HCA Aktie

Great. Thanks, everybody, for joining us today. My name is Ben Hendrix, I'm the health care services and managed care analyst here at RBC. Very pleased to host Chris Wyatt, SVP and Controller from HCA Healthcare with us. Thank you very much.

Thanks, Ben. Good to be here.

Great. We're getting a lot of questions this week on your EPTC expiration assumptions. So I know that we have got $600 million to $900 million in adjusted EBITDA headwind we kind of baked into your bridge. And I think that people are -- saw the 1Q $150 million and wanted to get a little bit of insight into how you're thinking about the remainder of the year, where we're kind of falling in your expectations at this point versus that $750 million midpoint.

Sure. Yes. Just to level set everybody, I think you know our assumptions, we assume 15% to 20% decline in our exchange volume much of that going to uninsured with the rest employer-sponsored insurance. During the first quarter, we saw about a 15% decline. That decline represented both patients that we actually saw in the system that were no longer exchange patients, but then an estimate that we made about patients that we treated that presented with HICS coverage that we think will no longer, they'll ultimately have it because they won't be able to make their premium. So we made an estimate of that in the first quarter.

So both in our statistic and in our financials, we made that estimate in the first quarter. And so we said about $150 million unfavorable impact to adjusted EBITDA was what we assumed in the quarter. We reaffirmed our $600 million to $900 million for the year. I think the variables that we're watching very closely, of course, are just how does that volume decline progress through the year. We're kind of at the low end of the range that we anticipated in the first quarter. How much of that moves to uninsured versus employer-sponsored insurance. It moved at about the rate that we expected in the first quarter. We'll see how that progresses as well as just some of the underlying dynamics around patients paying their co-pays and deductibles. We've seen a bit of a middle tier shift as we expected. All that was in our $150 million thinking in the first quarter.

So we're watching that closely. We know about the grace periods that people were in, in the first quarter. You think about someone that auto reenrolled on the exchanges, so which we think is about 40% of the population. They were in a grace period during the first quarter. We'll see if they are able to sustain their premiums. When we look historically, the second quarter is when we've seen a bit of an uptick of patients that aren't able to maintain their exchange coverage. That's historically. We'll see if that dynamic repeats itself as we go through the second quarter of this year and beyond.

But again, we are on what we anticipated for the year in the first quarter. I don't know that you can necessarily just multiply that times 4 because of some of these uncertainties that we see as we continue through the year around people not being able to sustain their premiums. But we still think that we are in the range that we outlined, and we'll see as things progress as we move through the balance of the year.

So fair to say we're still tracking towards the midpoint at this point?

I think it's fair to say we're tracking in the range in the $600 million to $900 million range for the year. Again, the first quarter indicates more toward the lower end of that range, but we've just got to see how things play out. I think the second quarter is going to be really important to see just how people are able to sustain their premiums as we go through the second quarter.

Yes. You mentioned that effectuation and you mentioned your assumptions on the continuity of the number. But maybe you can think about the biggest swing factors in that range. Maybe you can kind of give us a little bit of insight on how you're thinking about those and if there's anything that's weighing one way or the other or there's another one that's offsetting it? Or how do we think about that balance?

Yes. Again, I think maybe 3 items that I'll highlight. Again, what is the decline in volume? We were at the lower end of the range in the first quarter. So what is the decline in exchange volume we see. Where does that volume migrate to? That generally tracked with our expectations in the first quarter in terms of we think about 15% to 20% to employer-sponsored with the balance moving to uninsured. That happened at about the rate we expected. And then again, this middle tier shift that we see underneath that affects our ability to collect what is patient due amounts. All of that, again, largely tracked with our expectations, but those are the swing factors. To state the obvious more volume decline, more uninsured, that's going to move us toward the higher end of the range. Lower is going to keep us in the lower end of the range. So we're just going to have to see, Ben, how that progresses.

Great. And then you also reaffirmed the $400 million of resiliency program for 2026. Now that we've got 1Q behind us, can you provide any other -- any additional breakdown of how we're thinking about that $400 million distributed across those 4 pillars that you talked about, the revenue integrity, asset optimization, fixed cost and variable costs?

Yes. Well we would say, well, first of all, we are pleased with resiliency and how it played out across those 4 pillars during the first quarter. We see a lot of opportunity underneath each one on the revenue cycle, ensuring that we are paid appropriately for the services that we provide asset optimization. We think from a length of stay standpoint, we saw a 2.8% decline in length of stay in the first quarter. We think we've still got some good opportunity as we look across our portfolio to continue to work on length of stay. Variable costs, we have great benchmarking opportunities inside of the company where we've got 190 hospitals that we can benchmark against each other from a performance standpoint and drive to the best performance inside of the company.

And then our fixed costs, thinking about our shared service platforms as we continue to tuck more services up underneath those. So we think all of those continue to create -- are continuing to see opportunities in those for the company. In the first quarter, as we think about cost overall, you say, well, could you see it in the income statement the way you wanted to in terms of our resiliency. It was a little bit muted by what we saw with the respiratory dynamic being a quick ramp and then staffing to that and then seeing some of the dissipation and then the winter storm kind of hurting our ability to quickly flex our costs.

