美國醫院公司 (HCA) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to the HCA Second Quarter 2018 Earnings Conference Call.

Please note that this call is being recorded.

And at this time, for opening remarks and introductions, I'd like to turn the call over to the Senior Vice President, Mr. Vic Campbell.

Please go ahead, sir.

All right.

Thank you, Kathy.

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 listening to the webcast.

With me here this morning is our Chairman and CEO, Milton Johnson; Sam Hazen, our President and Chief Operating Officer; and Bill Rutherford, our CFO and Executive Vice President.

Before I turn the call over to Milton, 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.

Several of the factors that will determine our 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.

On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, excluding losses, gains on sales of facilities, losses on retirement of debt and legal claims, which are non-GAAP financial measures.

A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare to adjusted EBITDA is included in the company's second quarter earnings release.

A replay of this call will become available later today.

With that, I'll turn the call over to Milton.

All right.

Thank you, Vic, and good morning to everyone joining us on the call and the webcast.

We were very pleased with the second quarter's results.

Revenue growth, driven by solid volume and rate growth, combined with good expense management, provided strong adjusted EBITDA growth for the quarter.

This is the third consecutive quarter of solid adjusted EBITDA growth for the company.

Starting in the fourth quarter of 2017, we have reported adjusted EBITDA growth of 7.1%, 5.6% and 6.6% on a quarterly basis.

In our earnings release this morning, we announced revised earnings guidance reflecting higher earnings expectations for full year 2018.

More on this later in my comments.

Revenues in the second quarter totaled $11.529 billion, up 7.4% from the previous year's second quarter.

Net income attributable to HCA Healthcare, Inc.

totaled $820 million or $2.31 per diluted share compared to $657 million or $1.75 per diluted share in the second quarter of 2017.

Net income attributable to HCA Healthcare increased 24.9%, and diluted earnings per share increased 32% compared to the previous year's second quarter.

Adjusted EBITDA increased to $2.227 billion, an increase of 6.6% from the previous year's $2.09 billion.

Our adjusted EBITDA growth rate was unfavorably impacted 4.4% by the sale of the Oklahoma University assets in Q1 and the results of recent hospital acquisitions.

Year-to-date, adjusted EBITDA totaled $4.345 billion compared to $4.095 billion, an increase of 6.1%.

Volume trends were solid for the second quarter with our reported admissions increasing 4.5% and equivalent admissions increasing 5.1% over the prior year period.

Same-facility admissions increased 2.7%, while same-facility equivalent admissions increased 2.8% in the second quarter compared to the same period in 2017.

I was particularly pleased to see our same-facility managed care and exchange adjusted admissions increase 1.9% in the second quarter, the highest growth rate since the first quarter of 2016.

Cash flows from operations remained strong at $1.582 billion compared to $1.404 billion last year.

We maintained a balanced approach to investing in capital expenditures in our existing markets, while returning value to shareholders in the form of share repurchase and dividends.

We invested $880 million in capital expenditures during the second quarter of 2018, repurchased 4.7 million shares at a cost of $470 million and also paid a dividend of $122 million during the quarter.

During the first 6 months of 2018, the company has placed in service approximately $625 million in growth capital, adding access points and new capacity to our networks.

Estimated growth capital coming online for the remainder of 2018 is approximately $825 million.

Capital expenditure investment is a key component of our strategy, and we believe it will provide continued opportunities for growth in our markets.

This morning, we updated the company's 2018 earnings guidance to reflect the strong performance of the company through June 30, 2018.

We increased our estimated revenues, adjusted EBITDA and diluted earnings per share ranges for the year.

Revenues are now projected to range from $45.5 billion to $46.5 billion.

Adjusted EBITDA is estimated to range from $8.65 billion to $8.85 billion, and diluted earnings per share is now estimated to range from $9 to $9.40 per diluted share.

Before I turn the call over to Bill, I want to take a moment to mention our company's 50th anniversary, which we'll officially celebrate next month.

Since our incorporation in August of 1968, HCA Healthcare has grown from a single hospital, Park View Hospital located in Nashville, to what it is today, a health care company with close to 2,000 sites of care, 38,000 active physicians, approximately 250,000 employees, more than 28 million annual patient encounters, and an enterprise valuation in excess of $70 billion.

I'm not sure if our founders, Dr. Frist Sr., Dr. Frist Jr., and Jack Massey, could have anticipated the impact of the company they launched with that 1 hospital 50 years ago.

We thank them for their original vision and legacy of commitment to the practice and delivery of health care.

Now let me turn the call over to Bill for more information on the quarter.

Great.

Thank you, Milton, and good morning, everyone.

Let me give you some more detail on our performance and the results for the quarter, starting with volume results by payer class.

