美國醫院公司 (HCA) 2009 Q3 法說會逐字稿

Please stand by.

Good day, everyone, and welcome to the HCA third quarter 2009 earnings release conference.

Today's program is being recorded.

At this time, for opening remarks and introductions, I'd like to turn things over to the Senior Vice President, Mr.

Vic Campbell.

Please go ahead, sir.

Good morning to everyone on today's call.

Also welcome to those of you who are listening to our webcast.

With me this morning, our CEO, Richard Bracken, Chief Financial Officer, Milton Johnson, our Senior VP of Finance, David Anderson, and our Investor Relations Officer Mark Kimbrough.

And as usual, we have many other senior officers of the Company here or on the phone to assist during the Q&A.

I want to remind you, today's call will contain some forward-looking statements, based on Management's current expectations.

Numerous risk, uncertainties, and other factors may cause actual results to differ materially from those expressed in any forward-looking statements.

Many of these factors are listed in our press release, and they are included in our SEC filings, which we encourage you to read.

Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict.

In light of the significant uncertainties inherent in our forward-looking statements, you should not place undue reliance on these statements.

Company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events.

This call is being recorded.

Replay will be available later today.

And with that I'm going to turn the call over to Richard Bracken.

Thanks, Vic.

Good morning.

We are pleased to announce our third quarter results.

Our internal review of our operating indicators reflects a very solid quarter for the Company.

Many of our key indicators continue to show favorable performance over prior periods.

And we were particularly pleased with the growth in our patient care volumes.

In short, for the quarter, these increased volumes, coupled with what we feel is a very effective cost structure, has led to improved earnings in margin performance.

As we have discussed before, we prepared for the worst in 2009.

And our strategy was to approach our operations in a very conservative and disciplined way, with a keen focus on expense control, and a moderated capital spend, while, at the same time, continuing support, key growth, and clinical initiatives.

This strategy continues to serve us well, and is the approach we will continue to follow in 2010.

Let me first recognize our Facility Management teams and all of our employees for really not only a strong third quarter, but really a strong three quarters in 2009.

In most cases, our local management teams have done a effective job balancing the growth efficiency in clinical aspects of their agendas.

Overall, our volume growth in the quarter was the best we have experienced in recent quarters and in recent years.

Same-facility inpatient admissions increased 2.7% over prior year, and same-facility equivalent admissions grew 4.8%.

And Milton will be providing more detail on these volumes [staff] in a minute.

But, I think it's safe to say the locations of our facilities, and our commitment to and focus on our growth and clinical strategies have positioned us well.

And the demand associated with the flu pandemic added some to our [AD] volumes.

This is how we size up the flu effect.

As we analyzed the data, we see very little impact of the flu on inpatient admissions.

However, the flu did affect our outpatient volumes.

We reported an 11.1% growth in our same-facility emergency room visits in the quarter.

And we estimate about a quarter of this was due to flu-related visits.

I think was is more significant and important to note is the fact that our ER visits, excluding the flu--let me repeat that, excluding the flu, have grown at more than 8% in each of the past two quarters.

We believe this growth reflects a number of strategies and operational efforts that we've been working on for some time.

I'd also like to call you attention to the fact that we continue to improve in our clinical quality outcomes.

At the end of the third quarter, almost 80%, 79% of HCA facility core measure sets are now at or above the 90th percentile.

And 92% of core measure sets are at or above the 75th percentile.

And once again, please note that there's some limitation with this detail.

Recall, we're really only able to compare our most recent quarter to that data which is publicly available, which is a trailing four quarters as of the fourth quarter of 2008.

We are pleased with this performance.

Continue to realize, and sustain a very strong performance in these important clinical indicators.

Along these lines, we believe the seasonal flu vaccine program is proving to be one of the best ways to maintain patient safety and a healthy workforce, because of the potential for escalated workloads in our facilities due to the novel H1N1 pandemic.

We sought to assure that all employees with direct patient contact received seasonal flu vaccinations.

We estimate there are approximately 120,000 HCA employees in this category, and as of last week, HCA has recorded that over 90% of these employees have received the seasonal flu vaccination.

We are very proud and we are really very thankful to our employees' commitment to patient safety and maintaining a healthy work environment.

And finally, and as all of you well know, the next two months in Washington, D.C.

will be consumed by healthcare reform discussions.

