美國醫院公司 (HCA) 2018 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the HCA Third Quarter 2018 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 Senior Vice President, Mr. Vic Campbell.

Please go ahead, sir.

April, thank you very much, and good morning, everyone.

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

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

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 and 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 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 results.

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

A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare Inc.

to adjusted EBITDA is included in the company's third quarter earnings release.

As you heard, the call is being recorded and a replay will be available later today.

With that, let me turn the call over to Milton.

All right.

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

Before we go into details about the quarter, I'd like to take a few moments to talk about our response to hurricanes Florence and Michael, which have recently affected our facilities and colleagues in the Southeast U.S. On September 14, Hurricane Florence made landfall in South Carolina, and on October 10, Hurricane Michael made landfall in Panama City, Florida.

Immediately before and after the storms, we evacuated several hundred patients to other facilities and without patient harm.

Both storms had a devastating effect on the communities we serve in Florida and the Carolinas, and where our HCA colleagues live and work.

Throughout these events, our colleagues in the affected areas and across the enterprise have supported our emergency operations efforts, our patients and each other.

Our robust disaster preparedness plans give us confidence when facing weather disasters like this, but it's the teamwork and patient-centered commitment of our HCA Healthcare colleagues that make those plans work so well.

I'm very proud of that teamwork and professionalism.

Now let me provide some comments on the third quarter results.

Overall, we are very pleased with the third quarter results.

Consistent with recent results, we saw solid volume and rate growth, increased intensity of service and excellent expense management, which resulted in solid adjusted EBITDA growth for the quarter.

This morning, we also favorably revised the earnings guidance ranges to reflect results for the 9 months ending September 30 and expectations for the remainder of the year.

More on this later in my comments.

Revenues in the third quarter totaled $11.451 billion, up 7.1% from the previous year's third quarter.

Net income attributable to HCA Healthcare Inc.

increased 78% to $759 million or $2.15 per diluted share compared to $426 million or $1.15 per diluted share in last year's third quarter.

Bill will provide more detail on these items in a moment.

Adjusted EBITDA in the third quarter increased to $2.096 billion, an 18% increase over the prior year, which included the negative impact from both hurricanes in the third quarter of last year and Texas Medicaid waiver payments.

Additionally, our third quarter adjusted EBITDA growth rate was unfavorably impacted by an estimated 310 basis points from the sale of Oklahoma University assets.

Year-to-date through September, our adjusted EBITDA totaled $6.441 billion compared to $5.871 billion in the same period of 2017, an increase of 9.7%.

Cash flows from operations were very strong, totaling $1.721 billion, up from last year's $1.008 billion last year.

We invested $846 million in capital spending in our existing markets, repurchased 2.5 million of our shares at a cost of $302 million and also paid a dividend of $121 million during the third quarter of 2018.

This morning, we updated our guidance ranges for 2018.

Revenues are now projected to range from $46 billion to $47 billion.

Adjusted EBITDA is estimated to range from $8.7 billion to $8.9 billion.

And diluted earnings per share is now estimated to range from $9.05 to $9.45 per diluted share.

In September, we announced my retirement as CEO at year-end and the appointment of Sam Hazen as CEO effective January 1, 2019.

So today, after approximately 80 HCA quarterly earnings calls, this will be my last as an active participant.

Since January 1, 2014, it's been my privilege to be the CEO of this great company.

I've had the distinct pleasure of getting to know many of you over my 36 years at HCA.

This is a wonderful company with many talented people who are committed to the delivery of high-quality patient care and operational excellence.

I am extremely proud of the many accomplishments we've achieved as a team, including advancing the company's clinical agenda, which focuses on the delivery of high-quality patient care and improving patient satisfaction.

HCA is well positioned for the future under Sam's leadership, and I remain excited about the company's future.

Now I'll turn the call over to Bill.

Thank you.

Good morning, everyone.

Bill, I guess I should pause there just for a moment and recognize your leadership and the example you've set for all of us.

