美國醫院公司 (HCA) 2018 Q4 法說會逐字稿

Good day, and welcome to the HCA Healthcare Fourth 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 Chief Investment Relations Officer, Mr. Mark Kimbrough.

Please go ahead, sir.

Thank you, April.

Good morning, and welcome to all of you on today's call or webcast.

With me this morning is our CEO, Sam Hazen; and Bill Rutherford, our CFO, which will provide comments on the company's results and 2019 guidance provided in today's earnings release.

Before I turn the call over to Sam, 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 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 events.

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

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

is -- to adjusted EBITDA is included in today's fourth quarter earnings release.

This morning's call is being recorded, and a replay of the call will be available later today.

I will now turn the call over to Sam.

Good morning.

Thank you for joining us today.

We finished the year with a strong quarter and ahead of our expectations.

Solid volume increases and strong revenue growth drove this quarter's results, which were consistent with all of 2018.

Inpatient admissions and equivalent admissions on a same facility basis grew almost 2%, respectively, in the quarter.

Volume growth was broad based across most service categories and balanced across our diversified portfolio of markets.

Revenues on a same facility basis grew by 6.4% or almost $700 million.

Our strategy to deliver services that are more complex supported this growth, along with a good payer mix and stable commercial pricing.

Revenue per equivalent admission grew by 4.4%.

The growth in revenue translated into a strong earnings quarter with diluted earnings per share of $3.01.

Adjusted EBITDA grew by 6.2% to slightly over $2.5 billion, with adjusted EBITDA margin at 20.4%.

Cash flows were also very strong and ahead of our expectations.

Bill will provide more details on these metrics and 2019 guidance in his comments.

2018 was another strong year for HCA Healthcare.

We have now grown our same facility inpatient admissions in 19 consecutive quarters.

The strategic investments in our business to expand our networks and improve our clinical capabilities are making it easier for patients to get higher-quality, convenient patient care in an HCA facility.

We have in excess of $3.5 billion of capital spending in the pipeline that should come online over the next 2 years.

These investments will create additional inpatient and outpatient capacity within our local health care systems.

As I stated in last quarter's call, we believe the fundamentals in our markets are strong with growing demand for health care services.

This, coupled with the continual improvement and the competitive positioning of our local health care systems, gives us confidence as we move into 2019.

Inpatient market share in 2018 grew by 45 basis points as compared to 2017, reflecting this improvement.

As indicated in our earnings release, our Board of Directors has authorized an additional share repurchase program for up to $2 billion of the company's outstanding shares.

Additionally, the board declared a quarterly cash dividend of $0.40 per share, which is an increase of 14%.

Lastly, we are excited about the expected closing at the end of January on the acquisition of Mission Health, which is a large successful health system in Asheville, North Carolina.

This system will add to the already strong portfolio of markets that we have inside of HCA Healthcare.

With that, let me turn the call over to Bill for more details.

Great.

Thanks, Sam, and good morning, everyone.

I will cover some additional information relating to the fourth quarter results and review our 2019 financial guidance.

Then we will open the call for questions.

As Sam mentioned, we are pleased with the fourth quarter's results as well as for the full year.

Volume, intensity and good expense management led to a solid quarter and a strong finish to the year.

For the quarter, adjusted EBITDA increased 6.2% to $2.508 billion, up from $2.362 billion last year.

We believe this was a solid result considering the strength of the fourth quarter of 2017.

As noted in our release, we did have some hurricane activity that impacted our results in the quarter.

First, we estimate the impact of Hurricane Michael, which unfavorably impacted our Florida panhandle facilities, mostly Gulf Coast Medical Center in Panama City Beach, to be about $31 million in the quarter.

Also, we recorded a $49 million benefit to adjusted EBITDA from settling our insurance coverage related to Hurricane Harvey business interruption that principally affected our Houston market in the third quarter of 2017.

So let me cover some volume stats.

In the fourth quarter, our same facility admissions increased 1.9% over the prior year and same facility equivalent admissions increased 1.9% as well.

We estimate the impact of Hurricane Michael and a decline in flu activity from last year had a 50 basis point unfavorable impact on same facility admissions in the quarter.

For the year, both same facility admissions and equivalent admissions grew 2.5% over the prior year.

During the fourth quarter, same facility Medicare admissions and equivalent admissions increased 2% and 2.5%, respectively.

This included both traditional and managed Medicare.

Same facility Medicaid admissions increased 0.8% and equivalent admissions declined 0.7% in the quarter.

Our commercial admissions increased 1.1% and equivalent admissions increased 1.6% on a same facility basis in the fourth quarter compared to the prior year.

Same facility self-pay and charity admissions increased 7.4% in the fourth quarter compared to the prior year.

Same facility emergency room visits decreased 2.1% in the fourth quarter compared to the prior year.