But as we went through the quarter, our cost trends really continue to improve. Our resiliency actions continue to take hold, and we felt really good about how we exited the quarter from a resiliency standpoint as it relates to what we want to achieve. We think the $400 million is still a really good number as we go through the year. And I just want to remind everybody that resiliency is not -- this is not a 2026 thing. This is a long-term program that we have structured to continue to build upon itself, and we'll continue to have actions that we think will run well beyond 2026 to provide benefit.

If I can just dig into one of those points, I know that we -- you and your colleagues have talked a lot about benchmarking over the last several years. Can you maybe kind of talk about maybe over the last 2 years, the big advancements you've made there and kind of where we are in kind of the benchmarking, what inning we are in the benchmarking process?

Yes. I would say, first of all, one is just getting better tool sets across our company and then democratizing those tool sets across all of our operating leaders. And we've had a significant focus on that over the last couple of years, really putting these better tool sets, in place and then driving accountability to ensure that our leaders are reviewing those tool sets seeing where the -- we challenge all of our operating leaders, know your performance. You need to know it and then you need to know where you need to be. If you're in the bottom quartile, you need to move to the next quartile and so forth and so on and just keep moving through those quartiles of performance.

And so we think we've made good strides. I talked about length of stay, and we'll take certain assets inside the company that we think are performing well. We'll study those assets. We'll take assets that are not performing as well, and we will form collaboratives to make sure they're figuring out how to improve themselves again from a length of stay standpoint. We do it with supply costs, for instance, we do it for certain labor metrics. So all of these have advanced. I would say we're getting into probably the middle innings of these opportunities, but we're still -- we still see a lot of opportunities from a benchmarking standpoint as we think about moving the company forward. So we still see good runway left.

Great. I want to switch gears a little bit and talk about some of the volume trends. So it's been a high area of focus with some of the disruption we saw in the first quarter. Same-store adjusted admits 1.3% in 1Q and admits were up just under 1% with the respiratory shortfall, the winter storm accounting up, I guess, about 100 basis points of drag there.

February and March volumes reportedly recovered to near plan. Can you give us a little bit more color on the exit run rate from 1Q and kind of how you're thinking about confidence into the 2Q and the second half to that 2% to 3% target we've talked about?

Yes. Like I said, whether you look at admissions or adjusted admissions around 1 point of growth in the first quarter just on what we reported. And then we had about 1 point of impact from the respiratory and the winter storm. So if you put those together, we were right about the low end of where we thought we would be for the full year. But as we studied as we went through the quarter, and we talked about this on our call, we saw good volume progression in terms of growth as we went month by month through the quarter.

January was most affected by some of these dynamics that we talked about to put pressure on our volume. February was better than January. March was better than February. So as we watched the run rate of volume through the quarter and then as we exited the quarter, it gave us confidence to think that our 2% to 3% is still appropriate that we saw a temporal dynamic from a volume standpoint in the first quarter. We layer on just our views of demand, our network development initiatives and then capital that we see coming online this year, we continue to believe that the 2% to 3% is achievable, and that's why we reaffirmed that's where we think we'll be for the full year.

Great. I want to drill in a little bit on the outpatient surgeries. We saw about 1.7% decline in the quarter. Hospital-based orthos called out a specific pocket of weakness in the inpatient side and low acuity ASC lines, ophthalmology and ENT on the outpatient side. Maybe you can talk about what drove the overall surgical demand softness and then how we're seeing case mix evolve on kind of on a 1Q exit rate?

Yes. On outpatient surgeries, we've seen some volume declines in outpatient surgeries for a number of quarters. I think we had maybe 1 quarter of growth last year. It's been more of a statistical dynamic for us. Our outpatient surgical revenue growth has been pretty solid as we look out over the last several quarters. And it's been more of a statistical than a revenue impact because of the payer mix, it's been self-pay and Medicaid or because of the acuity of the procedures, it's been, I said, ENT, ophthalmology, some of the lower acuity on the outpatient revenue side.

The first quarter, I would say, was different -- the dynamic that was different is just the exchanges. And we saw some of the exchange declines inside of outpatient surgical volume as well. And again, that was all in our thinking that we've already talked about on the $150 million impact. But that's really what's different. Our ASCs, we saw a little less volume decline and then a little bit more on the hospital outpatient based side. Still revenue growth in both platforms, but the HICS dynamic is what I would say is a little bit different on outpatient surgery this quarter.

And maybe you can talk a little bit about your capital spending expectations here, $5 billion, $5.5 billion is about kind of what we typically think and that's kind of where you're guided. With about $5.5 billion to $6 billion approved projects coming online in the next 24 to 30 months, how many -- how do you think about that translating to volume? And where we will see where -- I guess, what categories will we see that in?