So as Milton mentioned, we are pleased with our results as the company reported a solid third quarter.

On an as reported basis, our adjusted EBITDA was $2.096 billion or an 18% increase from our $1.776 billion reported in the third quarter of last year.

There are a few items I would like to discuss that impacted the year-over-year comparisons.

First is the hurricane impact we experienced in the third quarter of 2017, where both hurricane Harvey and Irma impacted our prior-year results.

You will recall we estimated the loss of revenues and additional expenses of approximately $140 million or $0.24 per diluted share in last year's third quarter.

During the third quarter of this year, Hurricane Florence hit the Carolinas.

Due to a mandatory evacuation order, we had to evacuate all of our patients from our Myrtle Beach Grand Strand hospital.

We estimate that we had an approximately $9 million impact associated with Florence in this quarter.

Second, the results for the third quarter of 2017 also include a negative impact to operating results related to a final settlement amounts for the program year ended September 30, 2017, for the Texas Medicaid Waiver Program of approximately $80 million or $0.08 per diluted share.

And third, as noted in our release this morning, based on the receipt of updated actuarial information, we recorded a reduction to the company's reserves for professional liability risk of $70 million or $0.15 per diluted share in this year's third quarter.

Finally, as we have noted in our previous quarters, based on its contribution last year, we estimate the sale of our Oklahoma facilities had a negative impact of approximately 310 basis points on the growth rate of adjusted EBITDA in the quarter.

Our new facilities, which are primarily those facilities purchased in 2017 and the first 9 months of 2018, had a negative adjusted EBITDA of $27 million in the third quarter, which was consistent with the negative EBITDA in the third quarter of 2017.

So even when you adjust for these items, we are pleased with the performance and adjusted growth we experienced in the quarter.

So now let me give you some more detail on the performance of some key operating metrics for the quarter as compared to the third quarter of 2017, starting with volume results by payer class.

Same facility Medicare admissions and equivalent admissions increased 2.9% and 3.5%, respectively.

This includes both traditional and managed Medicare.

Managed Medicare admissions increased 12.6% on a same facility basis and represented 37.6% of our total Medicare admissions.

Same facility Medicaid admissions increased 2.6%, while equivalent admissions increased 0.6%.

Same facility self-pay and charity admissions increased 8.8%.

These also represented 8.8% of our total admissions compared to 8.3% in the prior-year period.

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

Managed care admissions increased 2.1% and equivalent admissions increased 4% on a same facility basis, a continuation of solid results.

Same facility emergency room visits declined 0.4%.

Same facility self-pay and charity ER visits represented 21% of our total ER visits compared to 20.2% in the prior-year period.

The decline in ER visits was primarily driven in our low-acuity ER visits.

Our Level 1 through Level 3 ER visits declined 3.8%, but our Level 4 and 5 visits increased 1.8%.

This is very similar to what we saw in the second quarter as well.

Also, our same facility in-patient admissions through the ER increased approximately 3.3% in the quarter.

Intensity of service or acuity increased with our same facility case mix increasing 3.8%.

Same facility surgeries increased 3.2%.

The same facility in-patient surgeries increased at 1.6%, and outpatient surgeries increased at 4.2%.

Same facility revenue per equivalent admission increased 3.9% in the quarter, primarily reflecting continued increase in the intensity of services during the quarter.

Our hospital-only same facility managed care revenue per equivalent admission increased 4.8% in the quarter.

Our same facility total uncompensated care, which includes implicit price concessions, charity care and uninsured discounts, totaled $6.342 billion in the quarter as compared to $6.5616 -- $5.616 billion reported in the prior year.

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

Now turning to expenses and operating margin.

Our as reported adjusted EBITDA margin increased 170 basis points from 16.6% in the third quarter last year to 18.3% on an as reported basis.

Some of the improvement on margin can be attributed to loss of revenue and increased cost in the prior-year's third quarter due to hurricanes.

The sale of our Oklahoma facilities and our new facilities had an estimated 110 basis points unfavorable impact on our adjusted EBITDA margin for the third quarter of 2018.

