The paragraph is a transcript from the HCA Healthcare Fourth Quarter 2024 Earnings Call. Janine, the conference operator, introduces the call, followed by Frank Morgan, the Vice President of Investor Relations, who welcomes participants and introduces the CEO, Sam Hazen, and CFO, Mike Marks. He mentions that the call may include forward-looking statements and refers to measures like adjusted EBITDA. The call is recorded, and a replay will be available. Sam Hazen states that the company ended the year with strong business fundamentals, stable operations, high demand for healthcare services, and favorable investment opportunities, setting a positive foundation for 2025.

The company successfully remediated facilities in North Carolina, Georgia, and Florida affected by recent hurricanes, and all, including Mission Hospital in Nashville, have resumed normal operations. As 2024 ends, the company has experienced significant growth and improved key performance indicators, enhancing shareholder value. The company's strategy of integrating local health networks with a national system has driven positive outcomes and financial results. With a strong cash flow and balance sheet, the company is positioned to invest in expanding and improving networks and workforce training. Despite the challenges, including the hurricanes' financial impact, diluted earnings per share increased by 5.4% in the fourth quarter compared to the previous year, aligning with prior estimates.

The paragraph discusses the company's revenue growth and operational performance. Revenue grew by approximately 6%, supported by strong demand, payer mix, and service categories. Inpatient admissions increased by 3%, emergency visits by 2.4%, and inpatient surgeries by 2.8%, although outpatient surgeries declined by 1.3%. Despite challenges like a hurricane impact costing approximately $200 million and a depressed respiratory season, the company maintained good top-line growth. Same-facility net revenue per equivalent admission rose by 2.9%, with managed care admissions jumping 9.2%. Operating costs were well-managed and aligned with expectations, and earnings guidance for 2025 remains consistent with previous outlooks. Mike Marks highlighted the team's excellence in handling challenges while achieving solid results.

In the reported quarter, the company experienced a 60 basis point decline in adjusted EBITDA margin due to the impact of hurricanes on their Largo Hospital in Tampa and the North Carolina division. Despite these challenges, adjusted EBITDA grew by 2.6% and diluted earnings per share increased by 5.4% over the previous year. For the full year 2024, the company achieved an 8.7% growth in pipeline, a 3.2% increase in revenue per equivalent admission, and a 4.5% rise in equivalent admissions, resulting in a 10 basis point improvement in adjusted EBITDA margin and a 15.5% increase in diluted earnings per share. Hurricanes negatively impacted the year by $250 million or $0.73 per diluted share, but this was offset by an approximately $400 million benefit from supplemental payment programs. Overall, the company is satisfied with its core operating performance, considering the adverse effects of hurricanes and additional financial factors.

The paragraph discusses the company's capital allocation strategy for long-term value creation. In the quarter, operating cash flow was $2.6 billion and $10.5 billion for the year, marking an 11% annual increase. Capital expenditures were $1.29 billion for the quarter and $4.9 billion for the year, with $1.7 billion spent on share repurchases for the quarter and $6 billion for the year. Dividends were $165 million for the quarter and $690 million for the year. The company remains at the lower end of its debt to adjusted EBITDA leverage guidance and is reducing its target leverage ratio. For 2025, the company anticipates revenues between $72.8 billion and $75.8 billion, net income between $5.85 billion and $6.29 billion, adjusted EBITDA between $14.3 billion and $15.1 billion, and diluted EPS between $24.05 and $25.85. Capital spending is projected to be $5 billion to $5.2 billion, with growth in equivalent admissions estimated at 3% to 4% and net revenue per equivalent admission at 2% to 3%.

The paragraph discusses the expected financial impact of the 2024 hurricanes on earnings guidance for 2025, including a projected increase in adjusted EBITDA from Largo's reopening and a decrease in North Carolina due to lingering effects of Hurricane Helene. The net effect is expected to be neutral. Medicaid supplemental payment programs could pose a financial challenge, with potential losses up to $250 million, factoring in one-time payments from 2024. Full-year margins are expected to remain consistent, and cash flow from operations is projected between $10.75 billion and $11.25 billion. The Board authorized a new $10 billion share repurchase program, with a significant portion likely completed in 2025, and increased the quarterly dividend from $0.66 to $0.72 per share. The paragraph ends with an invitation for questions in the Q&A session.