And let me just say that we, too, are watching with great interest, and are hopeful that some gains will be made in providing insurance coverage for the uninsured.

And with that, I will send the call over to Milton.

Thank you, Richard, and good morning to all.

Each of you should've received a copy of our earnings release issued this morning.

So, I'll just take a few minutes to provide some general observations and highlight some of the details of the quarter before we take a few questions.

The key drivers to the third quarter performance were improving volume trends and execution of our expense management plan.

We continue to experience solid growth in our emergency room visits, which contributed to our increase in admissions.

With respect to expense management, as I have stated in previous quarters, solid improvement productivity, reduced turnover rates, and a reduction in the use of contract labor in our supply chain initiatives, such as our pharmacy clinical intervention initiative, continued to yield good results.

Furthermore, our Hospital Management teams are effectively managing discretionary expenses.

Turning to some of the details, volume trends in the quarter were generally strong.

This is the eight consecutive quarter we've experienced same-facility equivalent admission growth over the prior year's quarter.

Same-facility admissions increased 2.7%, while same-facility equivalent admissions increased 4.7% over the last year's third quarter.

The last time we had same-facility admission growth higher than 2.7% was in the fourth quarter of 2002.

Although pulmonary admissions were up more than 11% during the quarter, based on an in-depth analysis of the coding, these pulmonary admissions were generally not a result of flu diagnosis.

Emergency room visits, a primary source for inpatient admissions, increased 11.1% on the same-facility basis during the third quarter.

As Richard mentioned in his comments, we believe this is largely the result of our strategies and operational improvements.

However, in September, we began seeing increasing number of patients presenting in the ER with flu symptoms, or being diagnosed as having flu, but not being subsequently admitted.

Emergency room visits grew 8.6% in July, 8.8% in August, and then 15.9% in September.

And I want to emphasize that we looked closely at the payer mix of this ER volume and found it to be similar to the usual ER payer mix.

Same-facility Medicare admissions and equivalent admissions increased 3.3% and 5.1% respectively, compared to last year's third quarter.

Our same-facility Medicare admissions include both traditional and managed Medicare.

Managed Medicare admissions on a same-facility basis increased 13.8%, and represented approximately 22.7% of our Medicare admissions.

In the third quarter, our same-facility Medicaid, traditional and managed, admissions grew 10.8%, compared to last year's third quarter.

Same-facility managed care admissions declined 2.2% in the third quarter, compared to the same period last year.

Managed care equivalent admissions declined only 0.2% compared to last year's third quarter.

This is the best quarterly year-over-year performance since we began tracking managed Medicare admissions separately from government managed care admissions in 2007.

Same-facility uninsured admissions increased 8.2% in the third quarter, compared to the third quarter of 2008.

Uninsured admissions represented 7% of our total admissions in the third quarter of this year, compared to 6.6% in the third quarter of last year.

Third quarter typically represents the highest percent of uninsured admits to total admits for the year.

The important thing to focus on is what is happening with our admissions, excluding the uninsured.

And the third quarter represents the highest year-over-year growth rate of any quarter in the last six years.

We experienced improving trends in surgical volume during the third quarter, with same-facility total surgeries increasing 1.2%, compared to last year's third quarter.

Same-facility inpatient surgeries increased 1.9% compared to last year's third quarter, while same-facility outpatient surgeries, both hospital-based and ASC cases increased 0.8% in the third quarter, compared to last year's third quarter.

Now, turning to revenues, our same-facility cash revenue per equivalent admission increased 2.5% in the third quarter of 2009 over the prior year's third quarter.

And as a reminder, cash revenue is net revenue less the provision put out for accounts.

Year-to-date, the same-facility cash revenue per equivalent admission increased 3.2% compared to 2008.

Same-facility Medicare, traditional and managed, revenue per equivalent admission increased 4.2%, compared to the third quarter of 2008.

Excluding UPL revenues, same-facility Medicaid, traditional and managed, revenue per equivalent admission declined 1.3% compared to the third quarter of last year.

Same-facility managed care revenue per equivalent admission increased 6.9% in the third quarter.

Adjusted EBITDA in the third quarter totaled 1.273 billion, compared to 1.053 billion in 2008, an increase of 20.9%.

Adjusted EBITDA margin of 16.9% expanded 190 basis points, as compared to last year's third quarter.