Yes. So just some context, we, for the last several years, have brought on about 600 inpatient beds online each year, about 250 emergency room beds. 2025 was a little bit lower. We were below average on inpatient beds. We were about in line on ER in terms of what we brought online. That was nothing other than just kind of timing of the way our capital projects have worked out.

As we come to 2026, we're going to be much more in line with those historical averages in terms of the inpatient beds. We're going to be a little above on ER beds coming online. So we think that is going to provide us some lift in terms of our volume and our results as it relates to 2026. I spoke to that when we talked about volume earlier. And that's why we also -- as we continue to look at opportunities, we see the pipeline, the $5.5 billion to $6 billion that you referenced, both to invest in our inpatient facilities and continue to grow our service lines, but then also our outpatient networks as we continue to deploy, for instance, freestanding emergency rooms. We continue to see a strong pipeline, and we're going to continue to invest in that, and that's why we bumped our capital spending. We spent a little less than $5 billion last year. We expect to be in that $5 billion to $5.5 billion range this year and see good opportunities. I think it will provide a bit of a tailwind for us.

Great. I appreciate that. And then thinking about the market share goals, I think you guys have talked about increasing your market share through 2030, increasing the number of outpatient access points. Kind of what's the market look like right now? Is it getting more favorable, less favorable in terms of valuation and opportunities for whether it be urgent care, freestanding ASC or what have you?

I mean, I guess, 2 elements to that. One, we've kind of talked about capital. So our own -- building our own de novo freestanding emergency rooms, for instance, or building our own urgent care practices. So there's one, what are we doing to deploy our own capital. Then there's the M&A landscape that I think you're referring to as well there, Ben, and we've talked about. That is where we're seeing more opportunity. During the first quarter, we spent about $260 million on acquisitions, which were primarily freestanding emergency rooms, urgent care platform and then ASC.

So we continue to see opportunities, probably a little bit more so on the outpatient side. It's not that we don't continue to look for inpatient opportunities. We did close 2 hospital acquisitions last year. So we'll continue to look for opportunities in that space. But outpatient seems to be what's presenting itself just a little bit more right now and what we're able to bring to bear is certainly in this last quarter.

Great. Is that outpatient generally more ASC? Or is it going to be like urgent care? Any thoughts there?

I think just based on what we have purchased of late, it's been more urgent care and freestanding emergency room. Now that's not to say that ASC, there's not opportunities, and we are doing some ASC acquisitions. But if you just look at the sheer volume of what we've done, it's been more on the urgent care and freestanding emergency room side.

Anything on the policy side regarding like site neutrality or anything kind of changing the way you're thinking about your outpatient capital deployment?

Obviously, we're watching site neutral very closely. We're watching things like the inpatient-only list. And of course, we've been working through site of care shifts from in to out on total joints for a number of years and have been able to absorb that. We'll see how the policy environment evolves. Site neutral has been pretty limited so far to drug administration and grandfathering of practices and things like that. It just haven't had a significant effect on us.

At the end of the day, no, it doesn't change how we're thinking about our capital deployment in any material way right now. We're going to continue to just build these outpatient networks and try to grow that 14 sites of care outpatient every hospital to -- we've stated we're trying to move that up toward 20, but it doesn't materially change the company's strategy.

So Digital Transformation & Innovation, the DT&I shift has been a big focus of capital lately. I'm wondering if you can kind of talk about how that process has been moving forward, when we can think about that as turning from a cost or capital use to more of a margin enhancing?

Yes. Obviously, DT&I is a really important strategy for the company, and we think it is going to pay significant dividends over the long run. We are in a year of investment in 2026. Part of it, is as we continue to change out our core clinical information system. So we're in the middle of doing that. We think that's very foundational to what we're doing. But also as we continue to build the team on our DT&I team as we continue to deploy technologies that we think are going to make it successful in this area. That's all causing that net investment that we have to have this year.

You know the domains that we're focused on from an AI standpoint, administrative, we're starting to deploy items there, operational in terms of staffing and scheduling, clinical in terms of ambient listening and nurse handoffs. So we've got a pretty significant broad agenda there. We're investing heavily. I'm not ready to score yet exactly when it moves from net investment to net return. Obviously, you can imagine we're working as quickly as we possibly can to deliver a net return on these. And we've got expectations to do it as quickly as possible. We're just not quite ready to score when that is yet. But we think that this is going to be a differentiator for the company and something that we're very focused on in terms of what we're doing with our DT&I function.

Remind us of the relative timing of those big 3 buckets in terms of the clinical versus the operational versus the administrative, how do those flow naturally?

Yes. I'll say, first of all, we've got actions in flight underneath all 3 of them. The administrative, for instance, when you think about revenue cycle and what we're trying to do to work through denials and underpayments, there are some immediate things that we're doing just to try to work through the adjudication and friction in the process there. So there are some things that we already have in flight and actually in use right now.