During the second quarter, same-facility Medicare admissions and equivalent admissions increased 3.6% and 4.2%, respectively.

This includes both traditional and Managed Medicare.

Managed Medicare admissions increased 11% on a same-facility basis and represented 37% of our total Medicare admissions.

Same-facility Medicaid admissions increased 1.6%, while equivalent admissions declined 0.3% in the quarter.

Same-facility self-pay and charity admissions increased 7.8% in the quarter, while equivalent admissions increased 6.5%.

These represented 8% of our total admissions compared to 7.6% in the prior year period.

Texas and Florida represented about 70% of our total uninsured admissions.

Managed care and exchange admissions increased 0.9% and equivalent admissions increased 1.9% on a same-facility basis in the second quarter compared to the prior year period.

Both are an increase from our recent results.

Same-facility emergency room visits declined 0.8% in the quarter compared to the prior year.

Same facility self-pay and charity ER visits represented 19.9% of our total ER visits in the second quarter of 2018 compared to 19.3% in the prior year period.

Intensity of service or acuity increased in the quarter, with our same-facility case mix increasing 4.1% compared to the prior year period.

Same-facility surgeries increased 2.3% in the quarter, with same-facility inpatient surgeries increasing 1.7% and outpatient surgeries increasing 2.6% from the prior year period.

Same-facility revenue per equivalent admission increased 3.6% in the quarter, which reflects continued increase in the intensity of services during the quarter.

Our hospital-only same-facility managed care and exchange revenue-per-equivalent admission increased 3.5% in the quarter.

On a year-to-date basis, same-facility hospital-only managed care and exchange revenue-per-equivalent admission has increased 5%.

Our same-facility total uncompensated care, which includes implicit price concessions, charity care and uninsured discounts, totaled $6.057 billion in the quarter as compared to $5.397 billion reported in the prior year.

This growth is in line with our volume and pricing results.

So let me take a minute to discuss the impact of acquisitions and divestitures.

Our as-reported adjusted EBITDA growth of 6.6% in the quarter was negatively impacted by our acquisitions and divestitures.

We closed on the divestiture of our Oklahoma facilities on February 1 of this year.

This negatively impacted our adjusted EBITDA growth rate by approximately 210 basis points in the quarter compared to the prior year.

In addition, the impact of our new facilities, which primarily consist of our hospital acquisitions that occurred in 2017 and the first half of 2018, negatively impacted our adjusted EBITDA growth rate by approximately 230 basis points in the quarter.

Now turning to expenses and operating margins.

Our as-reported EBITDA margin declined 20 basis points from 19.5% in the second quarter last year to 19.3% on an as-reported basis.

The sale of our Oklahoma facilities and our new facilities, which primarily consist of recent acquisitions, had a 130 basis points unfavorable impact on our EBITDA margin for the second quarter of 2018.

Our same-facility EBITDA margins increased approximately 90 basis points over the prior year.

Same-facility operating expense per equivalent admission increased 2.3% compared to last year's second quarter.

On a consolidated basis, salaries and benefits as a percent of revenues were 45.8% compared to 45.6% in last year's second quarter.

On a same-facility basis, salaries and benefits as a percent of revenue were 42.4% versus 42.9% last year.

And same-facility salaries per equivalent admissions increased 2.3% in the quarter.

Overall, our labor costs remain relatively stable.

Supply expense as a percent of revenue was 16.6% this quarter compared to 16.7% in last year's second quarter on a consolidated basis.

On a same-facility basis, supplies as a percent of revenue declined 20 basis points, and same-facility supply expense per equivalent admission increased 2.4% for the second quarter compared to the prior year period.

Other operating expenses increased 10 basis points from last year's second quarter to 18.4% of revenues.

On a same-facility basis, other operating expenses as a percent of revenue declined 20 basis points from the prior year and increased 2% on a per equivalent basis.

So let me touch briefly on cash flow.

Cash flow from operations increased 12.7% in the quarter to $1.582 billion compared to $1.404 billion in last year's second quarter.

Free cash flow, which is cash flow from operations of $1.582 billion less capital expenditures of $880 million, distributions to noncontrolling interests of $93 billion and dividends paid to shareholders of $122 million, was $487 million in the quarter compared to $568 million in Q2 of 2017.

At the end of the quarter, we had $1.842 billion available under our revolving credit facilities, and debt to adjusted EBITDA was 3.91x at June 30, 2018, compared to 4.02x at the end of 2017.

Moving on to earnings per share.

Our earnings per share increased 32% in the quarter to $2.31, up from $1.75 in the second quarter of last year.

As mentioned in our release, earnings per share was favorably impacted in the quarter by $0.34 due to the impact of the Tax Cuts and Jobs Act.

Also, we estimate our divestiture of our Oklahoma facilities, coupled with the impact of our new facilities, had approximately $0.18 negative impact on earnings per share in the quarter as compared to the prior year.

