美國醫院公司 (HCA) 2013 Q3 法說會逐字稿

Welcome to the HCA Third Quarter 2013 Earnings Release Conference Call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Mr. Vic Campbell.

Please go ahead, sir.

All right.

Janine, thank you very much.

Good morning, everyone.

Mark Kimbrough, our Chief Investor Relations Officer, and I would like to welcome all of you on today's call, including those of you who are listening to our webcast.

With me this morning as usual, our Chairman and CEO, Richard Bracken, our President and CFO, Milton Johnson, and Sam Hazen, President of Operations.

And then we have several other members of our management team here today to assist in the Q&A, should we need them.

Before I turn the call over to Richard, let me remind everyone that should today's call contain any forward-looking statements, they're based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Many of these factors are listed in today's press release and in our various SEC filings.

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 any forward-looking statements, you should not place undue reliance on these statements.

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

And as you heard, this morning's call is being recorded, replay will be available later today.

With that, Richard Bracken.

All right.

Thank you, Vic.

Good morning, and thank you to everyone for joining our call today.

Earlier this morning, the Company reported its third quarter 2013 earnings results, which were consistent with the release we provided on October 17.

Before our team provides additional details and analysis of the quarter, I'd like to start with a few general observations.

We were pleased with the results of the third quarter.

Patient volumes for the third quarter, as expressed in same-facility admissions, increased 0.7%, while same-facility adjusted admissions increased to 1.1%.

This volume growth was generally consistent with the trends we have experienced during the first six months of the year.

Similar to the second quarter, in addition to volume growth, we were able to achieve favorable earnings performance through an improved service mix and continued efficiencies in our expense structure.

Revenues increased 4.9%, and adjusted EBITDA increased 4.6%, to $1.603 billion, compared to the same period of the prior year.

EBITDA operating margin for the quarter was 19%.

Importantly, we believe that our growth strategies continue to position the Company well.

The underlying size and strength of our markets, our asset configurations, the expansion of service capacity and access points, a focus on quality care, and patient service, all supported by an appropriately sized capital spending plan, have helped us achieve these favorable results.

Two important components of our growth agenda are to ensure patients have easy and convenient access to our networks and to ensure that we have sufficient capacity to take care of patients in both an efficient and a safe environment.

In part to accomplish this, we have increased capital spending, and selectively acquired certain facilities, both hospitals and outpatient centers.

Capital spending in 2012 and 2013 combined will approximate $3.8 billion with the majority of these expenditures going to improve access and increased capacity.

HCA has added over these past two years approximately 900 new inpatient beds, which includes two new hospitals.

We have added over 200 new emergency room beds, both in our existing hospitals and in new sites off our main hospital campuses.

We've added to our networks with strategic acquisitions.

Again over the same period of time, two hospitals, ten ambulatory surgical centers and 17 urgent care centers have been acquired to expand our networks.

We believe our strategies will continue to position us well to accommodate market demand.

Last week, we announced that the Company completed a $500 million share repurchase from our equity sponsors in conjunction with their secondary offering of 30 million shares.

Our repurchase represents approximately 10.6 million shares and was funded through capacity under our revolving credit facilities.

We expect this repurchase to be accretive to earnings.

Also last week, the Joint Commission released their list of top performing organizations.

And I'd like to recognize those HCA hospitals that were recognized based on core measure performance data for 2012.

HCA had 110, or 80%, of its licensed hospitals in the United States among those included as top performers on key quality measures.

We believe this to be continuing confirmation of our operating team's dedication to clinical excellence.

And finally, regarding the ACA, we know you have a lot of questions about our contracting results and ACA enrollment outreach, and Milton will comment on these important issues in just a moment.

But from a broader view, we, like most Americans, have been closely watching the rollout.

The much-publicized issues with the federal website have not deterred our internal positioning.

Fundamentally, we believe the most successful and sustainable strategies to participate efficiently over the long run in the ACA will be those that emphasize comprehensive patient access points, state-of-the-art and well-capitalized facilities and clinical technologies, a proven and transparent track record of providing high-quality care and service, and the ability to leverage the cost structure to provide better value for the consumer.

These, of course, are the strategies that we've been working on for years.

We feel confident that whatever turns might come regarding the ACA, we are well positioned to participate and provide quality health care services.

And with that, I'll ask Milton to take the call.

Thank you, Richard, and good morning to all.

First, let me introduce you to Bill Rutherford, our recently announced, newly appointed Chief Financial Officer effective January 1, 2014.

Bill is here today and available to participate in the Q&A.

I trust most of you had a chance to review our third quarter earnings release issued this morning, which was in line with our preview of the quarter.