Same facility operating expense per equivalent admission increased 1.8% compared to last year's third quarter.

This metric benefited from the impact of the prior-year hurricanes.

Adjusted for this, the current year increase is in line with recent trends.

On a consolidated basis, salaries and benefits as a percent of revenues were 46.9% compared to 47.5% in last year's third quarter.

On a same facility basis, salaries and benefits as a percent of revenue were 43.7% versus 44.8% last year.

And same facility salaries per equivalent admission increased 1.4% in the quarter.

Overall, our labor costs remain relatively stable.

Supply expense as a percent of revenue was 16.5% this quarter as compared to 16.6% in last year's third quarter.

On a consolidated basis, supplies as a percent of revenue declined 10 basis points.

And same facility supply expense per equivalent admission increased 3% for the third quarter compared to the prior-year period.

Other operating expenses declined 100 basis points from last year's third quarter to 18.4% of revenues.

This includes the $70 million reduction in our provision for professional liability risk recorded in the third quarter.

Let me touch briefly on cash flow.

Cash flow from operations totaled $1.721 billion for the third quarter of 2018 compared to $1.008 billion in last year's third quarter, which is an increase of almost 71%.

Free cash flow, which is cash flow from operations of $1.721 billion less capital expenditures of $846 million, distributions to noncontrolling interests of $130 million and dividends paid to shareholders of $121 million, was $624 million in the quarter compared to $164 million in Q3 of 2017.

At the end of the quarter, we had $2.382 billion available under our revolving credit facilities and debt to adjusted EBITDA was 3.76x at September 30, 2018, compared to 4.02x at the end of 2017.

Now moving to earnings per share.

Our diluted earnings per share in the quarter totaled $2.15, up from $1.15 in the third quarter of last year.

Our EPS was impacted by the items I previously discussed as well as a $0.37 per diluted share tax benefit related to the impact of the Tax Cuts & Jobs Act.

Also we estimate our divestiture of OU operations, coupled with the impact of our new facilities, had an approximately $0.10 negative impact on EPS 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, everyone.

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

In general, our volume growth in the quarter was consistent with the prior 2 quarters growth.

Additionally, we continued to demonstrate broad based growth across the company's divisions and across our various service lines.

My comments will focus on our same facility domestic operations.

12 of 14 divisions had growth in both admissions and adjusted admissions.

5 of 14 divisions had growth in emergency room visits.

Freestanding emergency room visits grew 11%, while hospital-based emergency room visits declined 1.8%.

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

Admissions through the emergency room, as Bill indicated, grew by 3.3%.

Trauma and EMS volumes grew by 4.9% and 1.5%, respectively, reflecting the higher acuity visits we are seeing in our emergency rooms.

In-patient surgeries were up 1.8%.

Surgical admissions were 27.3% of total admissions in the quarter, generally consistent with the prior year.

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

11 of 14 divisions had growth in inpatient surgeries.

Outpatient surgery showed strong growth.

Hospital-based surgeries were up 5% and our freestanding ambulatory surgery centers were up 3.8%.

13 of 14 divisions had growth in outpatient surgeries.

Behavioral health admissions grew 2.4%.

Rehab admissions grew 8.3%.

Cardiology procedure volumes, both inpatient and outpatient combined, were up 2.3%, driven mostly by growth in electrophysiology services.

Births were down 1.2% and neonatal admissions were down 1.6%.

Urgent care visits for the company were down 2.8% on a same facilities basis.

They were up, however, 12% on a consolidated basis, reflecting the growth in the number of overall centers.

HCA has now grown same facility admissions in 18 consecutive quarters.

Before I finish my comments, I want to take this time to acknowledge Milton and thank him for his outstanding leadership and for being a great colleague.

With almost 37 years of service with the company, Milton has had a tremendous career.

On behalf of the senior team and the Board of Directors, we wish him the best upon his retirement at the end of the year.

Also I want to share a few thoughts I shared with our board about the company's current state and my view on the company's near-term future.