So that concludes my remarks, and I'll turn the call over to Sam for some additional comments.

All right, good morning to everybody.

I'm going to provide more detail on our volume performance for the quarter as compared to the second quarter of last year.

In general, our volume growth accelerated in the quarter and was broad based across the company's divisions.

My comments will focus on our same-facilities domestic operation.

12 of 14 divisions had growth in admissions.

Growth was especially strong in 6 divisions: North Texas, Gulf Coast, North Florida, San Antonio, Central Texas and South Atlantic divisions.

Our East Florida and Mountain divisions, conversely, were down.

12 of 14 divisions had growth in adjusted admissions.

Five divisions had growth in emergency room visits.

Freestanding emergency room visits grew 14%, while hospital-based emergency room visits declined 2.5%.

Once again, higher-acuity visits grew, while lower-acuity visits declined.

Medicaid emergency room visits were down 4.8%, which explain the overall decline in emergency room visits.

Admissions through the emergency room grew by 3.4%.

Trauma and EMS volumes grew by 3.3% and 0.7%, respectively.

Inpatient surgeries were up 2%.

Surgical admissions were 27.5% of total admissions in the quarter, which was generally consistent with the prior year.

Surgical volumes continued to be strong in cardiovascular, vascular and orthopedic service lines.

8 divisions had growth in inpatient surgeries.

Outpatient surgeries showed strong growth also.

Hospital-based surgeries were up 3.5%, and freestanding ambulatory surgery centers were up 1.5%.

12 divisions had growth in outpatient surgeries.

Behavioral health admissions grew 3%.

Rehab admissions grew 7.4%.

Cardiology procedure volumes, both inpatient and outpatient combined, were up 2.5%.

Births were up 0.4%.

Neonatal admissions were down slightly at 0.6%.

However, neonatal patient days were up 1.8%, an indication of a higher level of acuity in these units.

Urgent care visits for the company were down 3.6% on a same-facilities basis, but they were up 12% in total.

HCA has now grown same-facility admissions in 17 consecutive quarters.

We believe this consistent pattern of growth is a result of positive macro factors in our markets and a comprehensive growth agenda that is both well resourced and well executed.

With that, let me turn the call back to Vic.

All right, thank you Sam.

All right, Kathy, if you'd like to come back on and poll for questions please.

(Operator Instructions) We will go first to A.J. Rice of Crédit Suisse.

Congratulations on the 50th anniversary.

I just want to drill down maybe a little bit more in -- on the volumes that you're seeing.

I know 2 or 3 years ago, the company stepped up the pace of capital spending.

I assume that, that would be part of the strength that you're seeing.

Is there any way to delineate that out?

And I think, Sam, you mentioned in your comments about the strength in the underlying markets.

I know you often talk about being in markets that are growing faster than the overall national average.

Is there any way to say -- has there been, in the recent quarters, a pickup in the underlying volume trends in your mind, either in your markets or nationally that's supplementing your growth?

Or is this mostly company specific?

A.J., thank you, and Sam, you want to take that to start?

Well, let me give a little backdrop here, first.

If you look at 2017, we indicated throughout the year that we believe that the markets that we were in had strong fundamentals, and they would ultimately show themselves.

They don't show themselves in every year, consecutively, as we've mentioned, but nonetheless, they do show themselves.

And what we saw in 2017 was moderate demand growth in the first 3 quarters of the year across all of HCA's markets.

But in the fourth quarter, we started to see some elevation in overall demand growth within our markets.

It's stepped up almost 1.8%.

We don't have the first quarter of '18 nor the second quarter yet, but it is our belief that the fundamentals within our market are, in fact, strong.

As we've mentioned historically, we think as we look forward that the demand growth is somewhere between 2% and 2.5% across HCA's markets over the next intermediate run.

Having said that, we do think our strategies, our capital deployment, our physician engagement and other components of our growth strategy are showing themselves very competitively in the marketplace, and that's part of what we see as contributing to our growth.

The capital that we have deployed is coming online and in the individual facilities, most of them are performing as we expected with the new capital.

I don't know that it's enough yet to fully indicate that that's what's driving our lift, but I think it is a contributing factor, A.J. And it's just hard for me to sit here and quantify it specifically and say that's driving x amount of growth.

But I think, overall, when you look across the different components that we just mentioned, we have pretty much every service line indicator show positive growth, except for the emergency room visits, and that was down slightly.

Again, it was down in the categories of our business that are the least profitable, our low-acuity business and our Medicaid business.

So it didn't have an effect, really, on our revenue stream nor our profitability.

But we remain optimistic about our markets and the macro factors, as I indicated.