Operationally, our staffing and scheduling, we're rolling that out across our facilities. It is one of those things. But when you're talking about staffing and scheduling for hundreds of -- a few hundred thousand people, that is a significant undertaking for the organization. And so we're working through that. And then clinical is the longest run pole in the tent, so to speak, here. Obviously, we have to be very thoughtful and responsible as we're thinking about all of our care processes. We think that ultimately, AI is going to enhance them, but we've got to do it in a very thoughtful way. So we're still very early on, but we think we're making really good strides here.

And as we think about the opportunity in claims and adjudication, just given higher claim review activity and pushback we're seeing from payers, how are we thinking about where we are in the AI application to claim adjudication? Are we -- is it fair to say that we're kind of in an arms race right now with payers? Or is -- are we at a point we can see a light at the end of the tunnel where we're actually reducing friction?

Yes. So I would say that, one, denials and discrepancy, they're more significant than we would like to see. But we have a substantial effort internally and very proud of our teams and what they do to try to appeal or follow dispute resolution processes where we need to. And as we talked about in the first quarter, it really didn't have a material effect on us from a year-over-year standpoint.

But we're trying to work with our payers on this. And we've talked about how do we integrate ourselves digitally with our payers to try to reduce the administrative burden, to try to reduce the friction to try to reduce the cost in the system to be able to better adjudicate claims. So we're going to continue to focus on that, then see if we can't get better with this process together with our payers. But that is something that we're certainly focused on here with our payers and the integration.

I wanted to switch a little bit to some policy items. Medicaid work requirements under the OB3 are set to take effect in '27 in expansion states. So you've got about 60% of your Medicaid revenue from non-expansion states. How are you thinking about the potential enrollment attrition from this administrative process failures or other impacts?

First of all, the bottom line is I think these work requirements will be manageable for us. You mentioned that our exposure to expansion states where we think there will be more of an effect is less, right? We have about 40% of our Medicaid revenue in expansion states, 60% and not. Obviously, we're watching what the states are doing closely as they set up processes and technologies to be able to adjudicate these work requirements.

Fortunately, for our states, we've not seen any early adopters. I think states have the option to move before 2027 if they want to. We're not seeing that in our states. We're gearing up our Parallon revenue cycle team to be able to educate our patients and the facilities as we go through a Medicaid qualification processes, not only to qualify, but what is it going to take to be able to make sure they're meeting these ongoing work requirements. So again, we think this is manageable for us, but we are certainly gearing up to help our patients as much as we possibly can through this work requirement transition.

Yes. And historically, you have had a really strong track record of finding out if an admission is Medicaid eligible and getting that worked out. Is there any kind of amplification of that process? And what kind of developments can be done there?

I think we've got -- to your point, we've got individuals embedded in our facilities that help with that process, help educate patients on how to qualify for Medicaid and do as much as they reasonably and appropriately can to help with that process. So we're certainly gearing up again just to make sure that people understand what the new rules will be, what the documentation requirements are so we can educate our patients as much as we humanly possibly can. But as you can imagine, we've got work groups internally really thinking through this and how we're going to evolve to help patients through this.

And I just wanted to -- I cannot ask a question about DPP. So I know there's a lot of swing factors there and a lot of variation year-to-year. The 4% to 6% long-term EBITDA range, how are you thinking about the sustainability of that as we kind of go through the scale down of provider taxes?

So I'll go back to when we -- when the big bill was passed last year, and we talked about what do we think the effect of the big bill would be on us. We said we thought the Medicaid cuts from the bill would be manageable for us, and that includes the supplemental payment cuts. And why did we say that? We said, well, one, there's a runway. There's an elongated time line for these to take effect. Two, we know we have some incremental benefit that is available to us through grandfathered programs. And three, it's our exposure, as we talked about already, to non-expansion -- or to expansion states where non-expansion states where we're more favorably treated in the bill.

And so all those things, as we've continued to learn and understand more about the bill and the supplemental payment programs, none of that's changed our thinking at the end of the day. So we continue to think that over time, our 4% to 6% is reasonable in light of these supplemental payment changes that are coming out -- I'm sorry, that will impact us as we move forward. And so we continue to think that our -- it's manageable and our ranges are appropriate in light of those.

Yes. Any news developments from your end on Florida?

Sure. Florida has been approved. You've probably seen that has been posted publicly. It was approved at the amount that we expected it would be. As a reminder, it's for the time period, October 1, 2024, to September 30, 2025. We're going through an assessment of it right now. We expect to record something in the second quarter. I'm not ready to size that just yet for you, but we will do that when we get to our second quarter call.

Great. Well, thank you very much. I really appreciate it.

Ben, thank you. Thanks.

Ladies and gentlemen, welcome to HCA Healthcare's First Quarter 2026 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. Frank Morgan. Please go ahead, sir.

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take questions.

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. 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 to 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 now turn the call over to Sam.

Good morning, and thank you for joining the call. First, I want to recognize our colleagues for continuing to demonstrate a remarkable ability to adapt to changing conditions and deliver positive results for our patients, communities and stakeholders. The start of the year presented a dynamic environment for HCA Healthcare.