I believe this consistent pattern of growth that HCA demonstrates is a result of multiple factors.

First, macro trends at our markets are mostly positive.

Demand growth is solid and trending favorably.

Pricing trends remain stable, and we believe we have good visibility into them over the next few years.

And the competitive environment remains fragmented, which creates an advantage for us given our scale and diversification.

Second, the company's growth agenda underneath these macro trends is once again yielding solid market share gains.

Our overall competitive position and our diversified portfolio of markets is strong as a result of improvements in quality outcomes, improvements in nursing performance and strategic capital spending, which is adding appropriate inpatient and surgical capacity, along with more outpatient facilities to serve our patients conveniently.

And third, HCA is fortunate to have a deep and experienced management team that is fully engaged and relentlessly focused on execution and delivering results that create value for our patients, our employees, our physicians and our shareholders.

I believe these 3 factors will continue to support our business in 2019.

Typically, we do not provide any indication into the upcoming year at this point.

But with the transition in leadership, I felt it important to give a glimpse into the upcoming year.

While we can never predict with certainty how our business will perform, the environment in 2019 appears positive in general across our markets.

And specifically, with respect

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As usual, we will provide you with more details in January when we formally issue guidance for the year.

An early look, however, at 2019 indicates that we expect solid volume growth again and an adjusted EBITDA growth rate somewhere within a reasonable range of this year's currently expected full year growth rate.

As we always do at HCA, we will challenge ourselves to find opportunities to enhance performance.

I have been with HCA for 36 years, and it is truly an honor to be the next CEO.

HCA is a great company, and I look forward to working with our employees and physicians as we strive to achieve our mission, which is fundamentally to give our patients the care they deserve.

With that, let me turn the call over to Vic for questions.

All right.

Thank you, Sam, and everyone.

With that, April, if you will open the queue for questions.

(Operator Instructions)

(Operator Instructions) We'll take our first question from Justin Lake from Wolfe Research.

First, let me just first say goodbye to Milton.

It's been a good run.

And Sam, congratulations on the new role, well deserved.

And thank you very much for providing that 2019 viewpoint.

I know everyone appreciates it.

So that's -- my question is going to be around that.

Specifically, Sam, you said growth for '19 should be in the range of 2018.

'18 obviously have a lot of moving parts in terms of good guys and bad guys, the reported number looks like about 7%.

So I just want to confirm that, that's what your -- that's the number we should kind of focus on there for expected growth year-over-year in EBITDA.

Yes, Justin, this is Bill.

Our midpoint of our guidance, you're right, would suggest just under 7% as reported year-over-year growth.

Okay.

And your -- that's -- there's no other moving parts we should kind of expect a range -- kind of midpoint of a range for next year could be about that 7%?

Is that what you're implying, just want to make sure I heard...

Well, I don't want to give a percentage.

We obviously -- yes, I don't want to give specific percentages on there.

As we look at the factors, we look at the trends around the core growth, we look at capital continue to come online.

We look at the turn of the trend on acquisitions, and all of those together, believe that we should be within a reasonable range of this year's growth rate.

Okay.

And if I could just follow up with the -- for Q4, your implied guidance seems to have a core growth rate in the 3.5% range.

So I'm curious if there are any moving parts I should be thinking about there.

Maybe this hurricane weakness in that Q4 given the hurricanes down south, or any other kind of moving parts?

Obviously, it seems like there's a little bit of difference between 3.5% and 7% for next year.

Yes.

So let me call out a couple of points when you're looking at our guidance and then what the expected range of growth for this year's fourth quarter is.

First, just remind everybody, the fourth quarter of '17 was an extremely strong quarter for us.

We posted a little north of 7% growth over the prior year in that quarter.

Second, when we look at the sequential Q3 to Q4 growth, our estimate would be similar to and somewhat exceed what we typically see.

We've studied the seasonality and we've factored that into our guidance.

Third, as you mentioned, we do have some uncertainty regarding the Q4 impact of Hurricane Michael on our Florida Panhandle operations.