We attribute about 60 basis points to last year's flu season.

Additionally, when we look at the changes by acuity level, all of the fourth quarter declines are in our level 1 through 3 visits.

Our higher acuity, level 4 and 5 visits, grew 1.1% over the prior year.

In addition, admissions to the emergency room grew 1.9% over the prior year.

Same facility revenue per equivalent admission increased 4.4% in the quarter and was up 3.9% for the year.

We are pleased with the overall rate trends we experienced in 2018 as we saw continued growth in acuity, good payer mix as well as the incremental Medicare update in the fourth quarter.

We also believe we are well positioned in our commercial contracting segment as we look forward to 2019.

We don't expect any major changes in this environment.

We have good visibility into our 2019 commercial contracts where we are 80% contracted at [Audio Gap] and rates consistent with our recent trends.

Now turning to expenses.

We are pleased with the overall management of expenses.

Adjusted EBITDA margins in the fourth quarter were 20.4% as reported and our same facility margins increased 10 basis points over the prior year.

For full year 2018, our same facility adjusted EBITDA margins increased 70 basis points, with labor improving 30 basis points, supply costs improving 30 basis points and our other operating costs improving 10 basis points.

So let me take a moment and talk about earnings per share and cash flow.

As reported, diluted earnings per share in the fourth quarter, excluding gains and losses on sale of facility and losses on retirement of debt, was $2.99 versus $1.30 in the fourth quarter of last year.

Year-to-date, as-reported diluted earnings per share, excluding the impact of gains and losses on sale of facilities and losses on retirement of debt, was $9.77 versus $6 in 2017.

In addition to the solid operating performance of the company, the decrease in our income tax provision was a contributor to the diluted earnings per share increases, both for the fourth quarter and the year.

As Sam mentioned, cash flow was very strong for the company.

In the fourth quarter, cash flow from operations was $2.18 billion versus $1.73 billion in the fourth quarter of last year.

For full year 2018, cash flow from operations was $6.76 billion or an increase of $1.33 billion from $5.43 billion last year.

Capital spending for the year was $3.57 billion, in line with our expectations.

Cash flow from operations of $6.76 billion, less capital spending of $3.57 billion and distributions to noncontrolling interest of $441 million and our dividend payments of $487 million resulted in free cash flow of $2.26 billion in 2018.

Also during the year, we completed approximately $1.5 billion of share repurchases and had $272 million remaining on our previous authorization as of December 31, 2018.

At the end of the quarter, we had $2.7 billion available under our revolving credit facilities and our debt to adjusted EBITDA ratio was 3.7x.

These cash flow and balance sheet metrics continue to be an important strength of the company.

So with that, I'll move into a discussion about our 2019 guidance.

We highlighted our 2019 guidance in our earnings release this morning and noted our guidance does include the anticipated impact of the Mission Health acquisition, which we expect to close on January 31, 2019.

We estimate our 2019 consolidated revenues should range from $50.5 billion to $51.5 billion.

We expect adjusted EBITDA to be between $9.35 billion and $9.75 billion.

With our revenue estimates, we estimate same facility equivalent admission growth to range between 2% and 3% for the year and same facility revenue per equivalent admission growth to range between 2% and 3% for 2019 as well.

We anticipate same facility operating expense per adjusted admission growth of approximately 2.5% to 3%.

Our average diluted shares are projected to be approximately 352 million shares for the year, and earnings per diluted share guidance for 2019 is projected to be between $9.60 and $10.20.

There are several items affecting our year-over-year diluted EPS comparisons, including the third quarter impact of our professional liability reserve adjustment of $0.15, the Hurricane Harvey settlement of $0.11, the adjustment to our deferred tax balances of $0.19 and the expected differences in the benefit of excess equity award settlements of $0.35 in 2018 versus $0.23 estimated in 2019.

Adjusted for these items, our diluted earnings per share guidance reflects an approximate 8% growth at the midpoint.

Relative to other aspects of our guidance, we anticipate cash flow from operations between $6.5 billion and $7 billion.

We anticipate capital spending of $3.7 billion in 2019, which includes anticipated capital spending per admission.

We estimate depreciation and amortization to be approximately $2.5 billion and interest expense to be approximately $1.9 billion.

Our effective tax rate is expected to be approximately 23%.

As Sam mentioned in his comments, we also announced an increase of our quarterly dividend of $0.40 per share and authorized a new $2 billion share repurchase program.

Both of these are a reflection of management's belief in the long-term performance of the company, the confidence we have in the strength of our cash flow and our commitment to a balanced allocation of capital.

So that concludes my remarks.

And I'll turn the call over to Mark to open it up for questions.

Thank you, Bill.

(Operator Instructions) April, you may now give instructions to those who want to ask a question.

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

So given the solid quarter and all the detail, the question I had here was just on '19.

And 2 things.