And then we believe we're doing the right thing to build out our provider system capabilities, improve our service offering, improve our quality and engagement with our constituents, and we think it's yielding a pretty positive result for the company.

Yes, A.J., maybe just to add, again, a macro, I guess, viewpoint here.

Last Friday, the Department of Labor released their annual survey, and it was interesting.

We've been saying, as a company, looking especially at our markets, that we're seeing a growth in the number of lives covered by employer-sponsored insurance.

And we believe that, that macro, sooner or later, it will start to show up in our numbers, and I said we had the highest managed care exchange volumes this quarter than we have seen since really going back to 2016.

But interesting in the survey, again, and this is national information, unemployment rates fell in June to 4%, its lowest rate I think in 18 years.

And in our markets, our unemployment rates are lower than 4%.

Unlike national, for example, I think that unemployment rate is 2.2%.

But more importantly, because of the tighter labor market, the survey indicated that businesses are offering more generous benefits as a result, and most importantly for us, more employer-sponsored health insurance.

And so we've been seeing that growth in large employers.

But what this survey indicated, now even smaller employers, employers with -- businesses with 50 to 500 workers, are now offering a greater share of their employees than the year before, offering health insurance.

So again, these macro trends, I think, are playing well for us, not only (inaudible) or national statistics, but our markets are performing even better than the national average.

So again, I think this macro is a favorable indication for us as well.

We will now go to Frank Morgan of RBC Capital Markets.

Well, in addition to the strong organic growth, I guess, I'll ask about the external growth.

I know you've made a number of acquisitions like Savannah, and you have a pending acquisition in Mission Health.

Just curious, I would like an update on kind of how you see those developing, ones you've already closed, plus the ones that might be pending, and then any comments on what you might see from a 340B update.

I know there's a lot going on out there.

Does it have any concerns to you?

Sam, do you want to take part of that?

So let me break our acquisitions down into, really, 3 components, Frank.

2017 acquisitions that we did, mainly in Texas, and then we have the Savannah acquisition that we did in the first quarter of 2018, and then we're in the due diligence process with Mission.

So there's really not a whole lot to report there, other than the fact that we think the diligent process is going well.

We continue to be very impressed by the Mission Health system and believe it's a logical acquisition opportunity for HCA, given our strategy and our disciplined approach to acquiring hospitals.

Our Texas hospital acquisitions have been a bit of a disappointment, as we've indicated.

Over the past 6 to 8 months, we did not accomplish what we thought we would accomplish in the first year.

We do believe, however, that we're starting to turn the corner on the operations in those particular facilities, and that we believe, long term, we made the right decision in adding to our portfolio in Houston.

Houston is a large market.

We have significant market share.

And the geographical positioning of these hospitals, we believe, over the long run, will continue to support our network and provide a very reasonable return for the company.

Savannah, as we indicated, is a long-term play for us.

Savannah, coming out of the gate, is about where we thought it was.

We knew it was a struggling institution when we acquired it, but it has really strong fundamentals when it comes to the services that it offers in a very tight CON state like Georgia, the kind of quality physicians and great nursing that it has, it just needs the right leadership, the right resources and the right strategy.

And we think over a 3- to 5-year period, we're going to be in a really solid position with that particular facility.

So acquisitions continue to play a part of our network development.

We've added some outpatient facilities here and there, some physician clinics, one of which was sizable in Austin, Texas, that supported our network there.

So we continue to do these tuck-ins.

We have, over the last year, as you know here, added a few hospitals.

And we'll continue to look for those as they surface.

And as long as they make sense strategically and financially, we will pursue them with the same kind of disciplined approach we had in the past.

On the 340B...

I'll take that, thanks.

Frank, I think you're aware, and most are aware, that HCA investor-owned hospitals are not eligible for 340B funding.

So, obviously, there's a lot of talk about 340B and changes to it and what have you.

But those really, at this point, we would not see impacting us or the other investor-owned companies.

I guess if they went back and change something, I know it's actually -- was a benefit in your guidance for Medicare rates.

But what I was saying was just any fears, if they were to come back and change it, would they come clawback?

And would it -- it might have a negative impact on you if they were to reverse something?

That's a fair question.

Yes, when they did do the reduction in payments to 340Bs effective January 1, they put those reductions back in to the base for all hospitals.

And to be perfectly honest, they -- if you look at roughly 3,000 hospitals in this country, there are about 500 hospitals that were part of the 340B Program, about 560, that many ended up with a little less in 340B payments.

All the rest, including investor-owneds and all the other nonprofits, benefited from that redistribution.

So it is there.

It's not a huge number, but it is part of our reimbursement.

If there was a change and they went back on it, obviously, there would be some impact, but relatively immaterial.

And we're, obviously -- we're watching that.

We don't really see any indication of that happening.