As a reminder, adjusted EBITDA is a non-GAAP measure, and is reconciled to net income attributable to HCA Inc.

in the Company's earnings release.

As to cost, same-facility cash operating expense per equivalent admission declined 0.3%, as compared to the third quarter of 2008.

Cash operating expenses is a non-GAAP measure, and is comprised of salaries, wages, supplies, and other operating expenses.

Salary and benefits were 40% of revenues for the third quarter, compared to 41.2% in last year's third quarter.

Productivity performance is measured by man hours per equivalent admission, improved by 4.1% on a same-facility basis, compared to last year.

And same-facility wage growth was 3.3%.

Supply costs declined 30 basis points to 16% of revenues in the third quarter, compared to 16.3% in last year's third quarter.

On the same-facility equivalent admission basis, supply expense increased 0.6% in the third quarter.

Other operating expenses as a percent of revenue declined to 15.7%, compared to 16.4% in last year's third quarter.

We saw slight declines in many expenses compared to last year, such as utilities, employee recruiting, travel, and repairs and maintenance.

Bad debts increased to 12.1% of revenues, compared to 11.7% in last year's third quarter.

Same-facility charity discounts increased by 86 million to 526 million in the third quarter of 2009.

Same-facility uninsured discounts increased by 272 million to 723 million in the third quarter of 2009, driven by higher ER volumes and increases to our uninsured discount policy.

Bad debts plus charity and uninsured discounts, as a percentage of revenues, plus charity and uninsured discounts was 24.9%, compared to 21.9% in last year's third quarter.

We currently have 94.9% of our total self-pay accounts reserved.

Upfront cash collections were approximately flat with the third quarter of last year at 71.4 million.

Net income, attributable to HCA Inc., totaled 196 million for the third quarter, compared to 86 million in the prior year's third quarter.

We had an impairment of assets of 3 million in this quarter, compared to a gain on sale of assets of 50 million, and an asset impairment charge of 44 million, in the third quarter of last year.

Company experienced strong cash flow from operations during the third quarter, totaling 1.041 billion, compared to 895 million last year, a growth of 16%.

Days in accounts receivable for the quarter were at 43 days, an improvement of two days from the second quarter of this year, and six days from the third quarter of 2008.

Capital expenditures totaled 296 million in the third quarter of this year compared to 398 million in last year's third quarter.

Now, let me turn the call over to David Anderson to discuss cash flow, debt repayment, and our credit statistics.

Thanks, Milton, and good morning to everyone.

Our cash balance at September 30th was $443 million.

That's basically flat with the cash balance at June 30th.

And the composition of the cash did not change materially.

Our long-term debt balance at September 30th was $25.9 billion.

This is a decrease of 631 million from June 30th, and a decrease of 1.75 billion from year-end '08.

Our leverage is measured by debt EBITDA per our financial statements was 4.83 at September 30th.

This is an improvement of 0.33 from 5.16 at June 30th, and an improvement of 1.07, or over a turn from 12/08.

Our debt decreased $631 million, while our last 12 months EBITDA increased $220 million to $5.36 billion.

Our liquidity position at September 30th, we had 2.86 billion available under our revolving credit facilities.

Our ABL revolved had $925 billion drawn, and $959 million available.

Our $2 billion cash flow revolver was undrawn with $1.9 billion available after letters of credit.

Looking at the cash flow statement, cash flow from operating activities was $2.3 billion for the first nine months of 2009, versus $1.4 billion in 2008, an increase of $900 million.

I think the composition of that is basically an improvement in operating activities of close to $800 million in EBITDA, plus six days improvement in collections of accounts receivable, which would account for roughly $400 million.

We also had $226 million of increased cash flow due to lower interest payments.

And the offset to pay net $353 million increase in tax payments, obviously, primarily related to income.

Cash flows used in investing activities was $807 million for the nine months, versus $972 million used in investing activities in 2008, and $165 million decreased use of cash.

This is primarily a reduction of approximately $200 million in capital expenditures.

Cash used in financing activities was $1.5 billion for the nine months, versus $392 in 2008, a $1.14 billion net increased use of cash.

We paid down $1.1 billion of the ABL and the cash flow revolver.

The remainder of our financing activities, we had three issues of new debt which was used to repay, primarily, on a pro rata basis, our bank facilities.