From a volume perspective, we did not experience the typical lift related to seasonal respiratory conditions. Compared to the first quarter of last year, our respiratory-related admissions were down 42%, and our respiratory-related emergency room visits were down 32%. Additionally, winter storm that hit a few of our markets adversely impacted our volumes in the quarter. On the positive side, however, we experienced a greater net benefit than anticipated from state supplemental programs. As a reminder, these programs are complex, they're variable and difficult to predict. This benefit mostly offset impacts from the shortfall in volumes.

Regarding payer mix for the quarter, the underlying shifts resulting from the changes in the health insurance exchanges were generally in line with our expectations. This area remains fluid. As we stated in our fourth quarter call, we have considered a range of potential scenarios as the effects continue to evolve. As mentioned over the last several quarters, our teams have been focused on a broad resiliency plan designed to generate cost savings where appropriate, enhance network execution and strengthen organizational capabilities. I am pleased with our resiliency efforts to date, and we expect they will continue to help offset some of the expected impact from the payer mix shift.

Additionally, we were pleased with the volume results exiting the quarter. The reparatory related and winter storm impacts were mostly contained to January, with February and March volumes rebounding nicely. For the first quarter, revenue increased 4.3% compared to the first quarter last year. Adjusted EBITDA increased almost 2% and diluted earnings per share, as adjusted, increased approximately 11% versus the prior year period.

We continue to deliver for our patients and important metrics including improved quality measures, increased patient satisfaction and reductions in the average length of stay. I remain excited about our digital transformation program and AI agenda. They progressed during the quarter with rollout of some key initiatives to more facilities. Our clinical teams continue to advance efforts to enhance quality, safety and services to our patients, with progress on broad initiatives across nursing care, hospital-based physician services and support functions. We continue to invest significantly in network development with our capital spending and with selective outpatient facility acquisitions. As compared to the first quarter last year, our networks expanded their overall sites of care by more than 4%, increased hospital beds through capital spending by almost 1% and added 4% to emergency room capacity.

To summarize, we view the respiratory-related volume shortfall and the increase in supplemental payment net benefits as first quarter events. As such, we believe our assumptions for the remainder of the year related to volumes, payer mix and costs continue to remain in line with our original guidance. HCA Healthcare has an impressive capability to remain disciplined in dynamic environments. This is a resounding strength of our teams and what they have built over time. It is rooted in our culture and it helps us to execute on our mission to provide high-quality care to our patients while delivering strong financial results.

With that, I will turn over the call to Mike for more details on the quarter.

Thank you, Sam, and good morning, everyone. Let me start by providing same-facility volume comparisons for the first quarter of 2026 versus the first quarter of 2025. Admissions increased 0.9%, equivalent admissions increased [ 1.3% ], inpatient surgeries were down 0.3% and outpatient surgeries declined 1.7%. ER visits increased 0.3%.

As Sam mentioned, we had a much milder respiratory season in the quarter. This produced a drag on our quarterly volume growth in admissions and ER visits, up 70 basis points and 140 basis points, respectively. In addition, the winter storm in January impacted a wide swath of our markets, including Texas, Tennessee, North Carolina and Virginia, reducing admissions and ER visits by an estimated 30 basis points and 50 basis points, respectively. The impact of these 2 factors was consistent across all payer categories, and in total, adversely impacted adjusted EBITDA by an estimated $180 million.

Regarding payer mix, commercial equivalent admissions, excluding exchanges, increased 0.6%. Medicare increased 1.9% and Medicaid increased 0.3%. We believe the variance in volume relative to our expectations was almost entirely driven by the respiratory season and winter storm. We view these factors as being temporal and not structural. Overall, taking all of this into consideration, our volume growth in the quarter was generally in line with our 2% to 3% volume growth assumption for the year, albeit at the lower end of the range.

Adjusted EBITDA margin decreased 50 basis points versus prior year quarter. Salaries and benefits as a percentage of revenue improved 30 basis points and supplies improved 20 basis points. Other operating expenses as a percentage of revenue increased 90 basis points, primarily due to an increase in cost related to the Medicaid state supplemental payments, professional fees and technological investments. As Sam noted in his comments, volumes continued to improve throughout the quarter, and we noted a similar progression of operating leverage and cost trends.

Regarding Medicaid supplement payment programs. While we expected an increase in net benefit of $80 million, we realized an increase in net benefits of approximately $200 million to adjusted EBITDA versus the prior quarter. This was primarily due to the grandfathered approval of Georgia, the reinstatement of the Atlas program in Texas and the year-over-year benefit of the Tennessee program that was approved in the third quarter of 2025.

We are adjusting our full year range to reflect the decline in supplemental payment program net benefit between $50 million to $250 million versus prior year. This updated guidance does not include any potential impacts from additional approvals of grandfathered applications. We continue to monitor the ongoing developments related to these programs, and particularly Florida. We continue to feel positive about the prospects for the approval of the Florida program, which covers the period of October 1, 2024, to September 30, 2025. If approved, we believe it should result in additional revenues, which may be significant.