We've tried to factor a reasonable estimate into that for the quarter into our guidance.

And finally, when I really look at our updated guidance, as you see at the midpoint, we've increased approximately $50 million at the midpoint.

It's basically accounting for the professional liability pickup we had this quarter, offset by some impact of Michael in the quarter as well.

So that's really the factors that went into our overall guidance for the balance of the year.

Thank you, Justin.

And Milton's really not going away.

No, I am.

I was going to say one thing on '19 guidance that should be clarified, too.

It does not include acquisitions such as Mission.

That is not included in the range that Sam stated, just to make that clear as well.

And we'll take the next question from Frank Morgan with RBC Capital Markets.

Congratulations, Milton, and best wishes.

I guess to follow up on that capital deployment and acquisition question.

I'm just curious, is there anything that we should expect to be different with regard to just the cadence of capital deployment that might affect sort of how your volume growth plays out over the next year?

And then on that topic of Mission Health, any thoughts around how you specifically would fund that transaction?

Yes.

Frank, I'll start with the latter.

We're still in the process with the Mission Health acquisition.

Likely, that would be a public market event, but we'll evaluate that just as we get closer and have visibility of a close date.

Regarding capital next year and impact, obviously we'll talk about that further when we get -- when we complete our planning process and give full year '19 guidance with specifics.

The capital will be a factor that will help contribute to the growth trajectory of the company.

Yes.

This is Sam, Frank.

I mean we have about $4.5 billion to $5 billion of capital in our pipeline.

We will have a little bit more come online in 2019 than we had in 2018.

It comes online at different points in the year, so it will have different impacts, if you will, on our volume.

But I don't think it's going to materially change our volume trends or expectations as we finish up this year and go into next year.

We are seeing improving demand in our markets, as I mentioned in our call -- I mean in my comments, rather.

And we've seen that now for roughly 3 or 4 straight quarters.

So we're encouraged by that.

And then as I mentioned, we are starting to see market share gains again, which is encouraging with what we're doing in the marketplaces around our growth agenda.

We'll take our next question from Peter Costa with Wells Fargo Securities.

Congratulations to both on the transition in management.

My question is regarding the -- is HCA entering into a new phase of new growth?

You talked about -- I know you talked of the 7%-ish growth in EBITDA for next year as being next year, but your long-term guidance of 4% to 6% that's above that.

And then we start looking at acquisitions, and you're starting to do some acquisitions outside your markets, some significant hospital systems, whether it be Savannah or Asheville.

So are we approaching a new phase of growth for you guys in terms of new markets?

Well, this is Sam.

I think Asheville and Savannah uniquely offered up opportunities for the company that met our criteria.

Both of those systems are fundamentally market makers in the sense that they can execute on their own what we believe to be the right provider system strategy.

So we're still going to remain selective around those criteria that we use to determine whether or not an acquisition fits our model.

I would hope that we would see continued opportunities for new markets.

Obviously, our interest is primarily inside of our existing portfolio, but to the extent we see a new market that presents a system that has the wherewithal to go the distance, if you will, we would be very interested in that.

Now obviously, those systems come up when they come up.

We can't really forecast that, but we will continue to be opportunistic around those situations when they present themselves.

Is there some change that's causing that -- them to show up now as opposed to over the last decade?

Well, the story around Savannah and Mission are totally different.

Savannah was in a desperate situation, needed more capital, needed professional management and so forth.

Mission, conversely, is a very successful system, well managed, great physicians, great financial results and so forth.

They just viewed the need for scale as being very significant, at least in their thinking, and their board made the decision to go down the path with us.

So it just depends on the circumstances.

Obviously, we believe Savannah has incredible long-term potential and the size of that healthcare market is about 1 million people when you consider the rural market, which is very similar to the Asheville market and the Western North Carolina rural markets combined.

So those kind of situations are really dependent upon the individual circumstances and the strategic analysis that each of the boards take.