And all of that totaled just about $3 billion.

So, that's all I have, and I'll turn it back over to Vic.

David, thank you.

Kelly, if we can bring you back on and we'll solicit questions.

Are you with us, Kelly?

I am, thank you.

(Operator Instructions)

We'll go first to Rob Jacobi with Credit Suisse.

Thanks.

Good morning.

Good morning.

Just wanted to go back to the admissions of 2.7%.

Obviously a pretty strong showing there.

Just wanted to talk about that acceleration.

Maybe you could talk about whether you've seen any less competition from physician-owned facilities.

That might help explain some of the volume performance, or the competitive dynamics in your markets with some of the community-based smaller hospitals and potential share gains.

And then any geography sort of standing out, in terms of excessive growth or, on the flip side, anybody sort of lagging.

I think Richard, you want to lead on.

What I think might be a good thing to do is let the group President for each of the operating groups comment just quickly on what they're seeing in the markets, both from a competitive perspective, as well as their own performance.

So, why don't we kick it off, maybe Chuck or Sam?

Why don't we do Chuck?

Both Chuck and Sam are on the road, so they're not in this room.

So, Chuck, you want to take the lead here?

Runs the East.

Thanks, Vic.

Well, as Richard kicked off in the presentation, lot of the Eastern growth has been through the emergency department.

To give some color, ER visits for the group was up 15.3% quarter-over-quarter.

And our admissions to the ER were up 11.4%.

We saw growth across all divisions in the Eastern Group, led by the East Florida Division, which was up on admissions 6.9%.

But, all markets for us saw significant growth across the Group for the quarter.

In terms of comps to our competitors, I think the difference for us has been the ER growth.

We have not seen defocus yet from our competition as it relates to the ER strategies.

In terms of market share, the information is, particularly in Florida, more so in Georgia and South Carolina, is the varied delayed.

And as you'd known, the best information that we would be able to compare ourselves to is a year away.

So, but my general sense is that we are taking share joy in the markets they're operating in.

But, candidly, until we get the look at the (inaudible) data, we won't know for sure.

Thank you.

Sam Hazen runs the West.

You want to take it, Sam?

Yes.

Across the west, I think, broadly, here's how to characterize the Group, and then I'll give you some specifics across some of the major markets.

But, we did see increasing volumes across both our inpatient activities, as well as many of our outpatient activities.

And within that volume, I think what was most telling for us what the fact that we were seeing increased intensity.

And by that I'm talking about more surgical activity than we've seen in the past, more critical care activity in both our adult critical care units, as well as our neonatal and pediatric critical care units.

And so, those two factors assisted in our performance quite well.

Additionally, we had, as was indicated in proving payer mix, and I think, largely, we saw that across all of our major markets in the Western Group, with the exception of really two markets.

One is the valley of Texas, which is our McAllen and Brownsville market where we struggled a little bit because of some competitive factors.

And then, we were slightly down in Las Vegas and Oklahoma.

Las Vegas is more systemic at this particular point.

Oklahoma was just a particular episode, and so there's not any indications in Oklahoma City that would be of concern to us.

So, we did see pretty balanced performance across our major markets.

And I think it is important to understand that in '09, in western markets, in particular, we have seen less competitive activity than we've seen in the prior, probably, five to seven years.

And that's given us an opportunity to make some moves in the market, both strategically, and with certain capital initiatives that have allowed us, we believe, to gain some share.

On the physician competitor side, that had obviously slowed for two reasons.

I think one is the threat of the prohibition in the current healthcare reform package.

And then, secondly, the access to financing has dried up for a lot of these projects.

And we have seen a slowdown in those competitive threats.

Tax-exempt organizations that we compete against are generally slower in their capital allocations over the past 12 to 18 months than we've seen previously.

I don't anticipate that being there for any protracted period of time.

But, we are seeing a little bit of a slowdown in their deployment of capital, as well.

So, that's given us, again, an opportunity to see our strategies start to take hold and move some business within these markets.

Thank you very much.

Paul Rutledge is not available today, but Russ Harms, CFO of the Central, Russ is here with us.

Thanks, Vic.

The Central Group in the third quarter had flattish inpatient volumes.

But, like Sam alluded to a minute ago, we have seen a pickup in intensity in our inpatient volumes, and through the more surgical visits.

