美國醫院公司 (HCA) 2021 Q3 法說會逐字稿

Welcome to the HCA Healthcare Third Quarter 2021 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 Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead, sir.

All right. Chris, thank you so much. Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions.

Before I turn the call over to Sam and Bill, let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings.

On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release.

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

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

Good morning, and thank you for joining us.

The third quarter was the most intense period yet for us with the COVID pandemic. The Delta variant surged and drove significant demand for our services. For the quarter, COVID patients accounted for 13% of total admissions. This level compares to 3% in the second quarter, 10% in the first quarter and 11% in the fourth quarter of last year. Our teams provided record levels of inpatient care during the quarter, which drove revenue growth of 15% as compared to the prior year. Inpatient revenue grew 18% and outpatient revenue grew 11%.

As compared to prior year and also 2019, same-facility volumes increased across all major categories, with the exception of inpatient surgery. Surgery volumes were constrained because capacity was used for treating COVID patients. This growth was supported by a better payer mix of commercial business.

Adjusted EBITDA margin was strong at over 21%. Diluted earnings per share, excluding gains on sales of facilities, increased to $4.57, which is a notable increase over the prior year, even considering that last year's third quarter included the $1.72 per share effect of the reversal of the government stimulus income, which as you may recall, resulted from our decision to return or repay early approximately $6 billion of governmental assistance we received from the CARES Act.

Once again, our colleagues and physicians delivered for our patients and for our communities. I am tremendously proud of their dedication and service to others. And I want to thank them for their great work.

As we look to the remainder of 2021, we have raised our annual earnings guidance again to reflect the strong performance of the company.

Now let me transition to some early and general perspectives on the upcoming year. Just like in 2020, we are providing some preliminary thoughts in the midst of a very fluid environment, which obviously makes it challenging given the uncertainties that continue to exist with the pandemic. We plan to provide more details with our annual guidance in January after we complete our planning process for 2022. By that time, we hope to have a few more months of results that are more indicative of a normal operating environment, that is a non-COVID surge environment, to analyze and give you a better indication of our business.

Overall, we believe demand will return to historical trends for us, with volumes growing across most categories in the 2% to 3% zone. As part of this growth, we expect to treat COVID patients throughout 2022. We estimate that approximately 3% to 5% of our total admissions will be COVID-related. We believe our business will be supported by a strong payer mix as a result of stable enrollment in the health insurance exchanges and good job growth across our markets. We are also assuming patient acuity continues at high levels.

We do expect certain pandemic-related governmental reimbursement programs either will not continue or will continue but at significantly reduced amounts next year. However, we anticipate the reduction of these revenues will be partially offset by certain costs we incurred in treating COVID patients. Clearly, we are operating in a challenging labor environment, which we expect to cause some cost pressures. But at this point in time, we anticipate being able to manage through these challenges along with other inflationary cost pressures.

In sum, these assumptions lead us to believe that adjusted EBITDA for 2022 will show modest growth over this year's estimated results. Again, we are providing early perspectives and expectations, and they could change.

The past 2 years have been a remarkable period for HCA Healthcare. We have demonstrated a high level of resiliency and resolve, while at the same time, staying true to our mission. Across many dimensions of our business, we have improved. We have improved our operational and organizational capabilities, which should allow us to provide higher quality care to our patients.

I also believe we will emerge on the backside of this event stronger financially and better positioned competitively to grow and drive value for our stakeholders. We are investing aggressively in our operating model, which is to develop a comprehensive and conveniently located local network, coupled with and supported by an enterprise-level system with unique scale and system-level capabilities. We believe this model creates competitive advantage, drives market share gains and produces better outcomes for our stakeholders.

With that, I'll turn the call over to Bill. Thank you.

Great. Thank you, Sam, and good morning, everyone.

I will discuss our cash flow and capital allocation activity during the quarter, then review our updated 2021 guidance.

Our cash flow from operations was $2.28 billion as compared to $2.7 billion in the third quarter of 2020. In the prior year, we had received approximately $300 million of stimulus income and deferred approximately $200 million of payroll taxes. Capital spending for the quarter was $889 million. And we have approximately $3.9 billion of approved capital in the pipeline that is scheduled to come online between now and the end of 2023.