One, year-over-year, your EBITDA growth that you talked about in the third quarter expected the growth to be about similar to '18.

The guidance is very much in line with kind of what you talked about in the third quarter, but it doesn't appear to fully reflect the upside that you saw in Q4 from really strong results.

So I just wanted to see if you could kind of give us any thoughts there in terms of, did that carry forward or should it in the guidance?

And then can you tell us anything about the revenue and EBITDA impact you expect from Mission in 2019?

Yes, Justin, this is Bill.

I'll take that call.

So as we look at our 2019 guidance, we believe it's consistent with what we talked about on our third quarter call, obviously, reflecting our continued strong performance in the core operation of the companies, along with the expected improvements in the performance of our acquisition.

So let me just give you a few more details.

First, if you look at the midpoint of our adjusted EBITDA guidance, roughly $9.55 billion, that equates to almost 7% on an as-reported basis that we finished 2018.

And then in '18, if you adjust for the $70 million positive malpractice adjustment and the $49 million insurance settlement that we don't think will repeat, if you adjust for these items, we're at 8.2% at the midpoint for '18 guidance.

About 3% of this growth is from our acquisitions, with 2% from our 2017 and '18 acquisitions, and Mission is contributing about 1% of that growth.

So that leaves a little about 5% of the balance in the expected same facility growth as we continue to anticipate volume to demand, capital investments, strategy execution and so forth.

So we think all of that is reflected in our 2019 guidance.

We'll move on to our next question from Pito Chickering from Deutsche Bank.

Just a follow-up to Justin on that one.

Just trying to back into the strong same store margin leverage you guys are talking about, growth for 2019 of 4% to 6% and same store expense growth of 2.5% to 3.5%.

Can you guys help us think about sort of what you guys need from a same store revenue perspective to maintain your margins?

What do you guys need to grow?

And kind of how should we be thinking about excess of the maintenance growth, sort of how the conversion to margin leverage for 2019?

Yes, Pito, thanks.

Let me make a stab at that.

And so we are pleased with the margin growth.

As I said, the same facility margin growth for the year is up 70 basis point, and I think that's a continued reflection of our operating leverage.

We've said for some time, within the 4% to 6% kind of same facility revenue range, if we're on the high end of that, we do anticipate some margin leverage, and we're seeing that.

We saw that in the fourth quarter with 10 basis points increase on a same facility basis.

So we feel generally comfortable with that.

As we roll off unconsolidated, our acquisitions are -- put a little pressure on the as-reported margins.

So we do anticipate some margin expansion if we can achieve at the top end of that revenue range.

And again, I think we're very pleased with that performance through 2018, and we'll see what '19 holds.

Yes.

And this is Sam.

The only thing I would add to that is as we look into 2019, we're not seeing any unusual pressures on any category of expenses.

And so if we are able to achieve the volume expectation that we've guided toward, that can yield, I think, the operating leverage that Bill was alluding to.

So that's the good news on the expense side, is there's not any excessive pressures in any category of our overall spending.

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

Maybe just to drill down on the capital spending, that's been a part of the story for the last couple of years.

Can you just comment -- a couple of aspects.

Any evolving areas of spending that are different than what we've seen in the last 2 years?

And your commercial business really sort of seemed to pick up this year.

Is that, do you think, more company specific because of these capital spending?

Or is that underlying market improvement?

This is Sam, A.J. Let me take those 2 questions.

First, I think our capital program, it's fairly consistent when you look at 2018, you look at 2017 and then you look at what's coming online in 2019 and 2020.

I think, in general, it consists of adding capacity and facilities where we have constraint and are operating at a high level of utilization, so that could be inpatient beds, critical care beds, operating room suites and so forth.

And just to give you a metric, the company finished the year at almost 73% -- well over 72% occupancy for our hospital beds, which is a very high number.

And that's over and above where we were in 2017.

And we also had a few additional beds that came online in 2017.

The second component of our spending is around building out our network in our outpatient capabilities so that we are very convenient and easy to access.

So we've added surgery centers.

We've added freestanding emergency rooms, urgent care centers, clinics and other diagnostic capabilities to really support a comprehensive opportunity for patients to access an HCA health care system.

Those are small dollar capital items and they don't consume a huge amount of our budget, so they're very efficient from that standpoint.

The final component of our investments, I think, that are really geared toward our growth are centered around technology -- clinical technology that our physicians want.

And the more we can add clinical technologies that support our practices and our physicians' needs, it allows us to grow the complexity of our services, have a very capable clinical technology platform for our physicians to take care of our patients.

And we think the combination of all of those are helping us respond to the marketplace and drive market share growth.

On the commercial side, through the first 6 months of 2018, commercial demand was modestly down, but HCA picked up a significant commercial market share to the tune of probably more growth over the last 9 months than we've seen in the recent past.