It's a mixed bag.

We had some markets, which is Kansas City and Southwest Virginia, that were up significantly with their inpatient volumes.

Others, such as Nashville and New Orleans, that were flattish, and then a couple, Richmond and Chattanooga, being down slightly.

Richmond because (inaudible) responding to recently, and then Chattanooga because of some minor payer issues that we're dealing with.

What's really impacted Central, most favorably, from a volume standpoint, in the third quarter, and actually on a year-to-date basis, but it seems to be even accelerating is that our outpatient volume growth has been huge this year, especially around diagnostics, to a lesser extent, outpatient surgeries, and then, more recently, our emergency room volumes.

We had been flat to slightly up on AD volumes the first couple quarters of the year, and that picked up significantly for Central in the third quarter, only a little bit of which was flu-related towards the end of the quarter.

So, we're feeling pretty good about our outpatient volumes and all the strategies that we've got around that.

But, that's making a difference.

And so, we're confident we're driving market share on the outpatient side.

In the inpatient side, like I said earlier, we've got some competitive issues, a couple payer issues that are probably keeping us flat on market share in several of our markets.

But, overall, from an adjusted basis, we're growing.

All right, Russ, thank you.

Milton, anything that you want to add to that?

Well, I just think in the Company, overall, one thing, too, I think is helping drive this volume, and Sam mentioned this briefly, but our capital coming online--I think I mentioned in earlier calls that this year we will have somewhere between $850 million to $900 million of new capital coming online.

And that's higher than we typically have.

We have a number of large projects that are completing this year, and we know that that's helping drive volume.

I know examples when, in Jacksonville market, where we added new beds, and those beds were full in the third quarter.

Southeast Florida, we've added capital, as well, and we know that those beds are full.

So, we've got good examples of where we have capitals coming online.

It's also helping drive our volume growth as, again, our volume's been improving sequentially.

The growth rate has been improving sequentially this year.

And I think that's a piece of it, as well.

All right, Rob, thanks for the question, and next question.

We'll go next to Henry Reukauf with Deutsche Bank.

Yes, guys, just two quick questions.

One is just when I look at your AR days, they actually look pretty good.

Is there a feeling that you're over-reserving?

And then, secondly, healthcare reform, you've mentioned that you think it's neutral to the hospital industry, generally.

Is that still your opinion, or recent events, has it changed that outlook at all?

Today's for Milton.

Well, certainly, we don't believe we're over-reserving.

We believe we're appropriately reserving.

We spend a lot of time each quarter with our hindsight analysis that we've been talking about now for many years, and we feel like we do that appropriately.

Our days in AR improvement, and probably on this call we don't have time to get into the details, but Beverly's team and our patient account service centers have been focused on a number of improvements in terms of segmentation and technology and other things, in working with our payers.

And as a result, we're seeing a drop in the days in AR.

And we know where the drop's coming from.

Again, it's the number of efforts causing it.

So, I don't think it's an accounting issue.

It is a performance improvement.

All right.

And Henry, just real quick, on reform, it's anybody's best guess, number one, as to what's going to pass, number two, how it's going to affect anyone.

Having said that, I read an article--Chip Kahn, who runs the Federation for us was quoted this morning in talking about this being a journey.

And I think that's a good point.

If a reform bill does pass, it's the start of a journey.

And there'll be many twists and turns in the process.

We have been, obviously, engaged, interested.

We think it's time for this country to have more comprehensive coverage.

We think the growing numbers of uninsured's a real problem.

But, we know there's lots of issues to get there.

Folks in Washington are obviously wrestling with those, and it's anyone's best guess as to whether or not something does or does not pass this year, or early next year.

But, it'd be very hard to sit here and predict, not even knowing if you're going to have a bill, what would be in the final bill.

Thanks so much.

Next question, Kelly?

We'll go next to Adam Feinstein with Barclays Capital.

Hey, good morning.

It's actually Brendan Strong dialing in on Adam's behalf today.

Maybe just two questions quickly here.

First, this is a real quick one just for Milt, talking about the CapEx coming online, is that going to just continue to ramp up?

Are there more projects coming online in the fourth quarter, so volumes will continue to ramp up here?

And then, just more broadly speaking, as you think about the leverage you guys have gotten on salaries and benefits, just curious if you think that can continue into 2010.

