美國醫院公司 (HCA) 2014 Q1 法說會逐字稿

Welcome to the HCA first quarter 2014 earnings 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 the Senior Vice President, Mr. Vic Campbell.

Please go ahead, sir.

All right, Travis, thank you.

Good morning everyone.

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

With me here this morning is our President and CEO, Milton Johnson; CFO and Executive Vice President, Bill Rutherford; and Sam Hazen, President of Operations.

And we have several other members of the management team here as well to assist during the Q&A, if necessary.

Before I turn the call over to Milton, let me remind everyone that should today's call contain any forward-looking statements, they are 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 today's call is being recorded.

Replay will become available later today.

So with that, I will turn the call over to Milton Johnson.

Thanks, Vic.

Good morning to everyone joining us on our first-quarter call and webcast.

We were pleased with our performance for the first quarter, as we generally saw a continuation of recent trends in many key operating metrics.

As Sam will describe in a moment, our market share trends remain positive.

Of course, this quarter reflects the long-awaited, first coverage period for expanded Medicaid and Health Exchange insurance products.

We saw encouraging signs from health care reform during the quarter and found them to be consistent with our early expectations.

Bill will provide details on health care reform in his comments.

But, as expected, health care reform had minimal impact on the Company's first-quarter results.

However, we remain optimistic regarding the long-term benefits of reform.

We remain comfortable with our previous guidance regarding the estimated impact of health care reform on our financial results for 2014.

Now moving to the quarter's result.

Revenues increased to $8.832 billion compared to $8.44 billion in the first quarter of 2013.

Net income totaled $347 million, or $0.76 per diluted share, compared to $344 million, or $0.74 per diluted share in the first quarter of 2013.

Excluding gains in the sale of facilities and the legal claim cost incurred during the quarter, the Company would have reported net income per diluted share of $0.84 in the first quarter of 2014.

Adjusted EBITDA of $1.644 billion increased 4.8% in the first quarter of this year over the first quarter of 2013.

If you exclude the impact of EHR incentive income and share-based compensation expense from both periods, adjusted EBITDA would have increased 6.3%.

Adjusted EBITDA margin of 18.6% was flat compared to the prior year.

However, if you exclude EHR incentive income and share-based compensation expense from the adjusted EBITDA for both periods, adjusted EBITDA margin would have increased 30 basis points.

Volume trends were somewhat soft in the quarter, primarily in our lower-acuity service lines.

Inpatient surgical growth, along with a decrease in lower acuity patients, resulted in growth in case mix index of 2.2%.

Net revenue per equivalent admission was favorably impacted as a result; and overall, expenses were well-managed throughout the quarter.

Today, we are also reaffirming our previous adjusted EBITDA guidance range of $6.6 billion to $6.85 billion for 2014.

And while we are not providing quarterly-earnings guidance, I do want to remind everyone that our EBITDA performance in the first half of last year was somewhat uneven.

As you may recall, our EBITDA growth in the first quarter of 2013 was below our expectations due to an unfavorable calendar and very soft volumes in the latter part of the quarter.

Then, in the second quarter, the combination of improved volumes and cost structure resulted in a very strong quarter, getting us back on plan by mid-year.

So for 2014, we've had an easier comparison in the first quarter, and we'll have a much tougher comparison in the second quarter.

In addition to our solid financial performance, our patient safety and quality of care agenda continues to perform at a very high level.

For example, our REDUCE MRSA study, conducted at 43 HCA hospitals in 74 intensive care units and involved approximately 75,000 patients, determined that treating all patients with an antiseptic wash and nasal ointment on admission to intensive care not only reduced all infections by 44%, but was selected by the Clinical Research Foundation as one of the top three contributions in the US in 2013.

With that, I will turn the call over to Bill.

Great.

Thank you, Milton.

Good morning, everybody.

I will cover some additional detail around the first quarter; and then I will turn it over to Sam, and he'll provide some additional commentary on volume and market share information.

As Milton mentioned, we were pleased with the quarter's result.

The first-quarter results were driven by solid revenue growth, resulting from relatively stable volume and increased intensity of services, as well as strong expense management by our operators.

Milton just mentioned our adjusted EBITDA increased to $1.644 billion, or an increase of 4.8% from the prior year.

However, adjusted for the reduction in high tax incentive income and the increase in share based comp, adjusted EBITDA increased 6.3% over the prior year.

In the first quarter, our same-facility total admissions declined 0.6% over prior year and equivalent admissions declined 0.3%.