And so our commercial growth is more a function of market share gains globally across the company than it is necessarily overall demand, although in a number of our markets, we have seen commercial demand lift a little bit over where it was.

But as a total for the company, it was modestly down, not significantly, by any means, not like it was in the previous year, but it was not growing significantly.

But the company, through these programmatic efforts, through our capital spending, I think through being more responsive to our physician and medical staff dynamics, we've been able to take care of more patients and take care of them more effectively.

And we'll take our next question from Whit Mayo from UBS.

Bill, just wanted to go back to the expense question for a minute.

You've been operating in an environment for some time now with what I would characterize as fairly low inflation entering the cost structure.

Can you maybe just elaborate a little bit more on trends and expectations, specifically for contract labor, premium pay, professional fees?

And, Sam, is there anything that surprises you as you reflect back on 2018 as it relates to your ability and your team's ability to manage expenses so tightly?

Yes, Whit, this is Bill.

I'll start, and then Sam can add in.

So if you look at overall cost structure, as you said, we remain very pleased with the trends we're seeing there in the 2.5% to 3% range.

If you start with labor, very pleased with the labor trends.

We have had some benefit of reduced contract labor, as you mentioned, as our teams continue to focus on reducing our turnover.

I think our nursing turnovers are at lows for us, and that has proven to benefit us on the premium labor side, and that's flowing through as some variable trends on the salary cost.

But we see, generally, wage range in line with our expectation.

So I've always continued to characterize that as fairly consistent trends right now, and we see the same going to 2019.

We continue to be very pleased with the team's execution on the supply cost agenda.

As I mentioned, we're 30 basis points down on same facility on supply costs as we continue to see great efforts by HPG and the contract team and our supply teams focusing and partnering with our clinical teams on supply utilization.

So very, very pleased with both of those.

And as we turn the calendar into 2019, we think largely those trends should continue.

And I think as Sam mentioned earlier, we don't see any really singular undue pressure point right now or subject to some cyclical trends, but we feel very pleased with how we're turning the calendar on the cost side.

This is Sam.

On the last question there, Whit, I mean, the management teams of HCA are incredible.

I mean, I'm constantly amazed by what our teams out in the field do.

They continue to add to our agenda to improve our patient care.

They continue to add to our agenda to improve relationships with the physicians.

And they continue to find ways to grow and manage their metrics at the highest level.

And I think that's something that's unique about HCA.

We have what I call a can-do management team out in the field.

They relentlessly pursue execution and performance.

And I think it shows in the overall consistency of the company's performance.

As I mentioned in my prepared remarks, we've grown our admissions over the last 19 quarters consecutively.

And I don't remember the exact number, but if you go back over time, we've continued to grow our volume very consistently and really navigate through different kinds of market dynamics, competitive dynamics, cyclical changes and so forth and continue to grow the company.

So I'm really pleased with what our management teams have done and what I know they will continue to do as we look forward.

And we'll take our next question from Steve Tanal with Goldman Sachs.

So hoping you could maybe just give us a little bit more color, maybe parse out the drivers of the acceleration in revenue per adjusted admit, especially the Medicare rate.

As we know, that update was positive.

And then any color on why that would decelerate somewhat meaningfully like in the outlook, right, 140 or 240 bps, I suppose, 4Q to the full year, with so much of the commercial book contracted?

Any color there would be helpful.

Yes.

Let me attempt to do that.

So we are pleased with how we finished the year on revenue per admit.

And if we look at year-to-date, we're at 3.8% on a same facility basis.

We're benefited by the Medicare update in the fourth quarter.

And as we've said before, a continuing benefit built into 2019.

So -- and we do have good visibility into the commercial contracting.

We expect to see continued growth in the acuity and good payer mix.

So I think, this year, we were helped by the strong commercial volume that Sam talked to, continued growth in acuity, and that's left us to be a little bit above our 2% to 3% kind of expectations.

We'll see what 2019 has, but we don't really see any major changes going on in the payer environment.

So maybe somehow we can continue those trends going forward.

But just in terms of our planning, we were planning at 2% to 3% range.

And then hopefully, with continuing growth of acuity, good payer mix, we can be on the top side, if not exceed that.

And we'll take our next question from Matthew Borsch with BMO Capital Markets.

Maybe I could just pick up on the thread you were just talking to and ask you about Medicare Advantage rate and pricing, which obviously are not necessarily tied directly to the Medicare fee schedule.

How are you approaching that as that program is continuing to grow so rapidly?

Go ahead, Bill.

Well, so about 38%, 37% of our Medicare book, if you will, is managed.

We've seen that grow pretty steadily over the past several quarters.

From a contracting perspective, the rates and terms are really consistent with what the Medicare rates and terms are, so we equalize that.

So we've been dealing with growing MA in most of our markets that we think it will continue to grow.

And we don't really see a pricing differential between traditional and the managed book.