Our next question will come from Justin Lake of Wolfe Research

It looks like preliminary Medicare rates for 2019 came in pretty strong, both in terms of the IPPS rate and the change in DSH.

I was hoping you could size the potential impact here if these rates are finalized in August.

And did you embed anything into the guidance update for Q4 as these things roll on?

And also, I wanted to follow up with your comments on acquired facilities.

It looks like they've lost about $75 million in EBITDA year-to-date.

So I was just curious in terms of your view of performance built in the guidance for the second half, do you think they lose something similar?

And then do you think you can get to breakeven or even a positive contribution in '19?

All right.

I'll do the Medicare rate, and then I think Bill will talk about the acquisition number.

Justin, our position as a company is we really don't discuss that until we see final rules.

So we still haven't seen the final inpatient rule, nor have they actually published the proposed outpatient rule, which should be coming shortly.

Now having said all that, the early indications are that our rate increase, coming in October 1 of this year, would be better than most previous years we've seen for a while.

But we're going to hang there until we see final rules before we try to quantify it in any way.

Yes, Justin.

This is Bill.

Embedded in our guidance on that is pretty much historic trends continuing on, and so we'll wait for the final rule.

Relative to the acquisitions that Sam mentioned, we do anticipate improved performance in our recent acquisitions, but they still will be a year-over-year headwind for us in the back half of the year.

In terms of our plans to get them to breakeven by '19, I think each of them have a little different unique story, as Sam indicated.

But I think our plans would be that they should be able to be a growth vehicle for us going forward, and be at breakeven or better going forward.

We will now go to Matt Borsch of BMO Capital Markets

Yes.

Just a question on the -- I appreciate all the information that you gave in terms of the backdrop for the higher volumes that we're seeing.

And I'm not taking anything away, of course, from your own execution, which I'm sure is an integral part of that.

But my question is, have you followed or believed in any sort of model that is correlated with the economy?

We followed that for a long time.

And I'll tell you, sort of pointed to a 3- to 5-year lag that we didn't see in any dramatic fashion, but maybe we are now.

I'm just curious what your thoughts are on that.

Milton.

Well I'll just say this.

Not recently, but a couple of years ago, we did do a study, looking at the effect of the economy on health care spending and health care volumes.

And what we found, we did see our study revealed a lag.

If my memory is correct, it was probably an 18- to 24-month lag between when the economy started increasing before we started seeing the upside from that.

And likewise, when there's a downturn, we tend to have 18 to 24 months of reasonable -- of trends before we see the impact.

So again, that study we did is somewhat dated, but it did conclude that we should expect a lag between business trends and volumes, as far as volumes in our sector, and the movement of the economy.

Our next question will come from Ralph Giacobbe of Citigroup.

You strung together several quarters of acuity up over 4%.

And I know you said you expect more like 2 to 3. Any update on thoughts on sort of sustainability around that?

And then just a second piece, somewhat related to surgery.

It seemed like a little bit of a turnaround there, one of the better quarters we've seen in a while.

Just anything to sort of call out within specific service lines, both in inpatient and outpatient?

All right.

Thank you, Ralph.

Sam, it sounds like yours.

Well, I think on the case mix, if you look back at 2016, we were about 3% -- north of 3%; 2017, north of 3%; the first half of 2017, north of 4%.

So we have seen some acceleration in our case mix.

Some of that we think is a result of programmatic development in key service lines, whether it's trauma, cardiovascular, deeper capabilities in orthopedics and oncology.

All of these things are playing a part, so it's difficult to point to any one of them.

Some of our clinical initiatives, I will tell you, were also contributing to case mix growth.

As we get better at identifying and supporting certain clinical requirements of our patients, that's also contributing somewhat to the case mix growth.

I think, fundamentally, what you have at some level is the fact that lower-acuity business is exiting in many instances to the outpatient environment.

That's lifting the composite inpatient case mix somewhat as well.

We see that in the composition of our patient days when we look at our critical care days as a percent of total or our intermediate level days as a percent of total.

So those things do contribute.

On the outpatient surgery and the inpatient surgery, inpatient surgery continues to perform at a pretty good level.

I forgot exactly how many quarters in a row we've had inpatient growth activity on the surgical side.

We were really pleased with our outpatient surgical growth in the quarter.

Again, we think that's a function of our physician recruitment, ambulatory surgery center development and our OR-of-choice initiative, where we're really working to deliver a great experience for our patients and a very efficient and well-equipped experience for our surgeons.

So the combination of all those things are contributing to our trends, I think, and we continue to be optimistic with our surgical agenda.

And our investments that Milton alluded to in his comments are also, I think, a part of what's happening.

We continue to add capacity.

We continue to upgrade the technology inside of our surgical suites, and we're seeing the benefits of that as well.

Milt, anything...