So I don't know if there's anything today that's materially different that would suggest there's going to be more, but we'll just have to wait and see how that goes.

I think the company is poised to take on more, both from a balance sheet standpoint as well as an organizational capacity standpoint.

And we think over time these are going to be very productive healthcare systems for the company.

We'll take our next question from Brian Tanquilut from Jefferies.

Congrats to both of you, guys.

Bill, just a couple of quick questions for you.

As I think about the DNA accrual for the quarter, it ticked up year-over-year and sequentially.

Anything to call out there?

And then just back to the question on funding for Mission.

Are you thinking of using unsecured notes on that one?

And also, what are your thoughts on investment grade?

Yes, thanks.

On the depreciation, that growth is really just a factor of our same stores as well as new acquisitions that are fueling that, and pretty much in line with what we anticipated on there.

Relative to Mission financing and the specific metrics, too early to call.

We'll evaluate that at the time what the market conditions are and we'll look at.

In terms of our pursuit of investment grade, we haven't stated that as a specific financial goal, but I think as we continue to demonstrate consistent performance, strong balance sheet, great cash flow, that hopefully, over time, we'll be recognized for those strengths.

We'll take our next question from Mike Newshel from Evercore ISI.

So since the last call, the Medicare IPPS rule was finalized for fiscal '19.

So could you just quantify how much better you think that will be for you than the recent trend and whether there was any incremental Medicare reimbursement factored into the guidance for this calendar year, for fourth quarter?

Bill, are you going to take that question?

Yes, I'll cover that.

Thanks for the question.

So we are getting a favorable update.

As we assess it now, our update will range between 2.5% to 2.8% growth in our Medicare update.

That is compared to approximately 1% we received in recent past.

So that's an incremental 1.5% to 1.8% on the Medicare update.

We believe we have accommodated for this within the context of our overall guidance range and perhaps will be a factor for us as we look towards 2019 as well.

We'll take our next question from A.J. Rice from Crédit Suisse.

Congratulations to Sam and Milton.

Wish you the best.

I was looking at the back of the envelope, looks like the stock is up almost 3x since you were named chairman, so that's quite a run in 5 years.

Congratulations on that.

Just I guess my question would be, a lot of improvement in margin this quarter and the last few quarters has been driven by the top line performance, strong volumes, strong pricing.

I wonder if you guys could spend a minute just talking about what's happening on the individual expense line.

I know there's little of that in the prepared remarks.

But is there any area where you're seeing the expenses, whether it's labor, supplies, other, in and of themselves, opportunities for improvement or any place where you're facing a headwind on the costs side?

A.J., this is Sam.

We are very pleased with the performance of the company operationally over the past year or so.

Our teams have stepped up, especially on the human resources side of the equation and had a dramatic impact on our nursing performance.

Our nursing contract labor on a year-over-year basis is down significantly.

We've been able to increase our hiring as a result of our nursing agenda and human resources agenda.

So at this particular point in time, on the labor front, we're not anticipating any unusual headwinds as we turn the calendar into 2019.

We will continue to execute on the core elements of what we're trying to get done with being a very productive employer, and at the same time, a great employer for our employees, and we think that's going to yield some dividends as we move forward.

Obviously, it's important that we grow our volume simply because we get the operating leverage from that growth given the fixed cost structure of the company.

On the other 2 categories, I would say that the trends are generally consistent.

We're not seeing anything unusual at this particular point in time on either the supply line item or the other operating expenses.

We have been able to manage our physician costs effectively.

In this particular quarter, I think our physician costs as a percent of revenue were consistent with the previous years.

So we haven't seen any dramatic shift there as well.

So as we turn into 2019, again, we'll have to get through all the details of our planning over the next 60 days or so, but we're not anticipating any material swing in any of the cost trends.

We'll move on to our next question from Ralph Giacobbe from Citi.

Just quickly want to go back.

Mission, are you willing to give us an EBITDA run rate?

I think we had thought about sort of $130 million to $140 million, I don't know if you want to sort of comment on sort the baseline there?