We experienced a 140-basis-point reduction in our admissions in the quarter due to declines in pulmonary and one-day stays.

Adjusting for declines in pulmonary and one-day stays, same-store admissions grew 0.8%.

During the first quarter, same-facility Medicare admissions and equivalent admissions declined 1.1% and 0.3%, respectively.

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

And managed Medicare admissions increased 2% on a same-facility basis and represent just under 30% of our total Medicare admissions.

Same-facility Medicaid admissions and equivalent admissions increased 1.4 % and 2.4%, respectively, in the first quarter when compared to the prior year.

This increase compares to fourth-quarter declines of 1.6% in both admissions and adjusted admissions.

This was primarily driven by growth in our four Medicaid expansion states that I'll speak to shortly.

Same-facility self-pay and charity admissions increased 2.1% in the quarter, while equivalent admissions declined 0.7%.

This represented 7.6% of our total admissions, compared to 7.4% last year.

These results do compare favorably to our fourth quarter of 2013 when self-pay and charity admissions, and adjusted admissions grew 8.3% and 5.2%, respectively.

Managed care and exchange admissions, and equivalent admissions declined 1.7% and 2.2%, respectively, in the first quarter on a same-facility basis.

And we are combining these two categories until exchange becomes more material.

Same-facility emergency room visits were basically unchanged compared to the prior year's first quarter.

Self-pay and charity ER visits represent 22.3%, compared to 22.4% in last year's first quarter on a same-facility basis.

Fairly consistent with prior quarters, our softer volume was mostly in our Lower Acuity business.

And this, coupled with continued in-patient surgical growth, helped drive stronger revenue intensity.

Same-facility revenue per equivalent admission in the quarter increased 3.7%, compared to the prior year.

Same-facility Medicare revenue per equivalent admission increased 0.8% in the first quarter, a case mix increase of 1.7%.

Same-facility managed care revenue per equivalent admission increased 6.1%, fairly consistent with our prior trends.

And case mix increased 2.9% in the quarter.

Same-facility charity care and uninsured discounts increased $347 million in the first quarter, compared to the prior year.

Of this, same-facility charity care discounts totaled $921 million in the first quarter, an increase of $17 million from prior year.

While same-facility uninsured discounts totaled $2.277 billion, an increase of $330 million from the first quarter of 2013.

Now let me turn to expenses.

Expense management in the quarter remained strong, consistent with our recent trends.

Same-facility operating expense per equivalent admission increased 3.2%, reflecting an increased acuity in surgical volume in our patient population.

As you see on a reported basis, salaries and benefits, as a percentage of revenue, improved to 45.9% from 46.4% in last year's first quarter.

Salaries per equivalent admission increased 2.2% on a same-facility basis in the quarter.

Same-facility supply expense per equivalent admission increased 3.1% in the quarter when compared to the prior year.

And this primarily reflects the service intensity in increased inpatient surgical volume in the quarter.

Other operating expenses increased to 18.6% of revenues in the quarter, compared to 18.1% last year, primarily reflecting an increase in insurance utilities and other operating.

We recognized $30 million in electronic health record income for the first quarter, compared to $39 million last year.

The Company also incurred approximately $43 million in EHR-related expenses in the quarter, compared to $26 million in last year's first quarter, a $26 million drag on first quarter results, somewhat higher than the previous quarters.

Let me take a moment to address cash flow in the quarter.

Our cash flow from operations declined from $740 million in Q1 of 2013 to $443 million in Q1 of 2014.

This decline is primarily related to $170 million effect increase in working capital and a $206 million negative impact related to income taxes.

Last year, we received $185 million tax refund; and this year we had a $32 million tax payment.

On working capital, there were two items affecting this.

We had an increase in other current assets primarily due to a growth in an indigent program receivable and a growth in patient receivables.

That's mostly attributable to a growth in our governmental receivables, mainly due to a change in regulatory environment which extended the collection process.

And we had some growth in receivables in our Texas Waiver Program, as the state has had some backlogs in processing payments.

In addition, you will see we invested $400 million in capital expenditures in the quarter.

At March 31, the Company's ratio of debt to adjusted EBITDA, was 4.35 times compared to 4.32 times at December 31, 2013.

At the end of the quarter, the Company had approximately $4.442 billion of availability under its revolving credit facilities.

However, on April 2, the Company paid $2.9 billion to redeem its $1.5 billion, 8.5% and $1.25 billion of our 7.875% notes.