Yes, I mean, just on Sam's point about surgical growth.

I was looking last night and this morning, and I just want to point this out.

If you look at our total surgery cases growth in the second quarter of last year, up 2.3%, that's the highest growth rate the company has reported since the first quarter of 2016.

And I'll call out, too, that was of course one extra day in that quarter because of leap year.

Inpatient surgery cases, Sam, you had mentioned a 1.7% growth this quarter.

That's the highest growth rate since the second quarter of '16.

Outpatient surgery cases, up 2.6% this quarter.

That's the highest growth rate we've reported since the first quarter of '16.

And hospital-based outpatient surgery cases, up 3.5% this quarter.

That's the highest growth we've reported since the first quarter of '16.

So again, and all these have been trending with improvement, but again, that's a solid performance on our surgery cases this quarter.

And again, that's obviously impacting the case mix index.

We we'll now go to Peter Costa of Wells Fargo Securities.

Sure.

So expanding a little bit -- by the way, happy birthday.

I want to understand a little bit more about what we see going on with the managed care mix relative -- second quarter relative to the first quarter.

The managed care admits were up 0.9% this quarter and -- same-facility basis, and up 1% in the first quarter.

The equivalent admissions were up 1.9% this quarter and 1.2% in the first quarter.

So that seems to have accelerated.

And if I look at your outpatient surgeries, and that was up 2.6% overall on a same-store basis, and that was down 0.5% in the first quarter.

So I'm wondering, is there some kind of a rebound that we had from maybe weather in the first quarter and we're seeing some of that in the second quarter here now, in the outpatient surgery side?

Because that seems like stuff that might be more likely delayed than maybe inpatient stuff.

I'm trying to understand, is there any rebound in this, or is this all straight growth?

We did not have -- this is Sam.

We did not have any significant weather issues in the first quarter.

And we're not viewing the second quarter results as a rebound effect from anything unusual in the first quarter.

We just -- we have, we think, reasonable growth initiatives in this particular category.

And, obviously, outpatient surgery is roughly 50% to 55% commercial business, so it has an influence on our adjusted admissions, as you indicate.

And so that's a very important part of our outpatient commercial strategy is the surgical side of things.

But there's nothing unusual, at least in our analysis of our business trends, in the second quarter.

Just one follow-up, if you don't mind.

What do you think could have led to the change from 2.6% versus the down 0.5% in the first quarter?

I'm not sure I can point to that.

I think, again, there's so many factors and so many components to each of these categories, it's hard to particularly identify one thing or 2 things that's driving it.

For me, when I pull up and I look at our effort at providing great capabilities for our positions, providing a very efficient and effective environment for our patients, the investments that we're making in technology and our surgical suites, the recruitment of surgeons, all of this adds up.

And it doesn't go in a straight line.

I wish it did.

It would make my life a heck of a lot easier, but it doesn't.

And so we're going to have some ups and downs, if you will, in some of these categories, depending on the calendar and so forth.

But for us, we think we have a very robust and comprehensive agenda around growing surgical activities and attracting surgeons and patients to our facilities.

And so we're viewing it more as a culmination of the different initiatives we got.

Milton.

Maybe I'll add one more piece of color to it.

I mean, I think, too, that you're comparing the second quarter to the first quarter.

If you go back to the fourth quarter, we were up almost -- just under 1%.

And then now we see -- we've seen interesting recent trends in our business, where the fourth quarter, especially elective surgery cases, i.e., outpatient surgery cases, tend to increase in the fourth quarter as people may be trying to get in before starting new deductibles and co-pays in the upcoming year.

And typically, we do see lower surgical volumes in the first quarter, I think, primarily as a result of people who can get in and things done in the fourth quarter.

So I think that the 2.6% we reported compared to the first quarter, I think some of it may be explained somewhat by seasonality.

But two, I think, again, it may reflect more people with confidence in the economy coming back and into -- for health care services.

Again, that's my speculation, but I do think when you compare it to the first quarter, that's typically a lower-volume surgical -- outpatient surgical quarter for us.

We will now go to Matthew Gillmor of Baird.

Congrats on the 50 years.

I wanted to ask about competition within your markets.

HCA has obviously increased CapEx spending the last couple of years in a big way.

Can you give us some insight into your local competitors?

Have they responded from a CapEx perspective?

Are they keeping pace?

Or do you think the spending is creating a greater level of differentiation than prior years?

This is Sam again.

I think, in general, we think our spending is giving us a competitive advantage.

There are specific markets where our competitors are spending at equal levels, and it's not necessarily differentiating 1 institution from the other.

Overall, it's our judgment that the competitive positioning of HCA systems across the 42 domestic markets where we do business in the States is better today than it was the same time last year because of the different elements that we judge that are necessary for competitive positioning, capital being one of them, physician satisfaction, patient satisfaction, nursing engagement.