In the paragraph, Pito Chickering from Deutsche Bank asks about the Medicaid supplemental payments for 2024 and how they compare to previous estimates. Mike Marks responds by explaining that the net incremental benefit from supplemental payment programs for 2024 is approximately $400 million. He notes that the fourth quarter had the lowest benefit, while the second quarter had the highest at $125 million, due to one-time payments in a few states. For 2025, the net effect of these programs is expected to range from flat compared to 2024 to a $250 million decrease, factoring in variability and new programs, such as the new Tennessee program.

In the paragraph, Pito Chickering asks Mike Marks about the quarterly distribution of a $400 million financial benefit for the year 2024, noting the second-quarter peak at $125 million. Mike confirms that the second quarter will see the highest benefit, with the first and third quarters slightly higher than the fourth, which will be the lowest. A.J. Rice then inquires about progress in managed care and same-store admissions pricing for 2025 and beyond. Mike reports that the company has contracts in place for 80% of 2025, 60% of 2026, and 20% of 2027. Despite concerns about denial rates, Mike assures that the company has improved its processes and does not expect denials to significantly impact the year's financial performance.

The paragraph discusses the company's internal initiatives focused on improving case management and inpatient throughput, with specific emphasis on post-acute care placement and discharge processes, particularly for Medicare Advantage payers, as they move into 2025. Mike Marks highlights solid performance in length of stay management and forecasts continued success. Sam Hazen adds that the company is expanding its network with new facilities and acquisitions, leading to increased market share and opportunities. Additionally, there's mention of significant success with their emergency room operational improvement plan.

The paragraph outlines various initiatives and improvements being undertaken by a healthcare organization. It highlights successes in enhancing throughput and patient satisfaction, predicting increased emergency room bed supply through investments and an ER revitalization program. The organization also has an operating room optimization initiative aimed at improving efficiency and benefiting surgeons and patients. Additionally, the company's labor agenda has led to high employee engagement and reduced turnover, resulting in a more competent workforce. Long-term initiatives focus on leveraging technology, including AI, to enhance administrative, operational, and clinical aspects of the organization, positioning it for future success.

The speaker discusses the potential benefits of AI in healthcare for improving quality, efficiency, and management, and mentions significant capital investments between $5 billion and $5.2 billion to enhance business operations. They plan to use cash flow and balance sheets to add shareholder value, benefiting patients, employees, and shareholders. A question from Ben Hendrix inquires about commercial mix, enrollment impacts in Florida and Texas, and the status of enhanced subsidies with the new administration. Sam Hazen notes that exchange enrollments are growing to about 25 million, with a 12% to 15% increase over 2024, consistently rising across HCA states, which he views as beneficial for families by increasing access to care and improving outcomes.

The paragraph discusses the potential political opportunities for the Trump administration to maintain affordable healthcare coverage for families, leveraging the positive outcomes of existing exchanges. Although there is uncertainty about the future expiration of certain elements at the end of the next year, the article emphasizes that there is optimism due to growth and satisfaction within the enrollment process. The organization mentioned is keen on collaborating with the Trump administration and other groups to advocate for favorable healthcare outcomes. Despite it being too early to predict specific outcomes, they are actively involved in the advocacy process. The healthcare exchanges contribute to 7.5% of their admissions in 2024 and about 9% of their revenues. Additionally, the conversation shifts to the impact of the Medicare Two-Midnight Rule on inpatient admissions in 2024, a topic to which Mike Marks plans to respond.

The paragraph discusses the impact of the movement from observation to inpatient status under the Medicare Advantage Two-Midnight Rule on admission growth for 2024, which is estimated to contribute approximately 50 basis points. This impact has remained consistent over the four quarters and is not expected to change significantly in 2025. Medicare Advantage observation as a percentage of total admissions is 20% higher than traditional Medicare, but no major changes are expected. The focus is on collecting revenue and managing denial and appeal processes associated with Medicare Advantage. The paragraph also includes a question from Andrew Mok from Barclays regarding the performance of Mission Hospital and its impact on same-store volumes and recovery pacing in 2025, and Mike Marks responds by addressing overall volume growth, noting a 3% increase in same-facility admissions compared to the previous year, with a tougher comparison to the strong growth seen in the fourth quarter of 2023.