You will note an unusually high cash balance on our balance sheet as of March 31.

And this was due to our bond restructuring and waiting to apply to our call provision executed on April 2.

Now let me move into a discussion around health reform.

As Milton mentioned, we saw encouraging signs related to health reform in the first quarter.

When we think about health reform, we will discuss the impact from two views.

First, what we experienced with exchange volume and activity, and secondly, what we experienced in our Medicaid expansion states.

As I begin, let me preface these comments that although we did see encouraging signs that I will share with you, as we estimated, reform is still unfolding and had a minimal impact on our results for the quarter.

Relative to exchange volume, we saw just over 1,700 exchange admissions in the first quarter of 2014.

Remember, this is on a base of 440,000 admissions for the Company, so about 0.4% of our total admissions.

We were encouraged with the progression of this volume that we saw throughout the quarter.

In general, we saw twice the number of exchange admissions in February than we saw in January.

And we saw twice the exchange volume in March than we did in February.

Although only a small portion of these have completed the collection cycle, we do anticipate clearing these at rates similar to commercial accounts.

A key question for this exchange volume has been, and is -- How much of this volume is from previously-uninsured patients versus previously-insured conversion into an exchange product?

In an attempt to get some insight into this question, performed an analysis on each of these exchange admissions we saw in the quarter to evaluate had they been seen in an HCA system within the last 12 months?

And if so, what was their coverage status?

We had seen about half of the exchange population previously, and one-third of those served were previously uninsured.

So far, this is the best data point we have in trying to answer this key question for the exchange volume thus far.

Now let me turn to a discussion around Medicaid expansion impact.

A quick reminder, that we have four of our states expand Medicaid, which represent about 13% of our bed capacity: California, Colorado, Kentucky and Nevada.

In our expansion states, we saw Medicaid admission growth of 22.3%, as compared to a 1.3% decline in Medicaid admissions in our non-expansion states.

Conversely, we saw a 29% decline in uninsured admissions in these four states, as compared to a 5.9% growth in uninsured volume in non-expansion states.

We estimate the impact from these trends in our expansion states is just over 1,000 admissions previously uninsured now have Medicaid coverage.

In summary, although reform is still unfolding and still a small percentage of our business, we are encouraged by these early trends.

And we reaffirm our earlier guidance of health reform impact of 1% to 2% of adjusted EBITDA for the full year of 2014.

That concludes my remarks, and I will turn it over to Sam for some additional comments.

Thank you, Bill.

Good morning.

I'll begin my comments this morning with more detail on our same-facilities volume for the quarter, and then provide an update on market share trends for the Company.

As you heard, pulmonary-related admissions were down 9%, or almost 4,000 admissions, as compared to the first quarter of last year.

This decline was similar to what we saw in the fourth quarter of 2013 and reflects the soft flu season across the last two quarters.

We saw the same decline in our emergency rooms.

Pulmonary-related emergency room volume was down 9%, or approximately 23,000 visits, in the quarter.

In total, emergency room visits were mostly flat with prior year; however, adjusted for pulmonary-related volume, emergency room visits grew about 1.3%.

Inpatient surgeries were up 0.9%.

This increase was primarily driven by solid growth in the following areas: orthopedics, general surgery, cardiovascular, and transplant surgery.

Outpatient surgery volumes were down 1.7% in total.

Hospital-based outpatient surgeries were down 1.3%.

And inside our ambulatory surgery division, outpatient surgeries were down 2.2%.

Outpatient endoscopic and pain management procedures, which are not included in our surgery statistics, increased 0.5% for the quarter.

Other inpatient volume statistics for the Company were as follows.

Obstetric admissions were up 2.1%.

As part of this growth, managed care obstetric admissions were up 4%.

Behavioral health admissions grew by 2.4%, and rehabilitation admissions grew by 7%.

And finally, average length of stay for in-patient admissions increased 0.9%, reflecting the stronger acuity.

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

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

The Company's inpatient market share for this period grew 31 basis points, to 24.1%.

HCA gained share in 25 out of 37 markets, with gains in eight of our top ten markets.

We gained share in 12 out of 17 service lines, and market share in the commercial segment was flat.

And also, in migration segment, we actually increased by 31 basis points.

Overall during this period, inpatient demand across HCA markets was essentially flat.

However, in three of the four quarters in this period, demand actually increased.

But this growth was entirely offset by the soft demand in the first quarter of 2013.