Sam and I will provide some additional information regarding our third quarter results, and then we will take your questions.

We were very pleased with our third quarter performance, which was the result of solid top-line revenue growth and excellent expense management by our operating management teams.

Revenues in the third quarter increased to $8.456 billion, up 4.9% compared to the prior year's third quarter, driven by both volume increases and revenue per unit growth.

Adjusted EBITDA totaled $1.603 billion, compared to $1.533 billion in the third quarter of 2012.

Third quarter adjusted EBITDA margin was 19%, consistent with the prior year's third quarter.

However, adjusting for the reduction in our EHR incentive income, adjusted EBITDA margin would have exceeded the prior year's third quarter by 70 basis points.

Net income attributable to HCA Holdings, Inc.

totaled $365 million, or $0.79 per diluted share, compared to $360 million, or $0.78 per diluted share, in the third quarter of 2012.

Overall, third quarter volume trends were generally consistent with our first two quarters of 2013 with same-facility admissions increasing 0.7% and same-facility equivalent admissions increasing 1.1% as compared to last year's third quarter.

Our same-facility medical admissions increased 0.1%, while same-facility surgical admissions increased 1.8% compared to the prior year.

During the third quarter, same-facility Medicare admissions and equivalent admissions increased 0.4% and 1.4%, respectively.

Same-facility Medicare admissions include both traditional and managed Medicare.

Managed Medicare admissions increased 9.6% on a same-facility basis, and now represents 29.7% of our total Medicare admissions.

Same-facility Medicaid admissions declined 0.3% in the quarter compared to the prior year, while same-facility Medicaid equivalent admissions increased 0.8% compared to the prior year's third quarter.

In the third quarter, same-facility managed care and other admissions declined 1.1%, while same-facility managed care and others equivalent admissions declined 1.5% compared to the prior year.

In the third quarter, uninsured admissions increased 10.1% on a same-facility basis compared to the prior year.

Same-facility uninsured admissions represent 8.8% of total admissions in the quarter, compared to 8% in last year's third quarter.

Fairly consistent with the second quarter results, same-facility emergency room visits increased 0.9% in the quarter.

Same-facility surgeries increased 1.3% in the quarter, reflecting an increase of 2.9% in our same-facility inpatient surgeries, while our same-facility outpatient surgeries increased 0.4% compared to the prior year.

We were very pleased with our inpatient surgical growth rate of 2.9%.

It is the highest growth rate for same-facility inpatient surgical growth since the third quarter of 2002.

During the third quarter, revenue per equivalent admission increased 3.4% on a same-facility basis.

This is primarily due to a 2% increase in our same-facility case mix, which is the measure of inpatient acuity.

Same-facility Medicare revenue per equivalent admission declined 2.5% in the quarter, while Medicare case mix index increased 1.2% and helped to mitigate some of the impact of the sequester.

Same-facility Medicaid revenue per equivalent admission, excluding the Medicaid waiver programs, increased 1.4%, and same-facility Medicaid case mix increased 3.5% over the prior year.

Same-facility managed care and other revenue per equivalent admission reflected solid growth at 6.4% over the prior year period.

Managed care and other case mix increased 3.4% over last year.

Same-facility charity care and uninsured discounts increased $252 million in the third quarter, compared to the prior year.

And during the third quarter, same-facility charity care discounts totaled $876 million, an increase of $68 million from the prior-year period, while same-facility uninsured discounts totaled $2.084 billion, an increase of $184 million from the prior period.

Now moving to expenses.

Our expense management trends remains favorable and consistent with the second quarter of this year.

Same-facility operating expense per equivalent admission increased 1.9% compared to the prior year.

Salaries per equivalent admission increased 1.3% on a same-facility basis.

Same-facility productivity performance, as measured by man hours per equivalent admission, declined 0.3% over the prior year period.

And same-facility wage rate growth was 2% in the third quarter.

Personnel costs associated with physician employment increased by $7 million, or 2.5% from the previous year's third quarter.

Noncash share-based compensation expense associated with the Company's management equity plan increased $14 million in the quarter, compared to last year's third quarter.

Same-facility supply expense per equivalent admission increased 4.6% from the prior year period, primarily reflecting the reclassification of non-equity-member administrative fees from a reduction of supply expense to revenues.

The amount reclassified was approximately $40 million and contributed 300 basis points to the growth of supply expense per equivalent admission in the third quarter.

And the reclassification had no impact on adjusted EBITDA for the quarter, and we will anniversary this change in the fourth quarter of this year.

Same-facility other operating expense per equivalent admission increased 1% from the prior year period.