And then my question was really on, you called out hospital only, same facility revenue per adjusted admission of the 4.8% within managed care.

One, is there a reason you make the distinction of hospital only?

And then if I take that percentage in the adjusted admission number that you had provided, the 4% would suggest your managed care revenue up close to 9%.

Seems like a pretty hefty number, maybe just some commentary on kind of factors driving that aside from just the easier comp.

All right.

Yes.

Let me start with that.

We give the hospital and managed care just as you look at the consolidated number, gets affected by physician practice, urgent care and others, so we just tried to provide some clarity on there.

We remain pleased with the managed care number.

There is clearly an intensity driver of that as well as pricing factor of that.

We're pleased with our contracting efforts.

We've got good visibility into 2019 and 2020 as well, with pretty consistent terms and condition that we've experienced.

There are potentially -- when you look at the quarter-over-quarter results, some hurricane impact as a result, as you had recovery of some hospital-based outpatient surgeries this year as well.

So again, overall pleased.

That 4.8% is pretty consistent on that staff with what we've seen year-to-date, running about the same number.

So it's been pretty stable trends for us on that managed care book.

And did you want to comment on the admission run rate or -- at this point in time?

Yes.

I think honestly, it's too early for us to give some commentary on that.

As we get into our 2019 guidance and we get closer visibility into that transaction, we'll give you guidance on what we expect the contribution of Mission will be.

We'll move on to our next question from Steven Valiquette from Barclays.

My question, I guess, is somewhat similar to the one that was just asked, but just to kind of stick with that topic a little bit.

I mean the strength in same-store revenue per admission, it definitely seems to be a common theme really within the overall hospital industry this quarter.

You have some nice reacceleration as well.

But just curious if you can remind us again how much that's driven by raw pricing benefits or perhaps some acceleration of the mix to -- a mix shift to greater acuity and the in-patient setting, which has been really talked about a lot this year.

I just want to get more color on that last part, in particular.

Bill, you want that one?

Well, there's clearly an intensity driver of that as we continue to focus our strategic efforts of growing our high-intensity business.

That's driving that statistic as well.

That's why we give you our case mix number and we've seen that grow pretty consistent in the 3% to 4%, sometimes north of that over the past several quarters.

And that's really just a function I think of our strategies and new capital and focus on program development is the main driver of that.

And then as we've seen continue growing demand in the market, too, all of those are driving higher inpatient growth that's fueling that revenue per adjusted admission number as well.

I mean just to give you some color, this is Sam again.

I mentioned in my prepared comments that our trauma volumes were up 4-plus-percent.

Just to give you another example, our bone marrow transplant inside of HCA in the quarter up 16%.

Our orthopedic surgical volumes, which carry a higher revenue per case than average, were up significantly.

Cardiovascular services also carrying a higher revenue per case, those are contributing factors to this.

I think when you look fundamentally at the pricing component of our business, we're achieving what we thought we would, both on the commercial side as well as the governmental side.

And then as you look at the strategic agenda of the company, which is to create more clinical capabilities, those additional clinical capabilities allow us to take care of more acute patients, provide more complex procedures and that drives our revenue up.

Again, that's a very powerful model for us because it's on the same platform of fixed cost.

And if we can increase the acuity in our facilities, deliver the higher revenue per patient, put that on top of the same fixed cost it produces decent margin lift for the company.

So that's been our strategy.

We continue to execute on it.

We think we have headroom in it.

As we build out our outpatient facilities in each of our markets, we think that opens up the gateway, if you will, to that HCA provider system.

And then when our patients need more complex care, we can provide it to them somewhere else in the system.

That's fundamentally what we've been about for the past 5 or 6 years, and we continue to believe that's adding value to the company.

We'll take our next question from Josh Raskin from Nephron Research.

We'll move on to our next question from Ana Gupte from Leerink Partners.

Congrats, Milt, congrats, Sam.

Look, the question is about the managed care payer mix, which continues, as you say, to show improvement.