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

We believe this performance reflects both solid execution of our growth and operating agendas by our management team, and increased capital investment in capacity, technology and new facilities.

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

All right, Sam, thank you.

Travis, do you want to come back on and queue up for questions?

Certainly.

(Operator Instructions)

Frank Morgan, RBC Capital Markets.

Good morning.

I was hoping you could give us a little bit of color on the progression of volumes in the quarter and really in the first quarter, and really, how you are staffed going into the second quarter given this volatility that you called out?

And then secondly, I know Milton had commented in the past that he would never use weather as an excuse.

I'm just curious, what was the weather impact on the quarter?

Thanks.

Way to go Frank.

We are going to test him here.

Milton, do you want to do weather and explain that to the rest?

Frank, we're going to stand by my earlier statement.

We don't believe --we didn't see --weather, of course, did get some of the timing of some of our services, certain markets in the quarter, but we believe the timing of the weather issues were such in the quarter, that we were able to largely recover, and no material, identifiable impact from weather in our first quarter.

Sam?

You want to talk about the progression in the quarter?

The admission growth for the company was primarily in February and March.

We actually were up in both of those two months, as the quarter progressed, all of our pressure points were in the month of January, which was when we compared against the flu volume from last year, and so if you look at the last two months, we did have admission growth and adjusted admission growth as the quarter progressed.

All right.

Thank you.

Whit Mayo, Robert Baird.

Hey, thanks.

Maybe just one for Bill or Juan, now that you guys have a better glimpse at a lot of the enrollment data in your markets, recognizing that it is a small piece right now, but any unique observations that you think are worth making?

And my second question would just be around --the conversation around premium subsidies, and I'm not sure if HHS has really stated their position at this point, so just any comments there would be helpful.

Bill, do you want that?

Hey, Whit.

I can't call out any distinct characteristics of this exchange volume so far in the first quarter.

You know, it is still early.

As I mentioned in my comments, we are pleased with the progression of that volume we saw in the first quarter.

It seems to be fairly even spread among the majority of our states, really no differentiating characteristics of that exchange volume compared to our other book of business at this stage.

So nothing really to call out right now.

And on the premium subsidy, I think there we have not really pursued that.

Yes.

Our position is we have not pursued premium subsidies in large-scale way.

We may still reserve the opportunity to do that on a case-by-case basis, but for the most part, we are not pursuing a strategy around premium subsidies.

Thanks, Whit,

Thanks.

(Operator Instructions)

Darren Lehrich, Deutsche Bank.

Thanks.

Good morning everybody.

I just wanted to follow-up with regard to some of your comments, Bill, about the growth in the indigent receivables, and I just want to make sure that I understand what really that reflects, and if you could also please remind us what the Medicaid pending policy is for HCA, it would seem that even that you don't have a lot of Medicaid expansion exposure, there has been a decent amount of wood-work affect.

So curious if that's tieing up any receivables, and how do you think that might play out into the next couple of quarters?

Great, Darren.

Thank you.

In my comments around working capital and cash flow, we attributed it to a couple of items and I did reference an indigent program receivable.

That's in one of our states where we make contributions to a fund, and then we receive indigent payments back out and it's just timing differences, and we don't think that is a material factor.

We did have a growth in government receivables, mainly just through increased complexity of that collection cycle with regulatory environment, and we think that will eventually find it course.

Relative to pending Medicaid, we have kept our pending Medicaid policies consistent.

As uninsured patients come to our facilities, we screen them for pending Medicaid eligibility, and once they get accepted within that Medicaid program, that account is treated as a Medicaid account.

They don't get accepted, we then move them through our charity and uninsured discount program, and our policies around that have remained consistent.

Our reserving policies based upon the prior history--Yes.

As you may know, we look at our prior write-off and reserve --write-off history and use that as the basis for our estimates going forward.

Darren, thank you.

Thanks.

Gary Taylor, Citi.

Hey, gentlemen.

Good morning.

Just had a question going back to your thoughts on the ACA, and I certainly heard what you said about the trends and how you feel about it going forward.

When you guys gave your guidance for the year, I think nationally, maybe 1.8 million people had signed up for exchanges, and now, of course, we know the number is 8 million or more than 8 million.

Still some question as to what percentage of those were previously uninsured, but I just wondering how much that substantial acceleration enrollment has impacted how you're thinking about the go-forward, particularly in states like Texas and Florida where the exchange enrollment has picked up pretty significantly?

Gary, thanks.