We completed just over $2.3 billion of share repurchases during the quarter. We have approximately $2.7 billion remaining on our authorization. And we anticipate completing approximately $8 billion of share repurchases for full year 2021. Our debt-to-EBITDA ratio was 2.55x at the end of the third quarter, which is the lowest it has been in over 15 years. We had approximately $5.9 billion of available liquidity at the end of the quarter.

Also during the quarter, we recorded about $1 billion gain on sale of facilities related to the sale of 4 hospitals in Georgia and other health care entity investments. We anticipate we will generate approximately $1.5 billion of after-tax proceeds from our announced divestitures.

As noted in our release this morning, we are updating our full year 2021 guidance as follows: we now expect revenues to range between $58.7 billion and $59.3 billion, we expect full year adjusted EBITDA to range between $12.5 billion and $12.8 billion, we expect full year diluted earnings per share to range between $17.20 and $17.80, and our capital spending target remains at approximately $3.7 billion.

As I conclude my remarks, I think it's important to reflect on the financial condition of the company as we have navigated the past 20 months of this pandemic. The financial resiliency of HCA Healthcare has been on full display during this time. Our organization has emerged stronger today than before we entered this pandemic.

With our leverage ratio well below the low end of our stated range of 3x, our available liquidity and our continued strong cash flow generation, we are well positioned as we evaluate capital allocation opportunities heading into our planning cycle for 2022. We are focused and committed to delivering long-term value for all of our stakeholders. We look forward to sharing more information with you about our outlook in our year-end call.

So with that, I'll turn the call over to Mark to open it up for Q&A.

All right. Thanks, Sam. Thanks, Bill. Chris, would you give instructions on getting into the queue for questions, please?

(Operator Instructions)

(Operator Instructions)

Our first question is from Kevin Fischbeck with Bank of America.

Great. Sorry, I'm going to ask for a quick clarification and then the main question. Did you say that 2% to 3% volume growth in total? Or across most service lines? It sounds like COVID volume might actually be down next year. So I just want to make sure I was hearing that right.

But then the main question is really about labor costs. It does seem like labor was higher than we thought this quarter. And then Q4 looks like the margins may be a little bit lower than we thought. Just a little more color on how you're managing labor and what kind of pressure you're seeing there today.

I couldn't hear what he said the first question was.

The volume.

We have 2% to 3% on the volume. Was that all-inclusive versus across service lines, certain service lines.

Yes. Because COVID is down, right? So...

Yes, we were saying volume...

I wasn't sure if you're saying core business up COVID up 2% to 3% and COVID down?

We expect COVID volumes to be down. As I said, we are anticipating 3% to 5% of our total admissions will be COVID-related next year. So about 9%, I think, for this year. So that we do expect some decline in COVID related, and we hope that happens for our communities and so forth. And so when we estimate, at this particular point in time, we're expecting composite volumes across the company as a whole to be up in the 2% to 3% zone. Over 2020 and over 2019 is really what it boils down to.

Yes. Labor?

Yes. On labor, let me speak to labor. Obviously, in the third quarter, we were dealing with a very intense COVID surge, with very sick patients. And it was putting a significant strain on our communities and on our facilities and so forth. And we did what we absolutely had to do as a moral imperative to take care of people.

And that required us to support that volume and that level of acuity with labor and our labor cost did step up in the third quarter. We used premium pay where we needed to. We used different levels of shift bonuses and overtime where we needed to. But that was not a question to us. We had a lot of people to take care of, and we took care of them appropriately. And we still produced, I think, a very good outcome for the company, with margins at over 21% in the third quarter and actually producing record EBITDA levels.

So labor going forward, we have a multipronged strategy for managing. It starts with expanding our school of nursing, which we think is going to produce a great pipeline of graduate nurses for our company. We anticipate approximately 3x the number of graduates coming out of the Galen School of Nursing over the next few years compared to what we do today.