All of these components, service line development, the development of our outpatient ambulatory footprint, all of these pieces go into assessing whether or not we are at a competitive positioning from one market to the other at appropriate level.

And it's our belief that we have incrementally, year-over-year, improved our competitive positioning in most of our markets.

There are some very formidable competitors in HCA's markets, and we have to be responsive to some of their movements, just like they respond to ours.

And so I, again, in general, I think our positioning is better, partly due to the capital expenditures, but also partly due to these other components that are very important to overall competitive positioning.

We'll now go to Josh Raskin of Nephron Research

I wanted to dig in a little bit more on the ED, I guess, general weakness.

And I'm curious, just the one area that kind of sticks out.

And I don't know, is that competition?

Is that urgent care?

Is there some cannibalization?

Are there payer-related actions that are causing that?

And then, I guess the real question on ED is like, is it actually a bad thing economically for you guys from an EBITDA perspective?

Is moving some of this volume out of the sort of high-cost emergency room into perhaps some of your recently built outpatient facilities, is that actually EBITDA-neutral or even positive for you guys?

Josh, good question.

Sam?

I think all the factors you listed are relevant to the emergency room discussion.

There are more competitors, whether it's in the same type of care in emergency room business or in substitutes, potentially, in urgent care.

Some of our investments are potentially cannibalizing some of our business because most of the declines are in the lower -- all of the declines, excuse me, are in the lower-acuity levels of business.

Depending on the payer mix, determines the profitability, clearly.

Medicaid is not a very significant payer inside of our emergency rooms.

As I indicated, our Medicare ER visits, which account for about 30% of our total visits, were down 4.8%.

If you nullify that particular payer class, we were actually up in Medicare and commercial combined; and even self-pay, throw that into the mix.

So I think from that standpoint, it didn't have any material effect on our profitability.

Additionally, as I indicated, our admissions through the ER were in fact up in the quarter, reflecting the higher-acuity patients that we're seeing in the emergency room.

Obviously, from a capital standpoint, if we lose the lower acuity, it could reduce the need for certain capital commitments down the road.

But right now, I think it's a combination of all those factors you listed.

We continue to be very focused on our emergency room.

Our emergency room satisfaction is -- has grown and improved significantly over the past few years.

Our throughput is remarkable.

We see 9 million ER patients a year.

The average time to -- a patient to seeing a clinician is 11 minutes.

And so our continued focus on operational throughput, patient satisfaction and, in some instances, growth, will continue to be a very important part of our story.

And so we have roughly 5,000 ER beds in HCA.

As Milton indicated, we're adding to that because we have quite a bit of utilization.

And as we see the marketplace evolve, we'll make some minor adjustments here and there, but we're very focused on having a very good emergency room service line.

We now will take a question from Brian Tanquilut of Jefferies.

Just a question on your views on the ASC side of business in terms of strategy.

Do you see the need to do, say, a large-scale acquisition or make a bigger push to expand ASC business beyond what you're doing today?

Milton?

Well, I mean I think, again, we're very pleased with our ASC operations today.

We have been selectively adding to the number of ASCs we operate.

We'll continue to look for appropriate opportunities to add outpatient services, basically, ASCs in our business.

I don't feel compelled to have to do a large acquisition, which could result in us acquiring ASCs that are not in our core markets.

So very pleased with our strategy today and don't see a need to have to deviate from it.

Next question will come from Sarah James of Piper Jaffray.

I wanted to focus in on the strong behavioral trends.

Is HCA experiencing any headwinds such as bed closures related to staffing shortages in your psych assets?

And can you talk about the labor market dynamics in psych, whether the environment around nurse shortages and wage pressure is improving or getting more difficult?

All right.

Thanks, Sarah.

Sam?

We have 60 behavioral units in HCA.

That's not grown on a year-over-year basis.

We had the same number last year through the second quarter.

There have been challenges from one facility to the other periodically around the need for psychiatrists.

We have evolved a number of tactics to deal with that using telemedicine in some instances, developing a graduate medical education program that support psychiatrist development in a second instance, and so forth.

So that has surfaced periodically.

We've tended to be able to overcome those, and that's why we've had, I think, a decent result.

There are some challenges in the nursing front with behavioral health nurses.

It's an area where we're having to spend some time and energy in trying to create a better environment for our nurses and support our behavioral health patients.

But behavioral health continues to be a very important service line for HCA.

We have opportunities to invest in it.

It complements our emergency room and other approaches to the business.

And so we will continue to focus on it as we have in the past.

And our growth, we believe, can still be in that low to mid-single digits as it's trended the first half of this year.

We we'll now go to Ana Gupte of Leerink Partners.