And last time I think you talked a little bit about the labor market data by your various markets.

Can you give us any market specific color on what's going on?

Your surgical volumes are really strong for a generally seasonally weak quarter.

And then on the ED side, at what point do you think this might turn potentially even inflect into the positive?

At what point, just even the Level 3 ED visits stop kind of mix shifting to urgent care or freestanding?

That was pretty good.

You just snuck 3 questions in.

We'll give you a break.

Again, we had broad-based performance across a lot of our markets in the quarter.

And I think that's a continuation of what we've seen in the first half of the year.

But in particular, we had strong performance in our DFW market.

We had strong performance in our Austin, Texas, market.

Our North Florida markets were very strong in the quarter.

So very powerful results across this wonderful portfolio that we have of markets.

And it's broad-based.

It's not just in admission activities.

It's in other categories of our business, which is encouraging, and again, reflects the strength of HCA's portfolio, not only from a market standpoint, but from a service line standpoint, given that we provide so many different services.

As it relates to the emergency room, we have seen growth for the year.

It's modest.

I mean we're up about 1% for the year.

Clearly, we've benefited earlier in the year from flu activity.

We have seen somewhat of a slowdown in supply in our markets with respect to freestanding emergency rooms in certain urgent care center development.

So maybe over the long term, we could possibly start to see some rebound in the emergency room volume.

Again, what we are soft in are the lower revenue elements of our emergency room business.

Our higher levels of acuity are producing much more revenue per visit than do the lower levels, obviously, and how we price.

And so the profitability impact of it is not as material as one would think.

Nonetheless, we have seen some softness.

Some of that could possibly be cannibalized by our own urgent care center development, which we think is a very strategic element of what we're trying to do and being comprehensive in the offerings of provider system capability and convenience for our patients as well as having different price points, if you will, for our payer partners.

And so from that standpoint, we may be cannibalizing a little bit of our own business.

But long term, we think it's strategic to building out the provider capabilities that we think are necessary for us to be responsive to the marketplace.

We'll move to our next question from Josh Raskin from Nephron Research.

We'll move on to Kevin Fischbeck from Bank of America.

Just wanted to go back to the Q4 guidance commentary, because I'm still trying to square that one out.

I guess in the last quarter, I think you said that the guidance did not include DSH, which we were kind of estimating was going to be like a $50 million or $60 million boost.

So I would've thought that the guidance would have raised by at least that much, but then to your point about the liability adjustment minus the hurricane.

So why isn't the guidance raised more like $100 million than the $50 million number?

Yes, Kevin.

This is Bill.

I think your number's a little higher when we equate it to the percentage growth, then I don't think we're seeing that $50 million to $60 million.

It's probably more in the $35 million to $40 million level for us.

And I do think that as you look at our range of guidance, that it could potentially put us on the higher to the midpoint.

So I think the range is wide enough to accommodate for that Medicare update.

Okay.

So you kind of feel like that could get you to the higher end of the range?

Potentially.

And obviously, we've got a lot of revenue, there's a lot of pluses and minuses that flow through at any given time.

But again, I think we feel comfortable with where our guidance is today given all the factors that we're looking at.

I think the business dynamics, we're not anticipating any dynamic change as we go from the third quarter to the fourth quarter.

I mean, some of this is we think encouraging with respect to how our volumes have sustained themselves over the year.

So we're optimistic that the trends of the company will continue on into the fourth quarter and into 2019, like we mentioned.

So there is a lot of moving parts in our business, and -- but nonetheless, the key elements are pretty consistent with how we've been operating.

Okay.

So basically, this is an in-line quarter for you guys and in-line guidance, the only change is going to be outside of the core performance metrics?

I think that's right, Kevin, yes.

I think that's fair.

All right.

Any other questions remaining?

(Operator Instructions)

All right.

April, I think we're good.

And I thank everyone for dialing in, and I look forward to talking to you later.

Thank you very much.

Thanks, April.

This concludes today's presentation.

We thank you for your participation.

You may now disconnect.