Thanks.

Spend a little bit on the capital spend question.

We think this year we're going to end the year at about 1.4 billion, 1.450 billion, in that range, and that's slightly off of where we were last year.

And we're thinking it's going to be about the same number next year.

The question about how much of the dollars are actually coming online, I mean, you got to look at this over the course of 12 months.

And I think the big projects that Milton articulated are coming online.

We'll get a little uptick in expenses, and spend in the fourth quarter, but not significantly.

As I said, we should come in about 1.4 billion, 1.450 billion at the end of the year.

Milt, do you want to address the salary and wage--?

--Sure--.

--One?

Well, the economy has helped us this year.

We're seeing reduced turnover.

I mean, obviously, we have a number of initiatives into our healthy work environment, initiatives and so forth.

We think we're also very effective with managing our costs.

But, the turnover being down, our wage strategies that we implemented this year are effective.

And you think about next year, (inaudible) a lower wage rate increase than historically in the industry that was have seen.

I think that'll continue.

And I think we can continue, hopefully, to benefit from the lower turnover, also, that we've been benefitting from this year into next year.

But, the wage issue and managing the labor cost is a day-to-day focus.

And it's really executed very, very well in each of our hospitals.

And it takes the focus of our local management teams, and our division and group operators to make that happen.

And I know that's a top priority for them as we go into 2010, as well.

I would just add that there is, in terms of productivity, and as I mentioned in my opening comments that we continue to fuel growth and clinical initiatives.

And there are portions of our business where we're going to be appropriately adding labor for long-term positioning.

One that comes to mind, one that we're working hard on is the development of our electronic health record, and the technical and clinical personnel that is necessary to make that a reality begins really coming online more earnestly next year.

So, there'll be some pressures that go against increasing productivity from the Company's perspective as a whole.

But, at the operating levels, where most of the labor is, the focus will be identical only this year.

Brendan, thank you.

Next question?

We'll hear next from Frank Morgan with RBC Capital Markets.

Good morning.

A quick question.

I was hoping you could comment about how managed care contracting is looking, what percentage of your book you've got locked in for next year.

And then, also, any updated comments about flu volume as we go--or volumes overall, as we go into the fourth quarter.

Thanks.

We are right at 78% complete for 2010, at an average of somewhere between 6% and 6.5% increase.

That increase does not include acuity.

All right, Bev, thank you.

Jon, do you want to talk briefly about the flu that Frank is (inaudible), going forward?

Thanks.

Well, as Richard said earlier, that there isn't a great deal of organic growth in the emergency department volumes.

But, unequivocally, and really on a market-by-market base, since there's an increase in flu volume, we see numbers of flu patients, particularly at the moment, in the west and Midwest.

But, this seems to be the peak of the novel H1N1 wave.

And every day this week, for example, we're seeing a new order of an additional 2,000 to 3,000 patients who are presenting with influenza-like symptoms.

And CDC and the President's Council and Advisors in Science and Technology really see this peak of H1N1 activity going through end of December, early January, according to the models that they have.

Of course, at the same time, we see, or would expect the seasonal flu beginning to increase this month through the winter and tapering in February.

We don't know what that's going to look like.

But, again, as Richard mentioned, our influenza vaccination program prepares us to make sure that the patients are safe, and our workers are healthy to take care of the flu patients and all their patients.

Right, good.

Thanks, Jon.

Thanks, Frank.

Yes.

Moving onto Michael Boam with BlueBay Asset Management.

Hi.

I have a few questions, if that's okay.

First of all, sort of adding onto that question, could you just break out the senior facilities balances at the end of the quarter, please?

Senior facility balances.

David, do you have them handy?

Revolver was zero, A, B, bond, ABL.

I think revolved is zero.

Yes.

The ABL (inaudible).

The term loan A is 1.908 billion.

Yes.

(inaudible) 515.

Sorry.

I didn't catch that.

The line's not very good.

The (inaudible) okay?

The Euro is 609.

Sorry, what was the B again?

The line went dead.

Again, 515 million.

Okay.

Is 609 million.

Yes.

10.957 billion.

Yes.

Clean debt, well, first-lien notes are 2.681 billion.

Other secured debt is 352.

Let's see.

And then second-lien cash pays are 4.5 billion.

Second-lien toggles are 1.578 billion.