The second thing we're working on is recruitment and retention. And we've added tremendous amount of resources to our recruitment functions. We've advanced our benefits in many areas. And we're trying to create an environment where our nurses can accomplish what they need to do with our patients and ultimately have an environment where they can be tremendously successful in discharging their responsibilities to our patients, and at the same time, more productive in doing just nursing care as opposed to non-nursing care.

The last thing we're working on that we're very excited about is care transformation. We think we have opportunities with technology and with new models of care and different levels of support that can change the paradigm and how we deliver care on our floors, in our hospitals. And we think the combination of all 3 of these things put us in a position where we can manage through the environment that we're facing right now. Obviously, there's some unknowns. We're going to have to work our way through those as they present themselves, But we're pretty confident that the company is in a reasonable position to manage through the labor environment.

The next question is from Ann Hynes with Mizuho Securities.

I just want to know how volume tracked by payer mix? Is commercial still outperforming Medicare and Medicaid? And what your expectations are for 2022 when it comes to payer mix?

And just one follow-up on your comment about inpatient surgeries being down. If you look at the chart you provided in the press release, they were down 11.2% versus 2019. Do you think that's all COVID-related? Or is there something else happening sequentially?

Ann, let me start with the payer mix. Our payer mix, I think, as Sam alluded to in his comments, remains favorable with our managed care and others growing probably 12% to 14% over the prior year. Our Medicare showed growth, but not quite at that level. We were 2% to 3% on Medicare. On whether we look at 2019, very similar trends. So we continue to expect favorable payer mix trends going forward.

And with respect to labor -- or not labor, surgery in the third quarter, as I mentioned in my comments, we constrained surgery out of need for other patient care requirements. So we used our surgical staff in many instances to support COVID patients across our facilities.

#1, we had to use physical space in our recovery rooms at times to take care of people. And so from that standpoint, we did reduce elective care during the quarter at many of our hospitals. And we reduced transfers in that typically result in surgeries of some sort in many instances. We do think that, that volume will recover as it's recovered in previous periods where we had to do the same thing, second quarter to first quarter, as an example, so we anticipate recovery in that. And so from that standpoint, we are working our way through reopening surgery capacity across the company in an appropriate fashion. And we really don't see any structural issues with our surgical activity across the company.

The next question is from Brian Tanquilut with Jefferies.

And congrats to you guys on the quarter. I guess my question, as it relates to the guidance, it's sort of unusual for you to see a sequential decline in EBITDA from Q3 to Q4, which is what's implied by the midpoint of the 2021 guidance. So just wondering if that's just conservatism. And then as I think about the '22 commentary, 2% to 3% volume, how are you thinking just about margin trend with labor in the background? Should we expect flat margins to translate to kind of like a 2% to 3% EBITDA growth rate as well?

Yes. Brian, let me start with the fourth quarter guidance. We think our range provides some level of growth, and we recognize at the midpoint that there's still a lot of variables at play. We'll continue to manage the company the best we can to continue to drive growth. We've had very few normal months to project from. But we -- again, I think our range is appropriate at this level. It's roughly a $350 million raise at the midpoint compared to our previous guidance. So again, I think it's appropriate from how we read it right now.

Margin. I think he'd asked also about the margins.

Well, there's going to be a lot of variables that play into margins for next year. As we conclude our planning, we'll talk to you further about those. But I think we have a history to continue to drive reasonable margins going forward, and that's our expectation to be able to continue to do that.

Our next question is from Justin Lake with Wolfe Research.

A couple of things here. Just one, wanted to clarify, when you -- given that historically, the typical EBITDA growth of the company is in the mid-single digits, when you say modest, is it fair to take lower single-digits there kind of as a jump-off point for 2022?

And then my question's on labor. Can you give us a little color on 2 things? One, any kind of help on the -- maybe the dollar amount and the percentage kind of temporary labor, travel labor that you're kind of running? I know -- given it's such high cost, it would be great on the revenue side, or I should say the cost side as well.

And then can you walk us through kind of how your labor costs are -- run through the year in terms of maybe what percentage of your labor kind of gets repriced to get their increases quarterly, because I know it's not all just 1:1?