We recognized $75 million in electronic health record incentive income in the third quarter, compared to $131 million in last year's third quarter.

This is consistent with our expectations.

The Company also incurred approximately $26 million and $24 million in EHR-related expense in the third quarters of 2013 and 2012, respectively.

Cash flows from operating activities totaled $900 million in the quarter, compared to $655 million last year.

The $245 million increase was primarily due to favorable changes in working capital of $136 million, and $51 million in lower income taxes.

During the quarter, capital expenditures, excluding acquisitions, totaled $451 million.

Year-to-date capital expenditures, excluding acquisitions, totaled $1.347 billion.

And we invested $440 million in various acquisitions during the quarter.

At September 30, 2013, the Company's debt-to-adjusted EBITDA ratio was 4.39 times compared to 4.41 times at June 30, 2013.

At the end of the quarter, we had $2.334 billion of borrowing capacity under our senior secured credit facilities.

Before turning the call over to Sam, let me give you a brief update on exchange contracting for the Affordable Care Act.

Approximately 152 of our 156 U.S. hospitals, or 97% of our US hospitals, have an exchange contract with access to a bronze plan.

Of the approximately 152 hospitals that have access to a bronze plan, approximately 93 hospitals are in the lowest or second-lowest bronze plan.

Approximately 77 of our 156 US hospitals have access to the lowest or second-lowest silver plans.

It is our belief that network participation will evolve over time as we and others adjust to various market dynamics.

But now let me turn the call over to Sam.

Good morning.

I'll begin my comments this morning with more detail on the Company's volume trends for the quarter.

Six out of 14 domestic divisions had growth in year-over-year same-facility inpatient admissions.

The following divisions had strong growth in the quarter -- East Florida, which includes Miami and surrounding markets, Far West, which includes California and Las Vegas, and TriStar, which includes Nashville.

Ten out of 14 domestic divisions had growth in same-facility adjusted admissions.

Our London division had growth in both same-facility inpatient admissions and adjusted admissions.

Overall, the growth inside our portfolio with domestic hospitals was comparable to the past two quarters.

54% of our domestic hospitals had growth in inpatient admissions, and 55% had growth in adjusted admissions.

Emergency room volumes were not as strong in the quarter as compared to recent years.

Although eight out of 14 domestic divisions had growth in same-facility emergency room visits, we had inconsistent patterns across the Company with stronger growth in Florida, California, and Nevada, and softness in Texas, Utah, and Virginia.

We have seen a general weakness in the lower-acuity emergency room business.

And there has been some increased competition in a number of markets.

We feel these two factors are part of the reason for the slower growth rates.

The Company continues to invest significantly in its service lines to increase access and capacity, to improve operational efficiency, and to enhance quality and service.

Total surgeries for the Company on a same-facility basis were up 1.3% in the quarter, with inpatient surgery volumes up 2.9%, hospital-based outpatient surgeries up 1.1%, and our ambulatory surgery division down 0.5%.

As you heard, this was a very strong quarter for surgical volumes.

We believe that our efforts inside our surgical departments to improve our operations, clinical outcomes, and surgeon satisfaction contributed to this growth in surgery volumes.

Inside our ambulatory surgery division, overall cases, which include certain endoscopic and pain management procedures that are not counted in our surgery volumes, grew by 4.4% as a result of some recent acquisition and new facility development.

As indicated, acuity this past quarter was up.

This increase was primarily driven by the strong inpatient surgical volumes.

Same-facility surgical admissions accounted for 29% of total admissions, an increase of 40 basis points as compared to prior year.

This is the first quarter in many quarters where growth in surgical admissions outpaced growth in medical admissions.

Additionally, within the overall surgical business, we had strong growth in higher-acuity areas such as orthopedics, neurosurgery, and cardiovascular surgery.

Same-facility behavioral service admissions were up 3.4%, and acute rehabilitation admissions were up 8.5% in the quarter.

These metrics are generally consistent with the first half of the year.

And finally, same-facility deliveries were up 0.4%, which is similar to the first half of the year.

Neonatal intensive care admissions were essentially flat for the quarter.

However, overall neonatal patient days were down because of a drop in Medicaid patient days.

Commercial patient days in our neonatal intensive care units increased slightly.

Now let me transition to some market share highlights for the 12 months ended March 2013.

Once again, this is the most current data available for the Company and it represents almost 90% of the Company's markets.

The Company's inpatient market share during this period increased 54 basis points to 23.7%.

Overall, inpatient demand in our markets during this period was essentially flat.

This is a slight weakening from prior periods and reflects a weak first quarter in 2013.