And then--.

--That's fine.

That's fine--.

--Okay.

Obviously, I mean, you're having a phenomenal year.

Can we expect you to return to the bond market in the near future to refinance more of the secured debt?

I mean, you mentioned on the last call that you were reviewing all your options?

On a return, if you relate to the public market in the form of an IPO based on this year's performance wouldn't seem that difficult, at least.

I just wondered if you had any comments to make on those points at the moment.

This is Vic.

We don't comment going forward as it relates to the bond market or any type of financing.

So, we really don't have anything to add at this moment on that.

Next question.

That's it.

We'll go next to AJ Rice with [Solay] Securities.

Hello, everybody.

And I don't know whether Jack's on the phone, but I wanted to congratulate him on 12 great years as the Chairman of HCA.

And then, Richard, wish you the best as you take over in that roll in a month or two.

Anyway, I was going to ask about what's going on in the supply world?

Is there any particular initiatives that you call out there in terms of supply management?

And I know, over the last year or two, you've picked up a number of HPG members, new members.

How is that impacting results?

Have you realized the full benefit of that, and then, finally the aspect on it?

One of the things with healthcare reform is this vendor for medical device tax.

Is there any discussion about, when you're dealing with your vendors, trying to give them or yourself protection against that?

AJ, thank you.

I'll make sure to pass that onto Jack.

He is traveling, not here this morning, and appreciate your comments there.

I know Milt and probably Bev want to deal with the supply side of it.

I think on the health reform piece, I know you're referencing the piece that's in the House.

Again, lots of moving parts on this, and so I think it's too early to say.

We're not really having any conversations with anyone at this point, until we see the outcome of a final bill.

Okay.

Or Bev.

Well, let me just mention, (inaudible) Bev to, I think, it was some of the initiatives we have.

But, if you look at our supply costs, and I'll just give you year-to-date here.

Medical devices per adjusted admission up 2.2%, our pharmacy cost per AA is actually down year-to-date almost 1%, and our commodities up 1.3% and blood up 2.8%.

So, across the board--and how we track these in the broad categories, we're seeing very good, very solid performance.

And we have initiatives targeted in each of these areas.

And Beverly, maybe you want to just take a couple of those as an example.

Sure.

First, the Consorta merger that we did about two years ago, most of that has come through in our numbers.

We are seeing a little bit of a decrease in our supply expense because of that.

On the pharmacy side, over the last two years, and continuing into next year, we've been focused on central order entry for the entry of the drug.

Therefore, allowing our pharmacists at the facilities to focus on formulary standardization and clinical interventions.

And that program is reaping benefits for those hospitals that have been in the program, and for those coming online.

And so, we expect that to be ongoing for a little bit longer.

On the cardiovascular and spine side, many of our divisions have been focused on reducing the number of vendors that our hospitals are purchasing from, and that is driving deficit at the division market level.

So, between what HPG's doing and what our divisions are doing with their supply chain teams, we're seeing good benefits.

All right.

Bev, thanks.

Thanks, AJ.

Mm-hmm.

Moving onto Darren Lehrich with Deutsche Bank.

Thanks.

Good morning, everyone.

You mentioned in the group comments about increased intensity in at least the West and Central is what I heard.

But, I just wanted to come back to what we're seeing in length of stay, which has been coming down for you, and really for some of the other peer group this year.

What do you think is driving that?

And can you just pinpoint anything in terms of process that you're doing differently to drive length of stay?

And then while I'm thinking about length of stay from an economic standpoint, can you just talk about the managed care book of business that you have, how it breaks out in terms of per diem price versus case rate so we can just put this into some context on a margin perspective?

So, on length of stay, I think Milt wants to comment.

And then we may get Chuck Hall who's seen some significant changes down in the south talk next (inaudible) on the managed care book.

Sure.

And Darren, your point's a good one.

Our trends have been, this year, to see our case mix index going up, and length of stay going down.

We have a number of focused initiatives on length of stay.

Case management, that we're rolling out across our facilities certainly, I think, helping us achieve a reduced length of stay.

But, I'm going to ask Jon Perlin, also, to comment, because there's several things on the clinical side that also, I think, is improving our length of stay statistics.

Well, thanks, Milton.

That's absolutely right.

The case management program is very effective in terms of making sure that all the right things happen at the right time.