You snuck 3 questions in on one call, bubba. Justin, this is Bill. Let me start with kind of '22. We -- our intention was to provide some broad commentary, not really ready to go in a lot of details. But as we've mentioned throughout the course of the year, we know we've received some COVID support from the DRG add-on payments, a hurst of payments for uninsured COVID payments as well as a delay of sequestration cuts.

These programs, they contribute about $625 million year-to-date. They could reach close to $750 million, $800 million for the full year. We don't have full line of sight now on what to expect for these programs going forward. We hope to have some clear assessment of these as we complete the planning process. But for now, we're not really expecting those to continue to benefit going into 2022.

However, we also have some COVID-related costs this year that we don't expect to continue going forward: supply-related costs, cost of screeners and alike.

So our broad thinking now is we should reasonably expect to be able to generate our historical growth rate of 5% to 6% after netting out these amounts. And that is what the result -- will result in some modest growth year-over-year on an as-reported basis. So that was kind of our broad thinking right now. We'll firm that up as we go through our planning cycle. But that was the intention of our commentary, to show that we still see some growth going forward in 2022.

And with respect to labor, again, we used whatever labor we could find to take care of record census that the company was experiencing with the Delta variant surge. So we used contract labor, overtime. Again, bonuses for our full-time staff, whatever it took to staff to the patient load that we had. And that resulted in about 10% to 12% of our FTEs being in those premium pay categories. That obviously trends down naturally as we have a less COVID census. We've had that pattern in the fourth quarter of last year, the first quarter of this year. And we expect that pattern to continue.

As it relates to the wage rates and the changes that we have, they vary across the company. Generally speaking, they're in -- mostly in the second quarter and third quarter. So that's part of the natural trend that we see inside of our labor costs as we move through the course of the year.

One thing, and Bill was alluding to this, typically, we have fourth quarter seasonality that generates more activity in the fourth quarter than we have in the third quarter. We don't have a baseline third quarter to judge seasonality right now, and that's part of the challenge that we've got.

But I think the company has proven that it can manage, in a surge, very effectively and produce really solid margins. And then in a reboot, like we did in the second quarter, managed through that transition in a very effective way. So I fully anticipate that our teams will be able to navigate through the back part of the third quarter, into the fourth quarter and on into next year, and hopefully, a reboot mode in a way that ultimately produces success for the company.

The next question is from Scott Fidel with Stephens.

Interested if you could talk a bit about what you're seeing in Medicaid volumes. And just been interesting too, it seems like Medicaid volumes have continued to trend relatively low in terms of the overall mix even though Medicaid enrollments are just up so much because of the suspension of the redetermination. So just interested in your perspective on what you're thinking around that aspect, in terms of the lower Medicaid vaults relative to the increases in Medicaid enrollment growth.

Yes, Scott. I'll try. We did see Medicaid growth when I look at '21 versus '20 of almost 9%. I don't have at my fingertips what Medicaid enrollment has done in our states. So I don't have that as a relative base. But we have seen Medicaid growth in this quarter at least. Year-to-date, we're tracking at about 7%. So perhaps that does track with enrollment going forward as well.

The next question is from Ralph Giacobbe.

Hello? Can you hear me?

Hey, Ralph. Yes, hey, Ralph.

I guess, first, you gave -- and I know you want to sort of hold off on full guidance. But you gave us the volume up 2% to 3%. Hoping you can give some sense on how you see the pricing stat developing next year? And then specifically, just on the acuity mix. Obviously, another strong quarter there. Is there any way to exclude COVID out and give us a sense of what that is, sort of either year-over-year or relative to 2019?

Ralph, thanks. Well, as I said -- this is Sam. We do anticipate that acuity levels will be strong as we move forward into 2022. Our COVID -- our non-COVID acuity levels for the year have been up compared to 2019. And so we have seen a natural lift in acuity. Part of that is strategic. Part of that is some migration into outpatient. And part of that is just sort of the environment that we're in, we believe.

So we anticipate that acuity levels will remain strong. I don't know that we've assigned a metric to it at this particular point in time. But if you look at our non-COVID activity for the year as a whole, it is up compared to 2019. And so we anticipate that at this particular juncture, continuing into 2022.