Inpatient demand across HCA markets in the first quarter declined by close to 0.9%.

Again, we believe the calendar issues we discussed on our first quarter call explain the significant portion of this decline.

Sequentially, market share increased in the first quarter of 2013 as compared to the fourth quarter.

This is the seventh consecutive quarter the Company has gained market share.

We gained market share in 15 out of 17 service lines, which is a slight improvement as compared to our last report.

HCA had market share gains in 28 out of 37 markets, with growth in eight out of our top ten earnings markets.

Market share in both the commercial and in-migration segments of our business grew, reflecting continued success with our outreach efforts in these two distinct markets.

Across all of these metrics, the Company's market share trends are generally consistent with past reports.

This performance reflects solid execution of our growth agenda, which continues to evolve and continues to be resourced appropriately.

And finally, I would like to comment briefly on three exciting initiatives inside of HCA.

The first one is the recent development of our clinical data warehouse.

For many years, we have had access to clinical outcomes measures within our information systems, but we have not had good visibility into the information or transactions, if you will, that generated these outcomes.

Now with our clinical data warehouse, we will be able to use this information in innovative ways to improve our quality outcomes, to eliminate inefficiencies in the process of delivering patient care, and to find new ways to drive growth.

The second initiative is the rollout of our oneHR plan.

Similar to other HCA shared services initiatives, this plan is designed to consolidate certain human resource functions that currently reside in our hospitals.

By consolidating these functions into specialized centers, we should gain some cost synergies.

But more importantly, we expect to improve our performance in recruitment, compensation management, and education.

These areas are critical to ensuring we have a competent workforce that can deliver patient care in an efficient and effective manner.

And finally, we are reorganizing our corporate performance improvement department by distributing these resources to our operating divisions.

We believe this new structure, which combines corporate and field resources, will have many benefits.

It will allow us to sustain our process improvement efforts more consistently, it will allow us to deploy best practices faster across the Company, and it will increase our capacity for implementing company initiatives, such as our Clinical Excellence program, ER wait time reduction program, surgery waiting turnover, and others.

All of these initiatives leverage the unique scale of HCA, and we expect them to improve our services and improve our overall efficiency, which, in turn, should enhance our overall competitive positioning in our markets.

With that, I'll turn the call back to Vic.

All right.

Sam, thank you very much.

Janine, if you'd like to come on and take a queue for calls?

(Operator Instructions).

We'll take our first question from Sheryl Skolnick with CRT Capital Group.

Good morning, gentlemen, excellent job in stark contrast, as I said before, and I note, to some of the other reports.

I'm wondering if you can walk us through your thought process, which is getting to the heart of some of the criticisms of HCA, the thought process behind your exchange contracting.

I know you mentioned that you expect it to be a process to go on over time.

But I think there's some confusion as to how you see your positioning vis-a-vis others and why perhaps HCA's unique market positioning and scale and scope might play a role in those decisions.

All right, Cheryl.

Thank you.

Milton, Richard?

Who wants to lead off of it?

Yes.

Let me lead off, and maybe others may want to add some thoughts.

I think we've been very consistent describing all year our approach to exchange contracting.

We have, in my view, taken a very consistent, disciplined approach, one where we have looked at the market dynamics, the particular sort of market makeup with the size of employers, the competition in the market and a structural exchange contracting accordingly to how we think the paper uninsured may react in certain markets.

Of course, currently with all the uncertainty around the exchanges early on, adds some additional confusion to it.

But hopefully over time that, of course, will get worked out.

But as I said, the result of our work has been that we have access to bronze plans in most of our hospitals, 97%.

Almost 100 of our hospitals in the lowest or second-lowest bronze plan, so we feel good about that.

We do think that in certain markets over time, where we may not be in the lowest-priced offering in a particular market, it'd be interesting to see how that evolves.

In many of these markets, we have a large footprint.

We have significant capacity with our emergency rooms.

And it will be interesting to see how that plays out over time with respect to certain out-of-network activity in certain markets.

So we feel good about where we are with our contracting strategy.

I think it reflects the approach that we've been describing from the beginning that it would be disciplined.

And again, we like where we are.

But as I said in my comments, also believe that over the coming years, it will evolve, that network participations will change.

We will probably make changes.

And I'm sure the competitors will make changes.

So this is not going to be a static situation in my view.

And I think as it evolves, we'll be well positioned to compete for all the reasons that Richard described in his comments about our positioning with our core operational strategies.

Cheryl, thank you.

Thank you.

Thank you, and we'll take our next question from Frank Morgan with RBC Capital Markets.

Good morning.

