value-based care, which are no longer prominent discussion topics.

In the paragraph, Sam Hazen explains that while commercial contracts with healthcare payers include provisions related to quality metrics like hospital-acquired infections and readmissions, these provisions have a minor impact on overall revenue. The company's primary focus is on improving patient care quality, which has seen improvement since 2019. This commitment to quality has helped HCA secure consistent contract renewals with payers. Recently, HCA has signed major contracts with Kaiser in Denver and Blue Cross of Tennessee in Chattanooga, expanding their participation in commercial contracts across the country and highlighting their strong access capabilities and comprehensive service offerings.

In the paragraph, John Ransom inquires about the data set used to define quality, and Sam Hazen responds that their organization has an extensive and evolving data set focusing on various health metrics such as complications, mortality, hospital-acquired infections, and specific service line metrics. Hazen mentions their integrated quality agenda and notes the potential for AI to further enhance efficiency and transparency in quality management. The discussion emphasizes the importance of quality in attracting physicians and patients. Following this, Lance Wilkes asks about improvements in wage and compensation expense ratios, wage inflation in nurse contracting, growth rates, and the impact of Medicaid redetermination on bad debt.

In the paragraph, Mike Marks discusses the stable wage rates observed across markets, ranging between 2.5% and 3.5%, and anticipates a stable operating environment with wage inflation for next year. He mentions that bad debt and uninsured costs are stable, with no significant changes expected. Craig Hettenbach from Morgan Stanley asks about the $600 million to $800 million savings from a resiliency program. Marks responds by highlighting the program's positive impact, particularly a 1.5% reduction in the length of stay, which has helped manage labor and capacity alongside volume growth.

In the paragraph, the speaker discusses their company's labor management and resiliency program, which has led to improved margins and is expected to fund future tech and innovation investments. The program aims to maintain good returns for stakeholders and support margins in the face of future challenges. Additionally, they highlight stable growth in professional fees and expect stability in the operating environment for the coming year. Specific details for 2025 are not yet available, but the current trajectory of their programs is positive.

In the paragraph, Sam Hazen from HCA discusses the company's integration of 5,500 physicians from Valesco and their progress on achieving financial goals. He outlines the strategic objectives of transforming Valesco into a key asset by improving clinical outcomes, enhancing efficiency in emergency room and case management, and leveraging the physician group to support technology and growth initiatives. Hazen emphasizes that the value creation from Valesco goes beyond its immediate financial performance.

The paragraph discusses strategies and considerations regarding serving Medicaid patients within a healthcare organization. Despite a reported 8.5% decline in Medicaid adjusted admissions for the quarter, this is seen as relatively smaller than the drop in total Medicaid members in the market. The organization is finding opportunities to enhance services for Medicaid beneficiaries, especially through outpatient developments in specific areas, facilitated by supplemental payment programs. These programs enable better reimbursement, which supports investments in services and capabilities for Medicaid patients. Around 17-18% of the organization’s adjusted admissions are Medicaid-related, and the recent declines are attributed more to Medicaid redetermination processes rather than changes in state funding. This suggests a continued commitment to serving Medicaid patients without significant strategic shifts.

The paragraph discusses the slowdown of a process due to the absence of a redetermination process next year. It mentions the ongoing evaluation of investment strategies to appropriately address community needs, with a specific focus on Medicaid. The operator turns the call over to Frank Morgan for closing remarks, who thanks the participants, offers further assistance if needed, and concludes the conference call.

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