Generally, it's around utilization management is where doctors come in into the managed care book.

So it's something that we have and has continued to grow on.

So I don't think it's a headwind or tailwind either way for us.

Most of our contracts are paid identically to what a traditional Medicare beneficiary would pay us for the same service.

So we move in locked step for the vast majority of our Medicare Advantage contract in the same manner as the traditional program does.

Right.

Okay.

Well, if I could, just one more, which is, how do you look at the sustainability of the Medicare unit pricing relative to commercial?

It's sort of, if you don't mind, it's kind of a related question just because the questions out there in the industry, is there, at some point, going to be an unwillingness of commercial payers to subsidize Medicare?

Do you see that as much as some others in the industry do?

Well, I think that's been an ongoing issue that the commercial book of business tends to subsidize the uninsured.

It tends to subsidize the underfunding that exists with Medicaid programs.

And it somewhat subsidizes the underfunding that exists with Medicare.

I mean, that's always been a pressure point.

It's always been an issue.

I don't see anything necessarily influencing that materially in the intermediate run.

And so from that standpoint, we try to make sure commercial pricing is competitive within the market and is meeting the needs of our payer partners just as much as it's meeting our needs.

We're successful, as Bill alluded to, in that roughly 80-plus percent of our contracts for 2019 are already accomplished with consistent pricing terms and consisting network configuration terms and so forth.

We're about 60% contracted at a similar trend for 2020 and slightly contracted for 2021.

So I understand the discussion, but I just don't see at this particular point in time any significant movement in that.

What we are trying to do is show to the payers how much value we can add to their organization, to their memberships through convenient offerings at different price points.

That's why we built out our network to include different price points, whether it's urgent care, whether it's ambulatory surgery centers and so forth.

We are also executing on a very robust clinical agenda which we think is driving value for our payers, eliminating infections by targeting certain difficult conditions and so forth timely so that we can react to the patient and get them out of the hospital in a timely manner.

All of these things are a value add that we believe we are offering in addition to competitive pricing.

So our approach is let's produce a value proposition for the payer that ultimately accomplishes what their membership wants, what their membership needs and what our payers need.

And we think that's a durable model.

And we'll take our next question from Michael Newshel with Evercore ISI.

Is there anything to take away from the fact that the EBITDA guidance range is wider than past years?

Is there anything in particular with higher -- do we have uncertainty?

Or is it just the base getting bigger?

And in addition to that -- yes, go ahead.

No, the simple answer is the EBITDA is getting a lot bigger as we go forward.

So we kind of range up our midpoint on either side of that and turns out to be the $400 million or so range that we give.

Got it.

And does the guidance assume that Medicaid DSH cuts take effect in October, if they're not delayed again?

Or is it small enough to fit in the range either way since it's only 1 quarter?

Yes, it's pretty small in 1 quarter.

We do anticipate with the new year that we go back to kind of traditional inflationary rates on Medicare.

We don't really anticipate any rate increases on the Medicaid book either.

Got it.

And then just lastly, real quick.

In the 2019 guidance, can you just confirm how much of incremental Medicare DSH payments are in the guidance?

Is it like in the $110 million zone?

Close, I characterize this as about 1% of growth for us in terms of the year-over-year effect.

And we'll take our next question from Sarah James with Piper Jaffray.

Can you update us on how you're thinking about the acuity mix trending in 2019 and how you think about actively managing that mix?

Because it sounded like most of the $3.5 billion capital deployment was earmarked for footprint and capacity.

But I'm wondering if part of the strategy is ramping up spending on high acuity services and if there are certain service areas where HCA would really like to increase exposure over time.

This is Sam.

That's a great question.

What I would tell you is we have been on this journey over the past 5 or 6 years to increase the complexity of service offerings within our networks.

And that journey has yielded case mix index growth, I think, over the last 3 years or so north of 3% in each of those years.

And just to give you an example of that.

In 2018, our bone marrow transplant volume, we have 6 programs in the U.S., one in the U.K., but our 6 domestic programs grew their bone marrow transplant program volume by 17%.

That growth, in my opinion, was driven by the fact that we have consistent clinical protocols.

We have consistent patient navigation protocols.

And the outcomes from those are very positive.

And our price point tends to be better than some of the marquee programs that are out there.

And so patient care closer to home at a high level is a very powerful model.

That's just one example.

Our trauma volume in 2018 grew by 7%, another example of where HCA is taking a programmatic approach to a very high-end community need program and yielding value for the patients, value for the community and we think value for our company.

And so those are 2 examples of how we are doing that.

I will tell you that we still have opportunities to add programs, whether it's deeper capabilities in certain service lines like electrophysiology where we have opportunities to create a company-wide collaborative in electrophysiology and drive deeper capabilities in our cardiac programs to, in many instances, adding more sophisticated service lines, whether, like I said, it's critical care medicine, in some instances.