Our next question is from Frank Morgan with RBC Capital Markets.

Just curious on the surgery side. Any additional color you could provide to us on a regional basis between in and outpatient and freestanding surgical volumes and where you saw the biggest impact for COVID?

Well, our inpatient surgeries were the only metric, again, as I mentioned in my comments, that were down for the quarter. And that's because we used a lot of the space that was necessary for COVID patients. Our outpatient activity was up. It was up 7%. It was up more in our freestanding ASCs than it was in our hospitals, but both were up.

And then when you look at it against 2019, I think, again, we had growth, with the exception of inpatient surgeries freight. And that, again, is a direct correlation to the fact that we needed that space for COVID inpatients in order to manage our capacity from both staffing and a bed standpoint.

Got you. And just in the -- just from a geographic standpoint, on the outpatient side, did you notice any more of an effect in, say, the Texas and Florida markets, say, in outpatient because of COVID?

I don't have all of it in front of me. Obviously, Florida and Texas were very intense geographies for us with the Delta variant. And so it's reasonable to assume that, that's where we had more pressure in those markets than we did in other parts of the country. But that would be my reaction to that question, Frank.

Our next question is from Pito Chickering with Deutsche Bank.

For your 2022 revenue commentary, you talked about like, high-acuity procedures continuing. Just curious sort of what is fueling that. What areas are driving that? Is it cardio recovering, orthopedics, et cetera? And then as I think about 2022 and beyond, just a question for you. Once you get over sort of the noise from COVID, does your long-term EBITDA growth that you've laid out in the past, does it still of continue from these levels once you get through the noise of '21 and 2022?

No, our belief is that demand for health care services is still strong. We think it's going to be 1.5% to 2% when you look out into the intermediate run and so forth. And we think for HCA, we have a differentiated portfolio of markets. And we have strong economies underneath that differentiated portfolio, where population growth, job growth and so forth is existent.

And then we've had this pattern, and we think this pattern can continue of market share gains. And as we look at where we are today versus where we were heading into 2020, we think we've improved our overall positioning competitively with the broader networks, more physicians, better clinical outcomes and so forth.

And we will continue to resource our model. And we think that model still has growth embedded in it because of these factors. And we're not ready to give any particular guidance as it relates to out years. But we do think the company's approach can still yield successful returns for our shareholders.

The next question is from Whit Mayo with SVB Leerink.

Okay. As I sort of reflect back on your commentary a year ago, Sam, you referenced a lot of I guess, we'll call it emerging pop-up growth opportunities. I sort of think the ability to align closer to certain medical groups comes to mind. It might just be helpful to hear how some of these opportunities have evolved over the last 18 months. And maybe I mean this in the context of market share shifts, et cetera. But just any high-level observations or thoughts would be helpful.

All right. Thank you, Whit. Well, let me start with the fact that our most recent market share data that we have, which is late last year, 2020 or first part of this year, I don't remember the exact period, shows us at a high watermark. We picked up market share in 2020 when I look at just sort of what happened in that year. So I'll start with that.

Additionally, we have added to our networks. We have added, in some cases, a few hospitals here and there, whether it's new hospitals that have opened or we've had small acquisitions of hospitals to round out our network offering. But in particular, on the outpatient side, we've added a reasonable number of new facilities, whether it's new urgent care center platform, new freestanding emergency rooms, some ambulatory surgery.

And then we've added to our physician platform over the last 18 months. Some of which has been development of existing practices in our communities, but also new practice acquisitions that have added to our offerings. I think our outpatient facility capability is up to about 2,200 outpatient facilities. At the end of 2019, it was just a little north of 2,000. So we continue to add capabilities and convenience for our patients, again, creating a broader network offering in these communities.

We have done some acquisitions. Our pipeline, as it relates to outpatient acquisitions, is strong. Also, our development pipeline of new outpatient facilities is robust, and we fueled that with investment. And then as Bill indicates, we have a strong pipeline of projects that will come online in 2022 and 2023 that are connected to both our hospital platform as well as our outpatient platform. So we see, again, the model, the flywheel, if you will, of HCA continuing to produce solid results and deliver value to our patients and value to our shareholders.