I was curious if you could comment about the DOJ's ruling to HHS about purchasing premiums.

I know that CMS just came out with a frequently asked question discouraging this.

But any thoughts about that particular initiative and any other of the outreach initiatives associated with the Affordable Care Act?

Richard?

Let me just comment.

Obviously, there are a number of outreach efforts that are out there that have been discussed.

And really similar to some of the comments that Milton was making, we're evaluating and looking at them all to determine our course of actions.

We believe that over time, best practices will surface.

At this point, we have made no decisions to follow any particular course.

You know that we were clear last time on our call about the kind of things we're doing in our hospitals in terms of our counselors, and we've provided some dollars to not-for-profit organizations.

But really that's a pretty modest effort compared to what you read about.

I think our course is going to be one of being careful, seeing what best practices are, what is clearly in the zone of compliance and charting our course appropriately.

So I think that evolves over time this time just like our contracting strategies.

Thanks, Frank.

Thank you, and we'll take our next question from Darren Lehrich with Deutsche Bank.

Thanks.

Good morning.

My question is on Parallon.

You guys have made a number of acquisitions this year.

I guess, it would be curious just to get an update on what capabilities you think you've acquired and how you're approaching the market with your suite of services there.

And maybe just some numbers at this point on what the revenue run rate looks like.

Thank you.

All right.

Darren, thank you.

Milton, you want to take that one as well?

Sure.

A couple of transactions this year, Martin Fletcher, a locum tenens organization.

A larger transaction was The Outsource Group.

We closed that July 1. So we've got one quarter under our belt with that transaction.

Again, The Outsource Group is an organization that's based in St.

Louis, about 4,000 employees.

They provide revenue cycle management, extended business office outsourcing, Medicaid eligibility, which will be a new capability that we will have now in Parallon.

Various other things, like on-site financial counseling and early-out, self-pay collections, primary and secondary bad debt collections and the like.

So it complements Parallon's core operations very well and brings a couple of new capabilities to us as well.

Roughly, The Outsource Group should be probably around $125 million of revenue on an annual basis to size it for you.

And we would expect margins in that business to ultimately be somewhere in the kind of the high-teens to possibly 20% range to size how we're thinking about that opportunity.

Overall, Parallon, things are going well.

Our operations with respect to our revenue cycle continues to go well.

We are on track with our LifePoint implementation.

I think they referenced that in their call.

We have -- at their request, we've worked together with LifePoint to accelerate the implementation.

It should be complete by the middle of next year with all of their hospitals.

I think we'll have roughly about 35 hospitals implemented on a consolidated revenue cycle by the end of this year.

So that's going well.

Our CHP, Catholic Healthcare Partners transaction, we're starting up with them, early developments are going well.

We will build a new center for them in Cincinnati.

And so we are currently working through that process to get that site determined and up and running and start the migration.

We have moved their revenue cycle employees over to Parallon.

So that has occurred.

So things are going on track.

HealthTrust continues to do well.

We're seeing solid growth in earnings from HealthTrust this year, year-to-date about 11%, roughly 10% to 11% in HealthTrust, so again going well.

So overall, Parallon is performing well.

I continue to think that over the coming years, we'll have many opportunities to grow through Parallon.

Thank you, Darren.

Thank you.

And we'll take our next question from Kevin Fischbeck with Bank of America Merrill Lynch.

Great.

You guys did a great job controlling costs so far this year.

But when we think about 2014, obviously there's going be a revenue opportunity from covering uninsured.

I just am wondering whether there's something that you would point to as saying -- hey, we tightened our belt because things were tough this year.

And next year, when maybe we get a little bit of a tailwind from collections, we might look to invest in XYZ.

I wasn't sure if there's any thoughts about cost growth next year or things that maybe you dial back on this year that need to be invested in next year.

All right.

Kevin, thank you.

Sam, you want to take that one?

Our operating teams have done a really good job reacting to the changes in volume trends that we saw starting back in the first quarter, as we mentioned on the past calls, and then what we've done in the third quarter here.

I think when you think about what HCA is trying to go, it's more of a systemic effort at trying to gain efficiencies than it is an episodic effort at responding to certain dynamics here or there.

And I mentioned a couple of the things that we're doing that will have efficiency opportunities embedded in them.

And I think those will help us drive toward more efficiencies in our operations.

And that's through eliminating redundancies in overhead, eliminating process inefficiencies, and identifying new ways to leverage our supply chain.

On our biggest cost trend, our labor, at this particular point, we're not seeing any unusual wage pressures in the marketplace as we think about our positioning today and look forward.