It's a great marrying of the highest quality with the best efficiency in patient service delivery.

Ability to deploy standardized, evidence-based, order [excess], really make sure that those things happen in a timely basis, and increasingly with use of electronic health record technologies, that's very helpful, as well.

I note that the depth of these sorts of efforts seem to be recognized by American Heart Association's Get with the Guidelines initiative.

(inaudible) the most recognized organization for using these protocols to assure best care and delivery in the timeliest fashion.

Good.

Chuck Hall, anything you want to address from Florida?

Well, Vic, I'm going to hand it off to Mike.

Mike's headed up for us our case management issue this past year, which has reaped very positive results.

So, Mike should comment briefly.

Well--.

--It's Mike--.

--Overall, the Eastern Group for the--.

--Mike Marks is CFO of our Eastern Group--.

--Thanks, Vic.

Overall, the Eastern Group had a 3.6% improvement in length of stay for third quarter 2009, versus the same period in the prior year.

Really two specific activities helping on that, one is care coordination is an action plan that we brought out through our case management staffs, really focused in on specific clinical areas, like congestive heart failure and COPD and sepsis, and we believe that that program has yielded great results in focusing in on specific conditions that historically have had high lengths of stay.

The other area that's produced a nice benefit for us this year in length of stay is the implementation of several hospitalist programs at facilities across the Eastern Group.

Those two combined, with the activities that Dr.

Perlin mentioned, have really produced a good length of stay improvement for us in third quarter.

All right, Beverly.

On managed care, I'll start with the East and move towards the West.

For the Eastern Group, most of our managed care agreements are on case rates versus per diem.

When you move to the Central, we've probably got about 50-50, leaning more towards case rates as we go forward.

And then, in the West, we have more per diem contracts.

And obviously that's where a larger percentage of our managed care contracts are.

We're about 65% per diem, 35% case rates.

All right.

That's great.

Thanks.

Thank you.

We'll go next to [Kent Oliver] with Avondale Partners.

Hi, thanks.

Question relates to your thinking regarding acquisitions.

The environment is changed in the last six to nine months, where there are more of your non-profit competitors running into financial problems.

Are you interested in the small, or smaller, for you, acquisitions that would be in markets where you already have a presence, or even a little bit outside your current locations?

Richard, do you want that one?

Yes.

Well, I think your observation is correct.

There is an increasing amount of activity that we're seeing.

Some of the activity that we are seeing are in areas that we have no interest in pursuing.

Markets where we're not traditionally focused and really don't see that as a primary target.

We do, however, remain interested in properties that might become available that are consistent with our network strategy.

And we've shared this strategy with you.

Over the years, we believe that our system works best when we have a concentrated group of assets, inpatient, outpatient physicians in any given market.

And if there are acquisitions that can be additive to those market strategies, we're very interested, so de novos, not as much, if they're in our current footprint, very interested in taking a look at it.

In between, it depends on how big the acquisition could be, how big of a position we might get in any given market, like a Kansas City, where we're able to go in and have a relatively large position, we might be interested.

But, we remain, and will remain, a very disciplined buyer.

And we really want it to be additive to our existing networks where possible.

All right, Milt, you wanted to add one thing?

Well, just also, on the bricks-and-mortar aspect of opportunities, but I think we may see opportunities as well in the physician side, where opportunities to continue to expand our physician engagement with some possible acquisition opportunities there.

As you think about the economy and what's happening with possible healthcare reform, you may see some uptick in that, as well.

All right.

Yes.

Since we've probably got time for one more question.

That will come from Duncan Brown with Wells Fargo Securities.

Hey, good morning.

I was wondering if you could talk about what amount of the increase in year-over-year bad debt was attributable to growth and co-pays and deductibles.

I think you said Q2 '09 was a 70 million increase, which is a relatively big jump.

Any color there would be useful.

All right, Milton, you want to take that last one?

Sure.

Co-pay deductibles, bad debt, third quarter this year over last year, I'd say somewhere around $25 million to $30 million of our increase in bad debt was attributable to the increase bad debt of co-paying deductibles.

All right.

I want to thank everybody for dialing in this morning.

Mark will be around all day, and I'm reachable, as well.

So, thank you, and look forward to catching up later.

That will conclude today's conference.

We thank you all for your participation.

Have a great day.