The next question is from Lance Wilkes with Bernstein.

Yes. I just wanted to follow up on the capital deployment theme. And if you could talk a little bit about what you're looking at as far as enterprise assets that sit atop the local markets. And in particular, earlier in the year, you were talking about the flywheel concept and looking at digital or virtual assets or other sorts of assets that might feed into it. But just interesting if you had any evolution and thought as to what you're going to be focused on there and then if there's any progress reports on that.

All right. Thank you, Lance. We do see complementary opportunities to use digital capabilities more effectively in our company. As I've mentioned on previous calls, advancing technology in our organization is a tremendous opportunity to improve care, support our physicians and nurses with decision-making capabilities as well as a more safe environment. We also see, with that, more consistency and transparency, which we believe can produce more efficiencies as we go through it. So we've got a number of initiatives that are connected to that.

In addition to that component, we are using telemedicine to support outreach to our patient population and meet them where they want to be. And then we see opportunities for telemedicine to support what goes on inside of our facilities and preserve better care for our patients by helping our physicians and our nurses with, really, extended capabilities that can come from telemedicine inside the walls of our hospitals.

So those areas are progressing. They're showing early signs of value in some instances. And then when they connect with our care transformation agenda, which is being led by one of our physicians and his team, we're very excited about what that potentially yields in the form of better care, more efficient care and so forth.

So we have a number of initiatives underway. They're not completely implemented across the company because we're still studying what are the best approaches. But we're pretty excited about what this agenda can do for our organization.

The next question is from Jamie Perse with Goldman Sachs.

Early in the pandemic, you outlined a couple of different phases of cost opportunities that you were thinking about. How are those tracking? And how much more of the base cost structure can you optimize? And are those enough to offset some of the incremental wage pressures you're dealing with and other inflationary pressures out there?

Yes. This is Bill. Thanks for the question. As we have talked about before, we have resiliency efforts underway. We started last year. Those efforts continue. We have some of those efforts that are implemented, and we're realizing the benefits now. And we have some of those efforts that are still in the early stages of implementation that will provide benefit going to the future.

We do expect some of those areas to help offset some of the inflationary increases we might see. These efforts are centered around utilizing our scale, where we have the ability to consolidate and standardize functions that may be distributed right now. They're also looking at some structural changes in terms of how we support our field-based operations.

So we have a number of efforts underway. Some of them are at the completion stage, and the benefits are being realized as we speak. And some of them still are in the early stages that will provide benefit going forward. So it's an important part of our activity level right now. We have teams focused on a variety of efforts. And we have a certain governance structure in place to make sure that they get executed timely. So they will continue going forward.

The next question is from A.J. Rice with Credit Suisse.

And Mark, I don't know if we're going to have you on the fourth quarter call, so I just would say, congratulations on your retirement and best wishes.

I want to ask about the capital deployment a little further. Obviously, this year, you did $6 billion. You're on -- you've done $6 billion of share repurchases. When you think about capital deployment going forward, what kind of pace do you think is reasonable for that?

And I know you've already announced the Salt Lake City deal. So on the side of coming out of the pandemic, hospital assets or other more significant assets that might be available, can you talk about that pipeline?

And specifically with Salt Lake, when you made your comments, Bill, about next year's growth, I'm assuming, until that deal closes, you're not incorporating that in your commentary. My understanding, it's about $90 million to $100 million EBITDA.

Yes. A.J., you are correct. We are not incorporating anything into that into our commentary at this point in time. Relating to the capital allocation, let me step back and talk a little broadly about that. As I mentioned in my comments, we are in a very strong position as we approach our capital allocation decisions for next year given our cash flow generation, the balance sheet position and liquidity we're carrying.

As we've described in the past, we're really focused on what I describe as a balanced approach to capital, with our first priority is evaluating opportunity to deploy capital in our markets to capture growth through our internal capital program. We haven't finalized on that range yet, but I would anticipate we'll increase it commensurate with the opportunity.