And so our belief on our wage trends are that we can manage those consistent with where they've been and create the right kind of balance between that particular cost category and our revenue trends.

So the Company's efforts broadly on the cost front continue very aggressively and will, I think, create the kind of trends that we need to maintain in order to be effective.

Like I said in my comments, our performance improvement reorganization is a huge opportunity for the Company to create a better structure for sustaining and identifying new ways to generate efficiencies in our operations.

The clinical data warehouse is a very unique asset that we think only resides inside of HCA at the level that it doesn't within our Company.

And that is going to be a very rich bit of data that allows us to improve our quality, find new ways to create process improvement and clinical efficiency, as well as cost efficiency.

And so those things are big-ticket items for the Company, and we feel good about how they present themselves over the next few years.

And if we execute on those, as we've executed another initiatives, I think we're going to be well positioned to keep our costs where we need them to be.

Thank you.

Thanks, Kevin.

Thank you.

And we'll take our next question from AJ Rice with UBS.

Hi, everybody.

I think I might ask you about capital deployment.

You just did a $500 million repurchase this last week, opportunistic.

But it was a little small than some of the other repurchases you've done.

Is that just a function of where you're at with your banks?

And then also maybe comment on the hospital acquisition environment?

So those two aspects of capital deployment.

All right.

Milton, you want to lead that?

Sure.

Well, with respect to our share repurchase, $500 million share repurchase we just closed, the size was limited by our restricted payments basket, which at the time of the transaction was $878 million.

And we expect at the end of this year, we should be somewhere around $550 million to $600 million of restricted payments basket capacity.

And that, of course, would be net of the $500 million share repurchase.

So that was somewhat of a limiting factor for us here in at the end of the -- or the beginning, I should say, of the fourth quarter.

With respect to acquisition opportunities, there's not a significant acquisition in terms of financial impact on our balance sheet that we see here in the short term.

We have several transactions that we are looking at, more of what I would call the tuck-in acquisitions that we've completed, like we did down in Tampa with the IASIS facilities.

As you know, we're looking at a transaction, it's public information, down in Florida.

We have a transaction that we're looking at in New Orleans.

And of course, we're still -- the transactions of a couple of hospitals in Kansas City, still underway, going through the FTC process.

So we continue to have those that are out there moving, and we'll continue to look for good opportunities through acquisition.

We said, I think, for a few years here that we think the marketplace will present opportunities for us for acquisitions.

We've got the capacity with our balance sheet to be out and to complete those transactions.

So again, nothing that's material to our balance sheet that we're working on now, but several smaller transactions that we'll be very pleased to complete somewhere in the coming several months.

Okay thanks.

Thanks AJ.

Thank you.

And we'll take our next question from Joshua Raskin with Barclays.

Hi, thanks.

Good morning.

My question is around reform and the impact.

You guys have spoken in the past about potentially sizing what you think that impact could be.

So I'm curious as to sort of the timing when you think you'll have your thoughts together on that.

And maybe what are some of the key variables that you're still waiting to nail down?

Milton?

Yes.

Well, I think we'll be looking at 2014 reform guidance when we give our annual 2014 guidance.

And that will happen probably in February of 2014.

The variables are, I think, the biggest one is, especially here in the early part of reform, what will be the overall uptake in our markets through the exchanges.

Will states ultimately expand Medicaid or not?

And as you know, only four states that we operate in expanded Medicaid.

So the big states to us, like Texas and Florida, did not expand.

So how will that evolve over the coming couple of years would be very interesting for us and material, I think, to our model.

So I think again those are the ones that we've talked about, just the overall uptake, our ability to gain market share in these markets where we do have contracts.

And those would be, I think, the key variables for us.

We have a good sense right now of what our pricing would be, of course, now that we've negotiated our rates.

But still the overall volume uptake is going to be the big question.

Joshn, thank you.

Thank you.

And we'll take our next question from Whit Mayo with Robert H. [sic] Baird.

Hey, thanks.

Was just curious on the bronze plans that you've contracted with.

What did the deductibles look like for those plans on average?

And how are you thinking about collecting that?

And is there any experience you have on any existing individual plans that you can refer to as kind of a collection rate?

Well, I think -- I'm looking at Juan.

The maximum out-of-pocket on an individual bronze plan, Juan, do you remember that number?

$6,240.

$6,240.

And then if you're at the 100% up to 250% of the Federal Poverty Guidelines, now you can't do it with a bronze plan.

But if you are in the silver, the second-lowest silver level plan, if you participate at that level, there's a cash assistance program from the federal government that will assist you with your out-of-pocket cost.