Yes, my question was about your normalized growth guidance of 4% to 6% on EBITDA, if I recall it, and on revenue as well, the 2% to 3% volume, 2% to 3% pricing.

The business model seems to be working really well right now.

Your competitive position is driving share gains.

You're seeing pricing growth on acuity and payer mix, potentially also margin expansion with scale and integration.

And your pull-through right now looks like, on guidance, it's above the upper end of guidance.

So when do you think you might feel comfortable raising your growth guidance?

Bill, do you want to...

Yes, I'll take that and let others add in.

You're right, our long-term guidance is 4% to 6%.

And we've said, I think, pretty consistently, there can be periods where we might be on the high end or above, and there might be periods on the lower end.

But over the long run, that 4% to 6% is a good number.

And I think, as we've all mentioned today, we're very pleased with the results that the company has achieved, the momentum that we have competitively that Sam mentioned.

You're right, on a year-to-date basis, we've got strong performance.

We're at 6.1% on an as-reported basis.

When you normalize for our OU operations, we're pushing close to 8% on that number.

You look at our full year guidance, it would reflect about 6.3% at the midpoint of our revised guidance on a year-over-year basis.

And when you adjust for the sale of the OU facilities and last year's hurricane impact, it puts us probably close to that 6.5% to 6.6%.

So we are above that 4% to 6% longer-term view, and I think that is reflective of all of these positive trends and market momentum we have.

But as I started with, we've always said there's going to be periods where we're going to be above that and maybe periods at the low end of that.

So I don't think we're in a position today to think about revising that long-term numbers, but we're very optimistic about the growth trends of the company.

And now we'll go to Steve Tanal of Goldman Sachs.

Congrats on the anniversary.

I guess, I just want to sort of connect a couple of dots here.

It sounds like with the ER declines, coupled with really stark improvement in the surgery trend, perhaps you're seeing a pickup in the elective procedures.

Do you think that's a fair read?

And if so, what would that suggest about sort of utilization and where you think we are in the cycle?

And sort of separate but related to that point, any comments on salary, wages and benefits?

Is wage pressure, the trend rate there, accelerating, or is that pretty stable still?

All right.

Sam?

I think, in general -- this is Sam again, our -- the composition of our inpatient business, elective and emergent, is about the same, slightly more emergent with 3.4% ER admission versus our composite.

So just a slight increase on that front.

On the outpatient side, clearly, most of that activity is elective, and especially in the surgical area.

And so that would suggest, at least in this quarter, we did see more elective business.

I think back to Milton's point, as you have more and more people employed, more and more people covered by employer-sponsored insurance, you could see more elective activity.

We have seen growth in our birthrate, our birth volumes.

That has obviously more of an elective type of case, if you want to call it that.

So that's part of the composition as well.

On the labor cost, we're particularly pleased with what's going on with our labor initiatives.

I think our overall cost per FTE, when you look at the full composition of salaries, contract labor and benefits, it was 2.7% per FTE on a year-over-year basis in the quarter.

That's very consistent with the first quarter and with previous quarters in 2017.

Our employee engagement as a company improved.

Our nursing engagement improved.

Our human resources platform, which has been consolidated over the years, is becoming a more effective tool at supporting our facilities and delivering better human resources capability.

So we're very pleased with the overall performance of the company on many metrics.

Our nursing turnover hit an all-time low.

We feel that in some ways, we're winning the market share gain on nurses with what we're doing with our nursing initiatives.

So we're very encouraged by the efforts and the results that our teams are producing with our overall labor agenda.

All right.

Thank you, Steve, and we have time for just one more question.

And that question will come from Kevin Fischbeck of Bank of America.

I wanted to dig into pricing a little bit.

I guess you guys showed another strong quarter of pricing this quarter.

How do you think about the sustainability of that number?

Is that a good number to think about over the intermediate term?

And what is driving it to be higher this year versus the past year or so?

Is it mix?

Is it -- is this acuity thing sustainable?

Any other color that you have there?

Yes, Kevin, I'll try to take that.

As you know, we've had pretty stable pricing for some time.

When you look at the commercial pricing, we've talked about we've got pretty good visibility, and now almost 60% contracted for 2019, pushing 40% for 2020, and all those at a pretty consistent rate in terms going forward.

We've said for some time, we see an overall composite of 2% to 3%.

Again, there may be periods we're on the high end of that versus some periods on the low end.

I think what's driving it now is clearly the intensity growth going forward.

Maybe a little bit of the drop of lower-acuity business is boosting it as well.

So I still think the ranges that we've turned it in over the long run is good peg for HCA.

All right.

Kevin, thank you.

I want to thank all of you for being on the call, and look forward to seeing you and talking to you again.

Thank you.

And with that, ladies and gentlemen, that does conclude today's call.

We like to thank you again for your participation.

You may now disconnect.