All of this allows us to generate a higher revenue per patient on the same fixed cost platform that we otherwise would have had.

And the combination of that is a very positive mix of business, and it contributes to the margin expansion that Bill alluded to.

So we think we have market share opportunities.

Our physician strategies are geared toward resourcing these programs with a physician's capability and so forth.

And then we have investments that are geared, like I said earlier, to really positioning these programs for success, whether it's with facility capabilities or clinical technology and so forth.

The final thing I would say on our sort of high acuity business is that we have a very sophisticated rural outreach capability inside of HCA, whether it's through telemedicine, whether it's through affiliations with rural hospitals, whether it's through EMS relationship where, in some instances, actually, owning a rural hospital because the channel is so important.

We've been able to drive downstream business into our hospital that typically is more acute, as one would imagine, with the fact that they can't get that type of care in a rural hospital.

So our relationships with the rural market has allowed us to grow our market share on that front, and that has contributed, I think, to the case mix growth as well.

So we see this journey continuing.

We do not believe we're in the late stages of it.

And as our markets continue to grow, which they are, we see opportunities for us to add and at the same time, pick up market share in many instances.

And we'll take our next question from Matthew Gillmor with Robert Baird.

I wanted to ask about the performance and your expectations for the 2017 and 2018 acquisitions.

Those hospitals were obviously a headwind to EBITDA this year.

They will be a tailwind next year.

So how did they perform in the quarter?

And how should we think about the cadence of those hospitals moving to breakeven?

Or will that be more back-half weighted?

Or have they already turned the corner?

Yes, Matt, this is Bill.

Good question.

So as we talked about throughout the year, we anticipated getting the acquisition to a breakeven or better by the end of the year, and indeed, we did that fourth quarter.

That group was profitable for us.

For the full year of '18, it did create a headwind.

We talked about that, roughly $80 million or so.

And it's going to provide, as I said earlier in my comment, about an additional 1% of our EBITDA coming from that growth.

So the year-over-year, there's about 2% of our growth factor from those '17 and '18 acquisitions.

So we're anticipating a nice turn for that group.

I think it will continue to ramp.

And we think most of these will take several years to bring them up to reasonable margin levels for HCA, so we think there is continued growth in those classes even beyond 2019.

But part of our growth and as I mentioned earlier, almost full 2% is going from the headwind in '18 to providing some contribution for us in 2019.

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

I noticed in your recent debt offering, you upsized that deal.

So I'm just curious between upsizing that deal, announcing other acquisition recently, do you see -- are you seeing more opportunities today in terms of bigger system acquisition opportunities?

So just any commentary on that will be appreciated.

And then just to go back on the guidance, the last question asked hit on it shortly.

But in terms of any other special cadence, considerations, as we think about the annual guidance, obviously, you're going to have 11 months of Mission, you've got the DSH coming.

But any other -- when we think about the cadence over the course of the year, any other considerations that we should be thinking about?

So, Frank, I'll start this and maybe Sam can give you some broader commentary on the acquisition markets.

So yes, we are very pleased with the debt offering that we completed a week or 2 ago.

We did upsize it from our original because of the demand.

Obviously, that was primarily intended for Mission financing.

And so we did $1.5 billion financing last week.

Very successful and very pleased with that.

Also, we have a lot of liquidity.

We finished the year with that as well.

So we've got a lot of flexibility on the balance sheet.

Markets continue to be receptive to HCA.

In terms of the cyclical guidance, there is really nothing specific I would call out on there.

Yes, our acquisitions will continue to improve throughout the year.

But when you overlay that on HCA broad base, I think you can go with our historical quarterly trends as a good base line.

In terms of the broader acquisition landscape, we did have some press on it, New Hampshire smaller acquisition for this.

And I think Sam can give some commentary on the broader kind of acquisition pipeline.

Well, I think if you look at the last 2017, 2018, 2019, clearly, the company has made a couple of -- a number of acquisitions that we think are going to be good acquisitions for us over the long term, whether it's adding to existing markets like we did in Houston or creating new market opportunities like Savannah and Mission, both of which are really market makers, we believe, and will ultimately be in a position, if not already, which Mission is, to deliver what we call the HCA way in a particular market.

So my instincts are that we will see more activity, whether or not it's systems that are prepared to go the distance and make a strategic decision like Mission has done, we'll just have to wait and see.

My sense is, though, that there is a need to be a part of something bigger.

There is a need to be able to leverage learnings across the organization.

There is a need to have diversification.

And HCA brings all 3 of those to many different systems.

And so we will continue to showcase what we can do inside of this great organization, and we're hopeful that, that will yield future acquisitions similar to what we think the Mission acquisition is going to do for us.

That is a uniquely successful system, and we think integrating that into HCA is going to present some unique benchmarking for others to consider as they go through the same kind of deliberations.