In the fourth quarter of 2024, the company experienced a decrease in respiratory-related admissions and emergency room visits compared to the same period in 2023, partly due to a less severe respiratory season and the impact of hurricanes, especially in October. These factors led to a drop in volume growth across facilities. The company anticipates this trend to continue into 2025, particularly affecting their North Carolina division, while expecting an increase in adjusted EBITDA from the reopening of Largo Hospital. The overall guidance assumes the gains at Largo will offset the losses in North Carolina, resulting in no net benefit from these changes in 2025.

The questioner in the paragraph asks about the ongoing impact of higher professional fees, specifically within the context of hospital-based physician groups and whether costs related to radiologists are part of the pressure. Mike Marks responds that professional fees make up 24% of other operating expenses and explains that efforts have been made to manage these costs throughout 2024. While the cost pressures are expected to moderate in 2025, they will still exceed normal inflationary trends. The emergency room and hospital medicine segments have seen more complete integration and management of these costs, especially due to HCA's acquisition of Valesco. However, radiology continues to experience cost pressure, which is expected to persist into 2025.

In the discussion, Joanna Gajuk asks about the impact of the California wildfires on their facilities. Sam Hazen responds, stating that their Southern California hospitals were not affected by the fires. Although one facility in Ventura County was on alert due to a nearby fire, mitigation tactics are in place, and the facility was not impacted. They remain vigilant and continue to advance their fire preparedness plans. Similarly, a facility in Riverside faced smoke issues due to nearby fires, but there was no direct impact. Overall, their facilities have been fortunate to avoid significant issues from the wildfires.

In the paragraph, Mike Marks discusses the recent approval and future implementation of a new Tennessee program, which covers a partial year from July to December 2024, with a full-year program starting in 2025, pending approval by the new administration. Regarding Q1 EBITDA, Marks advises following historical seasonal trends as the company does not provide quarter-by-quarter guidance. In response to a question from an analyst about site-neutral payments, Marks expresses opposition to implementations that would reduce Medicare hospital outpatient reimbursement and argues against equal payment rates for hospitals with comprehensive 24/7 services compared to other healthcare facilities.

The paragraph discusses the impact of potential Medicare site neutral policies on HCA's operations. It explains that while proposals relating to less complex procedures, such as hospital-based physician clinic visits, might not significantly impact HCA, cuts in reimbursement for certain outpatient surgical procedures could have a more noticeable effect. Despite this, HCA's CEO, Sam Hazen, states that they do not foresee these policies changing their strategy of expanding outpatient networks, which aims to provide convenient, efficient care and integrate facilities into the larger hospital-centric system. Additionally, there is a 5% to 6% growth in Ambulatory Surgery Center (ASC) revenues compared to the previous year.

In the paragraph, Scott Fidel inquires about the potential economic impacts of Trump's tariff proposals and recent executive orders concerning foreign workers and immigrants. Mike Marks responds by outlining that their organization, HealthTrust, has been preparing for tariff issues by implementing strategies such as fixed price contracting and supply chain diversification, especially away from China. They are closely monitoring new tariff announcements to understand which countries and items might be affected, and note that about 70% of their supplies for 2025 are under firm pricing contracts. Regarding labor, Marks mentions that they do not employ undocumented workers, so the impact would mainly be on labor supply and demand, though they have no special insights to share at this time.

The paragraph discusses projections and factors influencing volume growth for 2025, specifically related to hospital admissions. The company anticipates a 3% to 4% growth in equivalent admissions in 2025, down from a 5% growth observed up to September of the previous year. This decrease is attributed to several factors, including reduced volume growth from healthcare exchanges, which saw a 44-45% increase in 2024 but is expected to only grow by 13-15% in 2025. The impact from a lower enrollment in healthcare exchanges and the non-repetition of a Medicare Advantage Two-Midnight Rule benefit from 2024 are noted as key reasons for the slower growth projection. Additionally, external factors like a mild flu season and hurricanes affected volume in the fourth quarter, contributing to the adjusted expectations.