I think Milt's going to --

Yes, Gary when we ran models -- actually, the data was more current than 1.8 million, it was probably around 3 million or so, and we had projections that it would go higher.

So our assumption was not the 8 million people to be enrolled in this first year.

That's a little higher than we thought, and we will see how that plays out then the rest of the year.

But again, what we saw here in the first quarter, and as Bill said, and I will say again, it's too early to take a lot out of the first quarter as an indication of health care reform for the rest of the year, and I said on the call last quarter, that we probably wouldn't be able to provide a lot more thoughts about reform until at least the middle of the year when we release second quarter.

I think we still reserve that position.

With that being said, you know, the 8 million enrolled is more than we thought in our model, but how we thought about reform and the potential impact it would have in the first quarter, the actual results are fairly consistent with what we expected.

Gary, thank you.

Thanks.

Sheryl Skolnick, CRT Capital.

Thank you, gentlemen.

I appreciate it.

We had a little medical urgency on this end.

I apologize for missing my queue at first

To the extent that you haven't explored this with folks, could you comment on --I'm going to ask two unrelated, I'm going to be unfair, and it's your choice whether not to answer it, I apologize.

Can you comment on the way you approach the accounting for Medicaid pending, and whether it's different with some of the commentary we've heard, for example from LifePoint about how they do it or --and also can you comment about your expectations for acquisition strategy for this year and the coming years?

Thanks.

Bill you want to do the --

Sure, I'll address the pending Medicaid, and maybe in a moment, if you want on the acquisitions.

Sheryl, we did talk about it briefly.

¶ Our policies around pending Medicaid have not changed.

It's consistent with the way we have operated that for several years.

As patients come into our facilities of uninsured, we put them in a pending Medicaid status, and go through an eligibility review screening.

When that individual gets accepted into that State's Medicaid program, we would then convert them out of pending Medicaid into Medicaid, until then, they track as pending Medicaid.

If they do not get involved in that Medicaid, then they move through our charity and uninsured discount policy.

So, no change in how we treat those.

Our accounting methodology is to reserve for that pending Medicaid based on our historical experience, and again we have no material changes in how we approach that segment of our business.

Milt, you want the acquisitions --

You don't account for the self-pay in the current reported revenues, but rather as Medicaid, but reduced in terms of less than 100% of what you expect to get if they are approved as a member?

Yes.

If the pending Medicaid tracks in self-pay, until which time they get accepted into Medicaid.

So the pending Medicaid is tracking as self-pay.

We do not classify them as Medicaid until they're accepted as a Medicaid enrollment for that state.

So in this interim review period, they're tracking as self-pay, receivables, and self-pay revenues for us.

That's an important distinction.

Thank you.

Sheryl, relative to our acquisition strategy, it remains consistent were we have been the last few years.

You know, I've said many times, we would like to be able to grow through more meaningful acquisitions if we can find those opportunities, opportunities that fit our strategy in terms of what the market complexion would look like, and our belief of how we could drive shareholder value through those acquisitions.

So that hasn't changed.

If you look over the last few years, our acquisitions have been largely --we're not going to tuck-in acquisitions --those have been successful acquisitions for the company, and we will continue to pursue those.

But given the opportunity to make a more material acquisition in the market, we would look at those opportunities, and we do look at those opportunities.

Some of the larger transactions that have occurred in the last couple of years have largely been, rural sort of facilities, and really didn't fit the sort of markets that we look for.

So those we did not pursue, obviously.

But I would say it's a consistent acquisition strategy.

We continue to look for opportunities, and are hopeful that we will be able to find opportunities to grow in organic growth through acquisitions where we have pricing discipline, but also result in creating shareholder value.

I'm sorry.

If I could just follow up on that.

When you did Kansas City, it was slightly accretive to the first year, I recognize it's ancient history because it was over 10 years ago, but it's like we diluted to the first year, but heavily accretive after that, a very important acquisition.

Would you consider doing something like that again if it meant the meaningful step up in the company's growth profile?

You know, we would.

I think, Sheryl, that many times when we see acquisitions coming out of the not-for-profit sector, not always, but sometimes can be assets that are challenged.

That was the case in Kansas City.

And so it was a turnaround situation.

It's been almost now 14 years, 13 years ago, and it's was a successful turnaround for us.

But we knew that we were walking into a turnaround situation.