So for example, at a 100% of the Federal Poverty Guidelines, I think the actuarial value of that silver plan plus the cash assistance is about 94%.

So it's a very high coverage.

And again it moves up to -- it reduces up to 250% with the cash assistance plan.

But the maximum out-of-pocket for an individual is just over $6,000.

And it varies by income.

So the less income you have, the higher, the lower the --

Out-of-pocket.

Whit, thank you.

We'll take our next question from Andrew Schenker with Morgan Stanley.

Hey, great.

Just following up on an earlier comment.

Could you discuss your thoughts on retaining ER volumes, especially for those where you might not be in network?

And how do you think about reimbursement for those volumes?

Thank you.

Sam or Milton, you want to address that?

Well, I think you're referring to -- in the markets on the exchange, where if a patient presents to our emergency room, they're in an emergency situation, of course, we will take care of that patient.

And then we bill the payer out-of-network charges.

So typically, that would be full charges.

Practically, it could be settled for something less.

But there's a lot of variations in those various rates.

But obviously, it would be something most likely at or higher than the commercial rate for those patients.

Thank you, Andrew.

And we'll take our next question from Ralph Giacobbe with Credit Suisse.

Thanks.

Good morning.

I was wondering if you can give us a sense of what your current success rate is in terms of getting Medicaid eligibles signed up today and maybe how similar or not you think that would be in terms of getting exchange eligibles assigned up next year.

Thanks.

Sam, you want that one?

We have a very comprehensive effort across all of our hospitals to ensure that we have adequate resources in our facilities to assist with Medicaid eligibility applications and so forth.

As Milton mentioned a minute ago, The Outsource Group will provide additional resources for the Company to buttress those where it needs to, especially in those states where we've seen Medicaid expansion.

I don't have the exact percentages here around how many applicants today get approved.

But the vast majority of them tend to get approved for Medicaid.

So it's north of 50%, probably around 60% or so, of eligible Medicaid beneficiaries get approved.

We work with those other patients to get other government funding or they follow through on the application process insufficiently and they wind up not getting approved.

But we have a pretty high success rate.

We monitor that by facility, we monitor that by state to understand where do we have opportunities to improve it.

We think the presumptive eligibility procedures that are out there will assist us in that process somewhat.

How much, we don't know yet, but it will have some impact on those metrics.

But we have a pretty good program and the numbers are somewhere in that probably two-thirds range approved, and one-third that don't get approved for a host of reasons, some of which their income is too high, some of which their applications don't get turned in, or we can't locate the patient, whatever the case may be.

But again, we're evaluating those resources and looking very closely at those metrics on a routine basis to enhance the procedures where we can.

Ralph, thank you.

And we'll take our next question from Chris Rigg with Susquehanna International Group.

Good morning, thanks.

I just wanted to follow up on Whit's question.

It brought up something interesting to me.

Even if the actual value is 94%, how do you guys ultimately collect the deductible?

Do you bill the Feds directly?

Do you bill the plans?

Are you responsible of getting it through the subsidized members?

Thanks.

Juan Vallarino is going to answer that one.

You bill the plan.

The subsidy that I mentioned would come through the plan.

All right.

Thanks, Chris.

And we'll take our next question from Gary Lieberman with Wells Fargo.

Good morning.

Thanks for taking my question.

Maybe to go back to the use of the certified application counselors and given the difficultly with the exchanges so far, how have they behaved or how have they acted differently than you would expect them to work once the exchanges are up and running?

And have you seen actually any improvement in being able to get people signed up on the exchanges?

Milton, again.

Well, sure, we've been tracking the early activity with our application -- our certified application counselors.

We have approximately 400 of them.

Quite frankly, they've encountered the difficulties that the public has encountered as trying to access the exchange via the Internet.

So it's been off to a slow start.

And that relative thought to the issues, then that's not unexpected.

I think over time, we're going to see that improve as the system stabilizes, and as we gain greater access on a more consistent basis to the system, then we'll see that.

We've trained our coordinators and we feel we're well-positioned to perform.

It's just a matter right now more of the technical difficulties that we're dealing with as far as getting people actually signed up.

Gary, thank you.

And we'll take our next question from Brian Zimmerman with Goldman Sachs.

Hi, thank you.

Good morning.

I was hoping you could provide some comments on what you're seeing in the Company's initiatives regarding the rehab and behavioral health services business.

And are you continuing to see market share gains in these segments?

All right.

Sam, you want to address rehab and behavior?

We have about 55 behavioral units inside of HCA today and we have a similar number of inpatient rehabilitation facilities inside the Company.

As I mentioned, we're up about 3.5% on behavioral admissions in the quarter.