Now let me provide additional information regarding the exchange environment. As we stated in our fourth quarter call, the complexity of the exchanges is significant, and we're tracking several areas within the company. For the quarter, we estimate our same facility exchange equivalent adjusted admissions declined approximately 15% versus prior year quarter. This represents our comprehensive evaluation of patients that presented with exchange coverage that ultimately will not be covered for their episodes of care.

Using the same analysis, we estimate same facility uninsured equivalent admissions increased approximately 16% versus prior year quarter. Over half of this implied increase relates to the movement from exchanges and normal uninsured growth. The remaining portion reflects a slowdown of conversions to Medicaid from patients who were not willing to fill out applications.

We estimate the adjusted EBITDA impact from the exchanges to be approximately $150 million in the first quarter of 2026 versus the prior year quarter. Given our experience to date, we still believe our full year range of $600 million to $900 million expected impact on adjusted EBITDA is appropriate. However, the exchange environment remains dynamic and has not fully settled. We will continue to track the fluid nature of this reform and will provide further commentary on our second quarter call.

Moving to capital allocation. Capital expenditures totaled $1.1 billion in the quarter. Additionally, we purchased $1.57 billion of our outstanding shares, and we paid $183 million in dividends for the quarter. Cash flow from operations was $2 billion in the quarter, representing a 22% increase in the first quarter of 2026 versus the prior year quarter. Our debt-to-adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well positioned for the future. As noted in our release, we are reaffirming our estimated guidance ranges for 2026.

I will now hand the call back to Frank Morgan for questions.

Thank you, Mike. [Operator Instructions] Andy, you may now give instructions to those who would like to ask a question.

[Operator Instructions] And our first question comes from the line of Ben Hendrix with RBC Capital Markets.

I appreciate the color on the respiratory, SDP and other components. Maybe you could just give us a rundown broadly of how your results compare to your internal expectations for the quarter?

Thanks, Ben. This is Mike. I mean our results were a bit short in terms of adjusted EBITDA to our internal expectations. Besides our internal expectations is being pretty consistent with the midpoint of our guidance in terms of growth, pretty consistent actually with consensus coming into the call. Really 2 main drivers in terms of the shortfall to internal expectations. The first one is this kind of shortfall in the seasonal volume uplift from respiratory in the winter storms, which was mostly offset by the net benefit from the supplemental payment programs.

A little detail here on seasonal volumes [indiscernible]. I've already kind of quantified the volume side of that. So let me talk about the expense side. As we were -- as we were coming into January, our respiratory season was actually strong at the beginning of the year. However, later in January, it became apparent that the respiratory season was actually ending abruptly. And we were then hit with a significant January winter storm across several of our states. Both the quick ramp down of the respiratory volume as well as the winter storm delayed our ability to flex down our seasonal cost in the quarter. We were ultimately able to do so as we move through the quarter, but there was a delay.

So let me switch now to the supplemental payment program activity. As noted, Medicaid supplement payments net benefits was better than expected. As we came into the quarter, we did anticipate an increase in the supplemental payment net benefit in Q1 of $80 million, largely due to the increase in the Tennessee program that was approved in Q3 of 2025. So the $200 million of net benefit in the first quarter was about $120 million higher than our internal expectations in the quarter, and again resulted from the approval of the grandfathered Georgia program as well as the reinstatement of the Atlas program in Texas.

So in summary, Ben, when I think about first quarter, largely, we were just a bit short in total. But when you take the temporal factors of the lack of the seasonal volume uplift and the pickup in net benefit supplemental payments, those are really the main drivers in the quarter.

Appreciate that color. And then kind of just a quick follow-up. Can you just give us an update on the moving pieces that kind of get you back to the initial guide? Maybe walk us through the components of the EBITDA bridge as you see them today after such a dynamic first quarter?

Sure. If you go back to the release, the really only change to our key assumptions for the 2026 guidance relates to the supplemental payment programs. We estimate that the Georgia approval and the reinstated Atlas program I previously discussed, will provide approximately $200 million of incremental net benefit for the full year that was not originally included in our guidance.

I would note that the $120 million for Georgia and Texas that we talked about for the first quarter had a prior period impact in it. And so the component that applied the first quarter and for the full year of '26 really make up that $200 million. And so that's why we're adjusting our assumption for full year net benefit to now be a decline of $50 million to $250 million. And just to note, that assumption does not include any additional approvals of grandfathered applications.

When I think about the rest of our assumptions, Ben, if you think about the impact of the exchanges, we still believe that, that $600 million to $900 million range is appropriate based on what we've learned in first quarter. Our resiliency assumptions that were in guidance also, we believe, are still reasonable and appropriate. And so at the end of the day, we just felt like that it was appropriate not to change our total guidance range, even with the $200 million improvement in first quarter.

A chunk of that really goes back to this temporal nature of the headwinds that we saw in first quarter being related to the seasonal volume impacts in the winter storm and the related cost impacts. And so as we think about how we progress through the quarter, Sam mentioned that as we exited the -- exited the quarter in March, there are volumes were improving largely back to our original plan. We also saw the same thing in our cost structure. As we got through March, our cost trends really reflected good performance in March, and we're largely on plan. And so that's the walk-through on guidance.