There could be acquisitions though that we could, that we could see in a not-for-profit sector, where it could be a motivation to look for strategic opportunities in the market, not because of financial issues, but because of the changing marketplace, and these institutions could see the advantages of being part of a larger organization like HCA, and what we could bring to the table, and we're hoping we will find more of those opportunities as well.

Sheryl, thank you.

Justin Lake, JPMorgan.

Thanks, good morning.

I had a couple of questions just on Medicaid expansion.

First, one of your peers gave an estimate that 80% of your uninsured volumes come from people who are Medicaid eligible.

Do you have an estimate here for HCA?

And what are your typical approval trends on Medicaid submissions, and has that changed post the implementation of presumed eligibility?

Thanks.

Bill, sounds like you.

Yes.

Justin, hey, good morning.

I honestly don't have a strong percentage for you on our uninsured that's Medicaid eligible.

My instincts says it is a higher percentage, but I can't quote a percentage for you.

We are seeing in our expansion states, as we mentioned, some really higher shifts then maybe we anticipated, in terms of the uninsured and Medicaid, so that may support it.

It's a higher percent, but I can't throw out a percent for you at this point in time.

Relative to the impact on Medicaid conversions, so when I walk through pending Medicaid, and when we go through the screening and that individual is determined to be qualified for that state's Medicaid, we got a very high percentage of converting them into Medicaid north of the 80% area.

We don't as --generally issues with obtaining signatures and application process, so very, very high.

Too early to call changes on that with our four expansion states.

We have seen a growth in our pending Medicaid in those states, which I view as a positive sign as we have more people in the queue.

We do have some increased success rate of converting those in this first quarter, and I think we'll need another quarter or so for that to settle out, as we have not only the existing inventory going through pending Medicaid, but new service states since January on there.

We are optimistic we'll see that conversion go even higher in our expansion states.

Thank you, Justin.

Thanks.

Andrew Schenker, Morgan Stanley.

Hey.

Good morning.

I was just curious, are you seeing any trends of --sorry, exchange members that --(inaudible) exchange members showing up at the ER's, and if you are, what kind of, rates are you collecting from managed care for this client?

Good morning.

The majority of our exchange volume is in-network.

We do have some out-of-network, and when we do have that out-of-network it is showing up in (inaudible), but the majority of the exchange volume is in-network, and it's too early to call, kind of, the adjudication rates on either one of those populations -- on the out-of-network populations.

Thanks, Andrew.

Jason Gurda, KeyBanc Capital Markets.

Good morning.

Thank you.

Can you talk a little bit about what you are seeing as far as narrow network contracting?

What sort of changes year over year?

Then also, managed care plans use of a tiered hospital networks?

All right.

Sam, you want to lead with that?

Most of the narrow network contracts that are visible inside the market, are related to exchange products and exchange products only.

HCA participates in about 98%, 99% of all commercial contracts across all 42 markets that it participates in, and we've largely participate in all governmental Medicare Advantage, or manage Medicaid products.

Generally speaking, were not seeing any kind of changes in our contracting configuration with the payers in the cycle that we're in today.

That cycle includes 2014 and 2015 where we have all of our revenue, for the most part, in 2014 contracted at about 70% of our 2015 revenue contracted at very similar terms and trends.

2016 is about a third done, and again, it is very similar to what we have seen in the earlier part of this cycle.

So no material changes, other than what we've experienced in the past, and the only new dynamic is within the exchanges.

Jason, thank you.

Joshua Raskin, Barclays.

Hi, thanks.

Good morning and thanks for taking the call.

I just want make sure I understand the admission numbers that you talked about with respect to Medicaid, I think you said 22.3% growth in Medicaid in your expansion states with a corresponding decline in uninsured of 29%.

So within that, does that include Medicaid pendings, or if the Medicaid pendings actually do come through, than the growth in [Caid] would be higher and uninsured would be lower, or is there some estimate that a conversion rate of those--

No.

There is no estimate.

The Medicaid would only include those are actually enrolled in Medicaid, and pending Medicaid would be still be treated as uninsured.

There is no estimate of conversion of pending Medicaid and when we reported that Medicaid admissions in those expansion states, those were four individuals that were actually enrolled in Medicaid.

To the extent they are still pursuing enrollment, and we're going through the application, those are treated as uninsured in our accounting.

(multiple speakers) And as I said, we are seeing some increased balances in our pending Medicaid in those conversion states, so we're optimistic that we'll see more come out of that in the future.

Right.

And is there a way to size the pending Medicaid bucket right now in terms of the total percentage of admits in those states?

No.