So we mentioned in our guidance, it should be somewhere around $3.7 billion this year, maybe a little below that. Prior to the pandemic, we were at $4 billion to $4.2 billion. And so we're evaluating where that should settle for next year. But we think that will be an important part of the -- continuing our growth.

After that, it's a matter of how best to utilize our free cash flow to drive value. A dividend program and share repurchase program, we expect to continue to be an important part of our overall capital allocation process. We haven't finalized that. But we have ample capital capacity to give due consideration to both of those programs. And I would expect them to be part of our balanced portfolio of capital going forward.

The next question is from John Ransom with Raymond James.

Good morning. I'd add my best wishes to Mr. Kimbrough.

He's not leaving yet. We still got him for a little while, but...

I'll be here for the year-end. Yes. I get to...

I'm thinking of spelunking or ballroom dancing something. I think you need to take up an eccentric hobby.

That's right, Pilates.

Just thinking about fourth quarter in conjunction with your guidance, I mean, your labor costs, you talked about it a lot, but they jumped up about 11% after kind of hanging in, in the $640 million range for 3 quarters. If we think about the fourth quarter, let's say COVID drops from -- drops by 5%, 6%, and so some of that pressure comes off, isn't it reasonable to think that the labor costs get a little bit of a breather sequentially just relative to less acute pressure from what we saw at the Delta wave at the peak in, say, August?

Yes, John. This is Bill. I think as Sam mentioned in his earlier commentary, we -- this quarter was affected by having and gaining the labor at any way we could to support the volume we were seeing. And as COVID does subside, we expect those premium programs that we implemented during the quarter to subside.

And then whether it be the utilization of the contract labor, looking at the overtime as well as some of these bonus shift differentials that we had to pay. So we do expect that to come down relative to where we had in third quarter. But we understand there's still pressure in the labor market. So we'll just have to see where that settles out for the fourth quarter.

So I mean, just as a follow-up. So if I think about flat sequential revenue and less acute pressure from labor, wouldn't that imply EBITDA going up sequentially, not being flat?

Yes. I understand that question. As we said before, historically, we see some seasonality. We don't know what the seasonality change will be. We think our range provides the opportunity for us to grow at the top end of that. So again, I think just given the environment we're seeing, we're prudent in our range, and that's what we're going with at this point.

The next question is from Joshua Raskin with Nephron Research.

I'm going to hold my comments on Mark then, I guess, for another 90 days so we get him for the 4Q. My question's on value-based care. From the perspective that HCA is the largest hospital operator in the country, one of the largest employers of physicians in the country, so do you look at this movement? And it doesn't feel like it's being felt much at the facility level. But do you think there are opportunities for HCA on the hospital side to benefit from value-based care contracts? And then how do you think about opportunities for your physician base? Because I know there's a ton of conversation around enabling providers at this point.

Well, we have certain aspects of value-based care embedded in, obviously, Medicare reimbursement. In some of our commercial contracts, we have aspects of value-based care component as part of our reimbursement methodologies. That will continue, I think, into the future.

Is it accelerating in our facility structures? No. Inside of our physician platform, we do see opportunities to continue to push further into value-based care. Again, in that particular platform in our company, we have aspects of value-based care. They vary a little bit from one market to the other depending on the circumstances and the demographics and payer dynamics in those markets.

So we do see it growing more in the physician platform than on the facility side, I would submit. But I think if you pull up and you look at our relationships across the organization in the payer environment, they're very strong. We're 80%, 85% contracted for 2022. We're about 50% contracted for 2023 on terms that work for both organizations.

They continue a lot of the structure that's already in place. And we evolve as we renew with what's going on in the marketplace. We are in most commercial contracts in just about every market where we do business and in most Medicare Advantage relationships as well. So that's a key part of our approach.

And that's why it's important for our model within each of the markets to be comprehensive, both in outpatient offerings, convenient for the patients, and then having different price points for the payers, but ultimately creating a full system that can offer solutions. And we adjust those solutions to fit the situation with each payer. And some of that, again, can be value based. Some of it can be a different approach as to other reimbursement terms. But we think we're striking the right balance in how we approach that.