We're up about 8.5% on rehab admissions.

Rehab is up 10% for the year, and behavioral is up about 2.5% for the year.

And that is slightly down.

We still have opportunities to invest in these service lines within a number of our markets.

And we are doing that.

We're adding capacity in certain situations.

We're adding physician capability in other situations that will allow us to grow our volumes.

We still think there are opportunities for managing our continuum of care more effectively in certain situations that will enhance our ability to deliver more care in these two service lines.

But when you look at the market share data in both of these service lines, we do have gains in share across the Company.

The behavioral service line, in particular, shows very strong demand curve.

Rehab is not as strong, but also stronger than other medical areas.

And we think managing the continuum in total is a very important part of what we're trying to get done in the marketplace.

It's really not just with those two service lines.

We're doing it more broadly with pediatric service line, with trauma service line, with deeper capabilities in other service lines.

We're using our infrastructure within our markets to manage the continuum more effectively.

We have what we call transfer centers in each of our markets that allow us to assist the patient and the physician in navigating our continuum more effectively.

That's allowed us to keep more patients in our system.

And so we think those structural things will continue to evolve and allow us to gain share hopefully down that road.

Brian, thank you.

Janine, we've got time for probably just two more questions.

Thank you.

And we'll take our next question from Justin Lake with JPMorgan.

Thank.

I just wanted to follow up on an earlier question.

Broadly looking ahead, right, I know reform is the black box for 2014.

But ex that, I think you've talked about yourselves being a 5% grower on the EBITDA line, give or take.

I just wanted to confirm as we look ahead to 2014, is this a reasonable starting point to think about ex reform?

And I know you have about -- I think you have $100 million headwind from lower health care IT revenues.

Any other headwinds or tailwinds you could point us to outside of that 5% growth would be helpful as well.

All right.

Milton?

Yes, sure.

And I think, Justin, what we've been saying is a 3% to 5% EBITDA growth, to clarify.

But seriously, and excluded -- I think, as you look at next year, I think what we've indicated is that, excluding the EHR incentive income, which is going to decline as we all know, is we've captured most of that upside in the early years of the opportunity.

And also excluding the impact of the noncash share-based expense that we're incurring, again we're unique because of the LBO when we've had to restart our management equity plan, unique in our sector in that we have an increasing cost there.

And after I think next year, that should then be up to its run rate.

But excluding the impact of noncash share-based cost and excluding the headwind from the EHR incentive income, I think our base business can grow EBITDA in that 3% to 5% zone is something that we feel that is reasonable.

And I think that's consistent with what we've been saying over the last several months.

Justin, thank you.

One last question.

We'll take our last question from Brian Tanquilut with Jefferies.

Prepared remarks, you talked about seeing some pressure in the ER, specifically on the lower-acuity stuff, while also mentioning expansion in the urgent care business.

So if you don't mind just sharing your strategy and your views in that area.

I mean, should we think about CareSpot as a market capture strategy?

Or is that a proactive push to get -- to move some of the lower-acuity or lowest-acuity volumes down to ER going forward?

All right.

Brian, thank you.

And Sam, you want close it?

Yes.

I think one of fundamental aspects of our growth agenda is to ensure that we have adequate access to our system, and that includes a host of different capabilities -- everything from emergency room capacity, as Richard mentioned, to physician clinics to other outpatient settings in locations that make it convenient and easy for patients to access an HCA system.

We are exploring the concept of urgent care in a very substantial way to understand how it can fit into our overall network of offering.

CareSpot in two markets, largely at this particular point in Nashville and Kansas City.

We are studying the effects of that.

It is intended to be more around creating access than it is to move patients necessarily from one setting or the other, although it does play a part in that approach.

But we believe it's a convenient and efficient way for patients to get low-end care and then provide access to an HCA network if they need more substantial care or sophisticated care down the road.

And so that will continue to evolve.

We have studied that.

We actually have another market, pediatric urgent care centers that are connected to our children's hospitals that serve a similar role.

Additionally, we have many affiliations with urgent care centers in these major metropolitan markets that allow us to virtually expand our network.

And HCA is the downstream health care system for some of the freestanding urgent care centers that exist in the market.

So it's all again part of the core strategy of trying to create physician access to the system, and we will continue to study the effect of owning urgent care as opposed to affiliating and what that means to us as we move forward.

All right.

With that, thank you.

Brian, thanks for your question.

I thank everyone for participating.

And Mark and I will be around all day and look forward to seeing you soon.

Have a great day.

And again, this does conclude today's HCA Third Quarter 2013 Earnings Release Conference Call.

We thank you for your participation.