It is still too early to be able to size what we think the changes in our historical experience will be.

But the actual --okay, thanks.

Thanks, Josh.

Kevin Fischbeck, Bank of America Merrill Lynch.

Good morning.

Thanks for taking the question.

This is actually JoAnn [Agaja] in for Kevin today.

Thanks a lot for the call in terms of the reform, but I just want to go come quickly on the volume performance in the quarter, which did improve and you guys definitely don't want to blame weather, is that you, expect you, expect or did the volumes came back to you, but previously, you were also thinking about impact of the two-midnight rule so can you talk about that, whether there was any impact this quarter and how it is compared to Q1 -- Q4, I'm sorry going forward.

And then also your fear of, also your Company talks about seeing some economy benefits, including economy benefits in the quarter on volumes, so any color you might get on those I would appreciate.

Thanks.

Thank you.

I'll try to address pieces of that as a two-midnight rule, we mentioned in the fourth quarter, we are still implementing the two-midnight rule and dedicating a lot of resources towards that effort.

As mentioned in our commentary, you know, we are experiencing softness of one-day stays among all payer classes, and we did have a decline in Medicare One stays for the quarter.

It's not as pronounced as we had in the first quarter.

We still have (multiple speakers) in the fourth quarter, sorry.

Then I said last year.

We did have an impact in the first quarter, but it was not pronounced as we had in the fourth quarter of 2013.

We still have accounts going through the review process.

Were working with our external reviewers on prog-reviews that are going to still refining processes on that.

So were still have our ongoing implementation efforts.

We do think it will continue to impact some of our admissions statistics going forward, but does not have a material financial impact on us as we've spoken about before, because we've been able to eliminate some outside reviewer fees.

And Sam is going to address the economy side of it.

I don't know if I have a [metric] per say that indicates a composite view of the company's economy, but I'll say this.

In general, the unemployment rates across HCA markets is better than the unemployment rate at the Nation as a whole, it's trending favorably also.

And then if I were to put a proxy on a particular measure that suggests possible improvements, it would be to managed care deliveries for the company.

We're up 4% in the first quarter and that's a positive indicator, in my opinion, about the economy across HCA markets and what it might portend as we move forward.

Thank you Joann.

Brian Zimmerman, Goldman Sachs.

Thanks.

Good morning.

Just as a follow-up to the acquisition question.

Can you give us an update on how you're viewing the possibility of further international expansion?

And then can you give us an update on the amount of stock you can repurchase at this point?

It looks like you've taken measures in the last quarter, in terms of refinancing, to ease the ability to buyback, so just a general update on your appetite for a larger re-purchase.

Milt, that sounds like one for you.

As far as acquisition opportunities internationally, you know, we have done our assessment of international markets, and which markets we find attractive in the event we see an opportunity.

We do that across the US markets as well.

So obviously, we operate in the UK and London, very successful market for us, so we have some experience there.

But other than that, there is nothing more I think to add to that --in how we view the international market.

We assess it much like we do, the US market.

With respect to the, --I think you're referring to our restrictive payments basket, the restructuring that we went through, our debt restructuring, did include size-restricted payments baskets --Bill did you want to --

Yes, right now, before we file compliance, we have just about $1 billion of capacity under the restricted balance with [strict] payments basket, and it will increase once we file first quarter compliance by a couple of hundred million.

Yes.

Thanks a lot.

Chris Rigg, Susquehanna International Group.

Hey, Chris.

Good morning, guys.

I just wanted to better understand the comments around comparisons getting more difficult in Q2, or just the latter part of the year.

Is that just volumes or are you saying year-to-year growth and not EBITDA and EPS as well?

Well, what I was referring to is, what we went through last year, we had a really solid performance in the second quarter, and actually, if you look back at 2013, the second quarter, we had the highest admission growth of the year in the second quarter, so it will be a difficult comp, I think relative to the growth in volume, and in turn, that will also will lead to a difficult comp in the first quarter, is what I'm trying to say, then as well, so I just wanted to point that out to the market.

If you look at our guidance for the year in the first quarter, you know, our growth rate exceeded our guidance for the year, and I just wanted to point out that as we think about the second quarter, and our performance in the second quarter of last year, that needs to be considered as you're looking at the growth rate.

So, obviously our guidance does not project that growth rate we had produced in the first quarter will continue throughout the rest of your.

That's the point really, I was trying to make.

Thanks a lot.

Ralph Giacobbe, Credit Suisse.