And we'll move on to our next question from Scott Fidel with Stephens.

Can you give us an update on what type of trends you saw on the U.K. market in the fourth quarter and then what you're assuming in the guidance for 2019 in terms of the ongoing turnaround there?

This is Sam.

The U.K. had a decent quarter compared to maybe the first 9 months of the year where they had continued struggles.

I think it's important to understand that for HCA, the U.K. division represents less than 1.5% of the company's sort of overall EBITDA.

So it's a very small component of our organization.

We like the market.

We think we have a great position.

We've made a lot of investments in the past.

So I won't say we're fully invested, but we're largely invested in the necessary capacity and in the certain programs that we have.

We have some contingency plans around what the Brexit dynamic may mean to us in certain areas of our business and how we're going to respond to that.

But we think we're starting to turn the corner.

And as we look at 2019, we have modest growth built into our plan.

And I think that modest growth is going to be driven from the development of a more capable outpatient platform, urgent care platform and really continuation of our cancer service line capability that we think will yield some modest growth for us in 2019.

Obviously, if the Brexit occurs, it could modify some of our assumptions there, but we don't see that as a very material issue for us in 2019 as we look at our performance over there.

And we'll move on to our next question from Brian Tanquilut from Jefferies.

Just a question, Sam, on the macro front.

How are you thinking about uncompensated care for 2019?

And then you touched on commercial growth earlier and how that's under pressure broadly speaking.

So what are your views there?

And how do you plan to strategize to keep gaining share?

And how much opportunity do you think is left to (technical difficulty) in your regions?

Our market share today is only 25%, so I'd like to think we have 75% opportunity.

So that's sort of how fundamentally to think about.

Obviously, we have really formidable competitors in many different markets.

The competitive landscape for HCA is very fragmented because we don't compete against the same system from one market to the other in most instances.

So that, we think, creates advantage.

I think the consistency of our model, our approach to being the provider system of choice, has been a very workable model for us.

Our fundamental belief is that the portfolio of markets that HCA has is very strong and that is going to yield growth in overall inpatient demand as well as outpatient demand.

And as we continue to execute on our investment strategy, our program strategy, which I spoke of a minute ago, and the continued development of our capabilities, our nursing initiative, our clinical agenda, our efficiency agenda, all of those are responding to our patients in a way that's producing a better outcome for them.

And we think that still has legs.

And we believe that we can continue to grow the company organically through that model.

Yes, there may be some uninsured pressures here and there.

I think like Bill said, our overall uninsured volumes grew a little bit mid-single digits this year.

That doesn't put that much pressure on our business.

There are some states that are considering how do they maybe expand Medicaid.

They're not Texas or Florida, they're smaller states.

But nonetheless, that could be a positive for us.

And then as we continue to focus our efforts around how do we gain share in the commercial segment or how do we gain share in these high acuity businesses, we think those approaches can yield a very positive outcome for the company.

And so we remain focused on that.

And I think this focus, if you look back, is what has allowed us to deliver very consistently over the last 5 or 6 years.

And given that our marketplaces tend to move at a pace that's noticeable, and by that, I mean not too fast in what's happening, we can make adjustments as we need to in order to respond and continue, I think, the growth pattern that the company has had.

So overall demand, growing our position competitively, improving our capabilities as an organization better, we think the combination of all those should yield a solid result.

And then if we can wrap around that programmatically and very selectively, high-caliber acquisition opportunities like Mission, we think that's a very powerful model.

And we'll take our next question from Ana Gupte with SVB Leerink.

Following up on that question and your commentary.

Congrats on the quarter and the consistency that you're bringing to guidance and EBITDA growth.

I was looking to see if you had any thoughts on -- based on the quarter and the last 4 quarters, if you will, for 2018.

Does that change in your mind anything on your normalized guidance, right, I think a year ago, you had said 2% to 3% volume growth, no market share gains, 2% to 3% pricing growth, flat margins.

Your assets and capabilities as you see, those come out and you continued, too.

Your capacity utilization, I'm assuming, is going up.

Do you see it skew more toward one or the other, but more of a trajectory on margin expansion?

Will share add to the 2% to 3%?

And then on markets, you talked about cyclicality.

Are you comfortable that if we go into an economic downturn as a nation that the markets that fairly defensive, either secularly or a combination of secular and competitive position on that guidance?

Bill?

So let me try and Sam can add in on macro.

So you're right, we've been in this 2% to 3% volume guide for some time, 4% to 6% EBITDA guide.

We know there are going to be periods we're on the high end of that.

We're very pleased with the momentum that we've got that we talked about throughout the call.

But we know health care is cyclical mainly due to just macro issues, but we think our continuing capital investments, our continuing acquisition opportunities will still provide growth for the company.

Clearly, our optimism into 2019, and hopefully, we'll continue beyond that.