Our next question is from Gary Taylor with Cowen.

Congrats on the quarter. I know it was a very difficult one to manage through, and The Street is always immediately looking for the next data point. Maybe not enough credit given when it's due, so good job on the quarter.

I wanted to ask, I think this primarily goes to Bill. When we look at where your margins were trending a few years prepandemic, up a couple of hundred basis points, I think your guidance for next year inherently assumes margins come back to some degree. And we understand all the factors that have been driving it: the higher occupancy, the better mix, the higher acuity, despite the COVID cost, despite the labor costs, et cetera.

But Bill, I feel like a year or so ago, you did talk about some opportunities to take some real sort of permanent efficiencies out of the cost structure. And just wanted to get your thoughts now, as we sort of head into '22 and beyond, should investors think that margins ultimately just go right back to the low 19s? Are there good reasons structurally to think that maybe you can sustain somewhere in the middle?

Well, Gary, one, thanks. It is a very good question. Assure, we are focused on driving as much efficiency as we can throughout the organization. I think we have a pretty good track record of doing that.

You're right. If you go prepandemic, we were hovering 19% margins. There are a couple of quarters we'd be in 20%. We've step changed that. Some of that is due to the mix and acuity on there. Our focus will be to continue to drive margins. We have been supported by a couple of those COVID support programs that I spoke about.

We fully anticipate, once we account for those, that we should maintain and find some incremental growth to margins going forward. And all of our efforts, including our resiliency plans and our day-to-day management is continue to drive efficiencies, utilize the scale of the organization to bring benefits. So I do believe that once we get into a normalized kind of post COVID surge environment and we compare our current margins to where they were prepandemic, you'll see some elevation in there.

So when you look at the -- Gary, this is Sam. When you look at the third quarter of 2019, we cleared almost, what I call, 36% EBITDA clearance. In other words, our margins in 2021 against 2019 were 2x what the average margin was in 2019. And so obviously, it's significant compared to that same period then.

And we do see some structural pieces that Bill was alluding to. Obviously, there's a potential of inflation that we have to figure out exactly what the implications of that are, and we think some of our strategies will mitigate it. But we have been able to reposition the profitability of the company, and we're pushing to try to sustain those gains as much as we possibly can.

The next question is from Andrew Mok with UBS Financial.

First, one clarification, then I'll get to my question. Bill, earlier, I think you said 5% to 6% core EBITDA growth off of the earnings base ex government aid. If so, it sounds like you actually expect accelerating growth in 2022 compared to the long-term growth target of 4% to 6%. Is that fair?

Well, we've had long-term 4% to 6%. I think if you look at our actual historical, we'd be more in that 5% to 6%. So again, we're in early stages. And the intent was to give you some broad commentary versus specifics on there. So that was how the commentary was structured.

Got it. And then just a follow-up on the de novo deployment. I think you have at least 20 to 30 de novos underway between ambulatory surgery and inpatient rehab. Can you give us a sense for the cadence of when those facilities come online and the expected profit ramp in those facilities over the next 18 months?

I don't have -- I mean we have a pipeline of urgent care that I know is coming online in '22 or '23, again, through acquisition or de novo development. We have maybe 10 or 12 ambulatory surgery centers. Some of which come online in the fourth quarter, some -- most come online in 2022 of that particular component.

And then we have some other outpatient facilities that -- maybe 15 or so, and those categories come online in '22, with another 15 or so in '23. So we have a lot in different categories coming online. And that's part of the continued addition to our 2,200 outpatient facilities. And so I don't have the earnings expectations around those or a composite on each -- all of them in total. We -- but we do have a pretty active development. And those are complementary. And there's a natural ramp in them as well. And for the most part, we're really bullish on the prospects for those outpatient facilities.

There are no further questions at this time. I'll turn the call over to Mr. Kimbrough for any closing remarks.

All right. Chris, thank you so much for your help today.

Thanks, everyone, for joining our call. I hope you have a wonderful weekend. I'm around this afternoon if I can answer any additional questions you might have. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.