The paragraph discusses the company's growth strategies, highlighting a focus on organic growth through capital spending and expanding facilities, such as adding bed supply and outpatient facilities. The company has also engaged in smaller transactions to enhance its network, including acquiring outpatient businesses and rural and surgical facilities. Looking ahead to 2025, while no significant deals are immediate, a notable acquisition planned is a new hospital in Manchester, New Hampshire, expected to close in the first quarter, which will enhance their network in Southern New Hampshire.

The paragraph is part of a Q&A segment from an earnings call, where the discussion focuses on the company's investment strategy and recent surgical growth trends. The company is primarily investing in organic system development and is not expecting significant inorganic growth soon. Ryan Langston from TD Cowen asks about the strong growth in same-store inpatient surgical procedures and the decline in outpatient surgeries, particularly in Medicaid and uninsured categories. Sam Hazen responds that the inpatient growth is broad-based, with strong performance in neurosciences, orthopedics, general surgery, and vascular procedures. In contrast, outpatient surgical activity has decreased due to a 10% decline in Medicaid volumes, despite commercial and exchange volumes rising slightly. However, the company remains confident in the outpatient surgery segment due to favorable revenue and profitability growth derived from a better payer mix.

In the paragraph, Mike Marks addresses questions about the company's fourth-quarter performance, explaining key factors affecting results. He notes that the Medicaid supplemental benefit estimate for the year increased by $200 million, and the impact of hurricanes was within expected ranges. The fourth quarter saw the lowest portion of net supplemental payments for the year, and compared to a particularly strong fourth quarter in 2023, making growth comparisons challenging. Admission growth was at 3%, lower than the 5% seen earlier in 2024, partly due to a subdued respiratory season. Overall, despite challenges, the company was satisfied with its performance and believes it is well-positioned for future growth. Steve Baxter thanks Mike for the explanation.

In the specified paragraph, Mike Marks and Sam Hazen discuss their company's ambulatory surgery center (ASC) performance and future opportunities. Mike Marks notes that the company currently has 124 surgery centers, with a recent quarter's net revenue growth of 5% to 6%, despite a 1% decrease in case volumes. He emphasizes the importance of ASCs in their network development plans for 2025 and beyond. Sam Hazen adds that, on average, the company has about 14 outpatient facilities, including ASCs, clinics, and urgent care centers, per hospital, and mentions that some markets have fewer facilities due to various reasons.

The paragraph discusses the challenges and strategies related to building outpatient networks in markets with and without Certificate of Need (CON) regulations. In markets without restrictive CON, like in Georgia, Virginia, and North Carolina, they have more freedom to expand their outpatient services. The speaker mentions they have a consistent network with ambulatory surgery centers (ASCs) and additional GI centers that are not counted in their total. The main limitation they face is regulatory, which they must navigate through administrative processes. There's also a transition to a question about labor progress, specifically regarding hiring nurses and support staff, wage inflation, and the impact of supplemental programs on Medicaid margins. Mike Marks then addresses labor progress, noting a reduction in the use of premium or contract labor by 8% compared to the previous year.

The paragraph discusses the company's improved labor metrics, noting a reduction in contract labor to 4.5% of SWD due to successful retention and turnover strategies post-pandemic and robust workforce development plans, such as hiring Galen College nurses and collaborating with nursing schools. There's mention of stable wage inflation, which aligns with a steady operating environment expected into 2025. Despite Medicaid reimbursement challenges, which don't fully cover care costs, supplemental payment programs are deemed essential for the industry. The company's 2025 capital expenditure guidance is set at approximately $5.1 billion.

In the paragraph, Sam Hazen discusses the company's capital expenditure strategy, emphasizing that despite recent hurricane recovery efforts, the 50/50 allocation between maintenance and growth capital expenditure remains unchanged. The hurricane primarily caused community destruction without significant damage to the company's physical plants, allowing consistent capital spending focused on network development and enhancing clinical capabilities. The discussion concludes with Frank Morgan thanking participants and offering availability for further questions.

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