So right now, we're still in this 2% to 3% kind of volume guide.

When we look at demand, market share capital, we think that's a pretty good number.

When we look at our longer-term CAGRs, we land right in the middle of that.

Fortunately, we are in a period, we've been on the high side of that, and hopefully, that will continue.

So we have a few more reporting periods and data points before I think we adjust that.

We're very comfortable with our long-term guidance of 4% to 6% now, but we also recognize we've been on the high end of that for 2018 and 2019.

But again, I think as we think about the building blocks, the strength of the core operations between volume and pricing and cost management, the acquisition opportunities, the capital investment programs, I think that will continue to contribute to the growth of HCA for the long run.

And I don't think we see any macros that are going to change that in a major way in the short run.

We had -- this is Sam.

I want to add to that.

We had in 2018 one of the strongest overall portfolio performances we've seen in the company.

We had almost 80% of our hospitals grew their EBITDA year-over-year.

70% of our hospitals grew their admissions year-over-year.

65% of our hospitals grew their outpatient surgery year-over-year.

This is an incredible portfolio performance.

And I think it speaks to, again, the clarity of our approach in the marketplaces, our resourcing of the agenda and then finally, the execution of our team.

It's broad based, as I mentioned in my prepared comments.

And I think the performance metrics that I just shared with you, which are the best overall performance we've seen since 2015, is very remarkable and something we're very proud of.

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

On past calls, you've given us commercial yield or managed care revenue per adjusted admission and CMI as well.

Hoping you could do that for the fourth quarter as well.

And then just on the payer mix, maybe if you can give us that revenue mix.

I know you give us the volume, but the total revenue on a year-over-year basis as well.

Not sure I was clear on that.

Say that again, Ralph?

You lost me.

Sure.

So in previous call, you've given the commercial yield or the managed care revenue per adjusted admission and the CMI as well.

So I was hoping we can get that for the fourth quarter.

And then the payer mix, hoping you can give the revenue piece or the revenue percentages of the payer mix as opposed to just the volume.

So let me just start with that, Ralph.

For the quarter, commercial case mix was up 2.1%.

Year-to-date, we're up 3.5%.

We had a really strong fourth quarter of '17.

And so that was the case mix.

On a revenue per adjusted admission, on a year-to-date basis, we're about 3%.

After we adjust for some reporting procedure, about 2% in the fourth quarter.

But that's really a function -- if you go back and look at fourth quarter '17, it was extremely strong commercial pricing for us at 6.8%.

So as we mentioned in my remarks and it's really the commercial environment, we see that being pretty stable.

We don't see any major changes going on there.

But again, good intensity, 3.5% CMI growth in the commercial book on a year-to-date basis.

And we'll take our last question from Gary Taylor with JPMorgan.

Following on Frank's question, I want to ask just a little bit more about acquisition and CapEx strategy, and specifically, I wanted to ask Sam.

Is your approach different, more aggressive, less aggressive than Milton's?

And could you please include international and physician groups as part of the answer?

I wouldn't say I'm any different than Milton.

But I mean, obviously, I've been a part of our decision-making over the past few years in conjunction with Milton, and it's usually a team analysis that we go through.

I think it's just the environment.

When the environment is presenting opportunities for us to make sizable acquisitions, I think some of these are once-in-a-lifetime type opportunities, and it's important for the company to consider them, I think, very carefully.

We have and we'll continue to pursue outpatient acquisitions.

We recently made a large ambulatory surgery center acquisition in Austin, Texas.

We have other markets where we are looking at acquisitions of ambulatory surgery centers, surgery care companies and so forth that are complementary to existing networks.

I think we will be more domestic than international in our pursuits on acquisition.

Obviously, we will look at other markets outside the U.S., but I think the opportunities for HCA are more compelling domestically at this particular point in time than they are internationally, simply because we can bring more synergies to the system with our capabilities in the States versus buying in to macros per se in the international markets.

But that doesn't mean we won't look and consider.

And if there's a right opportunity, we will pursue it.

As it relates to physician practices, yes, we continue to use acquisition of physician groups as a way to add to our capabilities, whether it's with more convenient offerings for our patients or for strategic reasons, to support certain service lines or facility needs.

So all of that is there.

We don't talk about those in any significant way because they are small individually, but they add up to support for our overall network positioning.

And they support our overall growth agenda in a way that is productive, we believe.

And it's been something that we have been doing over the past 5 or 6 years, I think, very systematically.

So I wouldn't say there's any change in our mindset other than we may be entering a cycle where we're going to have more opportunities to look at systems that we think are unique opportunities.

All right, Gary, thank you for the question.

April, I think we're going to close the queue here.

I want to thank everybody on the call today, and I look forward to talking with you if you're leaving a follow-up following the call.

Thank you so much.

This concludes today's presentation.

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