Thanks.

Good morning.

Can you maybe give us any early read on success you may have had on getting uninsured covered via the exchange --maybe ow aggressive you were there?

And is there any way to think about a potential, kind of pending bucket, for that category in terms of, kind of, coming back into the facility, frequent flyers, etcetera.

Thanks.

Bill, you want to--

Ralph, this is Bill.

I will make attempts.

As we spoke about in the fourth quarter, we made attempts on outreach to our uninsured, both through our certified application counselors, in our facilities, about 400 of them making contact.

We also, in early --in this, quarter we made outbound, kind of, contact to, what we view people who have visited our system frequently over the past 12 months.

And I would say, a result of that honestly, was fairly marginal.

It was more of an education and awareness campaign, as much as anything, versus hard to track the exact number of sign-ups or applications that generated.

But we are fairly active in that, but in terms of the yielded result, hard to track exactly in terms of how much --how many exchange enrollments that resulted in.

It was more of a community education and awareness effort.

Thanks, Ralph.

A.J. Rice, UBS.

Hi, everybody.

Just two quick things.

First of all, I guess we have an IPAPS update coming, and your rolling office sequestration here minus how much you benefit --how much sequestration is a quarterly drag for you, has been, and if you have any views on the updated IPAPS proposal that is coming out?

And, then I'll also ask you about Parallon, is there any update on some of the initiatives in Parallon?

All right.

Thank you.

Milt, you want to --

On the sequestration, in the quarter, and think was about a $35 million or $40 million drag for us year over year.

Of course, that normalizes out, and we did have that sequestration drag of course in our plan, but that's the dollar amount of the drag.

Vic, do you want to--

Yes.

Were sitting there just like you.

We expect it one day this week, and really can't anticipate what it's going to include.

We're not getting any signals of surprises, but time will tell.

AJ, this is Bill on Parallon, I think we're on-plan with Parallon growth, continued focus with the implementation of the LifePoint account as we've heard about.

We have our Catholic Healthcare Partners implementation going on as we speak, and so far Parallon is on-plan with our expectation.

Our Health Trust purchasing group inside Parallon is performing very well as well.

All right.

AJ, thank you.

And Travis, time probably for just one, maybe two more questions.

Gary Lieberman, Wells Fargo.

Thanks.

I guess one clarification.

Just to be clear, based on the analysis that you had done of the exchange based patients, so two-thirds of the exchange individuals had not been previously insured, is the take-away from that?

No.

It was the opposite.

So we looked at our exchange volume, went back 12 months and said, have we seen them before, and we have seen about half of that volume previously.

And of that half, one-third was previously uninsured, two-thirds had some previous coverage.

So the number was, one-third at least of that data point, previously had no coverage, but today, they're enrolled in an exchange product.

Okay.

So -- okay.

I think I have that straight.

So was that in-line with your expectations, or was that surprising to you?

It is pretty close what our expectations were.

I think as we spoke in our earlier call, you know, that was a variable that was floating around as we were completing our model about how much of your exchange volume that you projected will be incremental or not.

And there were numbers all over from 11% to 50%, and we said, kind of, our numbers were in the middle of that.

So it was fairly consistent with what our modeled expectations would be.

Gary, thank you.

I'm sorry.

Go ahead.

You can finish.

And then just on the progression of rate of increase of the impact from the exchanges, or the doubling in February and March, do you expect that kind of rate of increase to continue through say, mid-May when the impact of those that were signing up on the exchanges has sort of --how would you think about that?

We're hopeful, but my honest answer is we don't know just yet.

We're continuing to watch that.

We think there will be some progression of that.

Will it be at the same pace we saw in the first couple months?

Really, I just don't know.

It would be great if it was, but we just don't know yet.

Gary.

Thank you.

And Travis one last question.

Colleen Lang, FBR capital markets.

Good morning.

Just a quick one following up on a few earlier questions.

Are you still comfortable with 1% to 2% equivalent admission growth through the year given the comps do get a bit more difficult in Q2 and Q3?

Milt, Bill, Sam?

We're starting here at adjusted admissions at, down 0.3% here for the first quarter.

You know, I wouldn't take 1% growth off the table yet, but you know, so I would say still 1% to 2% would be our best guidance based on one quarter.

All right.

Thank you, Colleen, and thank you everyone for participating on the call.

Mark is here all day and I will be here part of the day.

You all, have a good one.

I had to be honest here.

That concludes today's presentation.

Thank you for your participation.