And our next question comes from the line of A.J. Rice with UBS.

Just to put a fine point on what we're just going on the numbers flying back and forth. Is the right way -- am I hearing you say, you basically had $180 million of negative impact from flu and weather in the first quarter? You picked up $120 million of benefit from DPPs in the first quarter that was not expected. So the net was a $60 million drag net of the unusual items or weather and flu. And then on the $180 million versus the $200 million of DPP in the full year impact. So you're ending up roughly $20 million if you maintain your guidance for Q2, Q3, Q4 better because of the incremental impact of DPP over the course of the year. I just want to make sure that's the right take from what you're saying.

Yes. I think that's -- you're generally in the zone. I mean we view the $180 million headwind in the quarter as being temporal and not structural. So we don't think that will repeat. The $200 million improvement for the full year '26 from supplemental payment benefits reflect Georgia and Texas. And then just broadly, we're not changing our full year guidance on earnings. And I think that's the way to read that. I think I would acknowledge there's a little bit of softness [indiscernible] consensus. It may be not fully explained, but it's pretty close from the moving factors in the first quarter.

And then A.J., when we look at the rest of the year, and we think about the demand that we're seeing in the marketplace, we believe that we will be able to run between 2% to 3% volume growth in the next 3 quarters of prior year. Our original assumption around the exchanges, around revenue and our cost trends, we think that the balance of the year is another way of saying is largely back on our original plan.

Okay. And maybe a follow-up -- go ahead.

No, it's Sam. I mean, we do, I'll call it, a business analysis of the company in the first quarter. It's pretty much where we expected, save the respiratory dynamic. So we believe the business outcomes of the company in the first quarter are in line with the guidance we provided just 90 days ago. And so we're at a point where we're judging that. We're trying to influence what we can on the edges and put ourselves in a position where we get to where we need to be by the end of the year. I mean that's sort of the short story on what happened here. There's always puts and takes with the supplemental program. We've talked about that for years. What we're trying to judge is the business functioning and performing as we thought. And generally, that case, save the one item associated with the respiratory activity.

Okay. Could I just -- as a follow-up, your $400 million resiliency program, I know you've got a lot of AI initiatives and -- but some of that is other stuff. Can you just sort of update us on where you're at with the AI initiatives? And is that $400 million a pretty firm number? Is there a range around that as to what you might ultimately realize this year?

Well, in the quarter -- this is Sam. A.J., in the quarter, as Mike indicated, we get operating leverage. When we get volume, whether it's respiratory volume or surgical volume, we get operating leverage. So we lost a little bit of that in the first quarter. But again, when you sort of normalized for that, as we exited the quarter, we felt good about the leverage we were seeing in the subsequent months. And so when you merge that with the maturing of our resiliency program over the course of the year, we think we can get where we need to be with our cost objectives for 2026. Are there opportunities on maybe more possibly? Could we fund pressures that we haven't anticipated? Of course. I mean, that's what a dynamic business environment represent.

I will tell you that our artificial intelligence agenda is getting implemented. We have productivity with our physicians, with our ambient listening capabilities and the documentation associated with that. We're rolling out our nurse handoff program, as I mentioned. We've got new initiatives that are rolling out to more facilities. That's got more patient safety and nurse engagement, some productivity to it. We're really excited about what the artificial intelligence program can do to complement our caregivers in our company and help us provide better care, do it more cost effectively and run the business better. We're seeing it in case management. We had good outcomes with case management, as we talked about with average length of stay.

So all of this is coming together. Does it have some upside in some areas? Yes. Could there be some pressures in other areas? Of course. So when we put it together, we feel like we're on the program that we estimated at the beginning of the year.

And our next question comes from the line of Ann Hynes with Mizuho Securities.

I just had a quick follow-up from a comment you made in the prepared remarks, and then I have a question. Just on the Florida DPP, I do think there are some anxiety in the market because it's taking so long to approved. Do you have any color on maybe from a timing perspective when that could be approved?

And then my real question is just on ACA, just with the increasingly uninsured and the bad debt, is that coming in line with your initial expectations? And can you remind us, does your guidance assume a deterioration in the collectibles of co-pays and deductibles of the insured? And what change is embedded in your guidance?

That is a multipart question, Ann. It was impressive. So when I think about -- let me start with Florida. And I do think that the size of the Florida program as such, the enhanced size that CMS is thoroughly reviewed this program, as you noted. But based on our sense of things as we sit here today, we do feel positive about the prospects of approval for the Florida program. And if approved, as I noted in my prepared comments, we believe it would result, not only in additional revenues, but those that may be significant. So that's a quick update on Florida. And obviously, we'll be watching this just like you will, and we'll keep you informed as that moves.

As it relates to the exchanges and what we're seeing related to patient amounts do, I would say like this, as we came into our modeling, our models included some shift from silver, bronze. And what we're seeing is we study our patients so far is that there has been a bit of a shift from silver to bronze in the patient selection of metal tier. I wouldn't say, however, that, that shift is significant at this point, but there is some.

We're also noting that even within silver, if you compare the benefit designs in 2025 to 2026, that the amount patients to within silver are also increasing as we are studying the 2026 activity. And so all this is leading us to conclude that we are seeing a growth in patient amounts due on the exchanges. And as we've noted in the past, we see a lower collection rate on patient balances from the exchange plans as compared to traditional managed care patients in this shift. I do think we'll have an impact on patient collections on uncompensated care.

But from a context standpoint, I don't think that the -- the impact of the shift and the growth in the patient out dues is going to be overly material, given the relatively minor portion of our patient cash collections that relate to exchange patients. We did include in our original estimate of $600 million to $900 million, this increase in patient amount due on the exchanges. It's within the range of our models based on what we're seeing.

On the broader part with the exchanges, to your point, we did anticipate movement out of the exchanges to uninsured. And so if I think about the kind of the payer mix implications within the model, as you go back to that discussion, we thought that we would lose about 15% to 20% of volume, of people leaving the exchanges. And we -- we think we saw about a 15% decline in first quarter, so at the lower end of that. You may recall that our assumption was about 15% to 20% of beds who lost coverage on the exchanges would migrate to employee-sponsored insurance and the rest who uninsured. As we're studying the patients during the first quarter that previously had exchange coverage, we are noting that the patients converting to employee-sponsored insurance or generally within the estimated range that we built into our guidance model.

Interestingly, patients migrating to uninsured are just a little bit less than expected as we are seeing some individuals converting to Medicare or Medicaid due to the age or to changes in life circumstances. But I would note that this is a slight improvement and was not significant. And overall, that the payer mix deterioration from the exchanges is generally in line with our expectations for the quarter. [indiscernible], and obviously, this is going to continue to mature. So we'll have more mature insights.

So I'll just end with this. I mean if you think about the growth in the uninsured that I highlighted in my prepared comments, a little more than half of that 16% growth was from the movement from exchanges, and that's in line generally, with our expectations. The other factor that did show up as growth in uninsured volume was the slow down in Medicaid conversions that we highlighted. Broadly, those are the components that I would say that are in our uncompensated care results for the quarter and largely are in line with our expectations and plans.

And our next question comes from the line of Brian Tanquilut with Jefferies.

Maybe, Mike, just a quick view, maybe to follow up with your comments on Ann's question to you. How do you want us to think about the sequential move then from Q1 EBITDA to Q2, factoring in the recovery in volumes and then your expectations on HICS and how that's all going to play out?

Yes. We don't generally give guidance by quarter, other than just kind of pointing back to normal seasonality, Brian. Clearly, as you noted from our comments, and we do view the volume shortfall in first quarter as being temporal and not structural. So I mean that's an important note.

Broadly on the exchanges, you get a sense for what we saw in the first quarter, it is dynamic community. I think about what we're going to learn on the exchanges. I mean, we're going to continue to learn more as we go along. I think -- what that looks like is studying how much of the anticipated 2026 full year volume decline like came through during the first quarter, which is a bit difficult to today.

We -- as we studied this, we know that certain individuals were in their grace period throughout the quarter, and they may drop coverage after the first quarter. We made an estimate for those patients in both our equivalent admission statistics and our financials. But I still think based on the data we've seen to date, we do believe that our assumption of a 15% to 20% volume decline continues to be reasonable. So those would be the thoughts that I can give you now related to the progression through the year.

And our next question comes from the line of Whit Mayo with Leerink Partners.

So the health plans are all on an organized campaign today on prior authorization. I just was wondering if you could talk about any of the -- any payer behavior changes, particularly post discharge denials? Anything new that you saw emerge within the quarter or year-to-date? And I know you've been working with a number of plans to sort of streamline all this back and forth stuff. So just any color would be helpful.

Sure. Thanks, Whit. We continue to experience increased activity levels with our payers on denials and underpayments pretty broadly across payers and across products. I mean I might continue to call out Medicare Advantage as being a specific driver within the product mix.

As you know, we've been working really hard over the last several years to strengthen our revenue cycle. We've added resources, technologies and a lot of capabilities around speed resolution to really go after the root cause of the denials. That work has continued to pay dividends.

Given the results of the work of the company, I think as you look at first quarter with -- even with the pretty significant increase in activity around denials and under payments that we are seeing, our recoveries, our work around speed resolution, our work around appeals and getting these overturned or such that we were able to mitigate and not see a lot of year-over-year impact to earnings. But the denials and underpayments are still really high. And so it's a key part for our industry to continue to work together on.

As you noted, we have launched over the last really 18 months now, a series of partnerships with many of our strategic payer partners. These partnerships really focus on digital integration to try to share more digital and structured data back and forth between us and our payers, eliminate faxes, eliminate paper. A lot of work around administrative simplifications for both us and our payers to deal with the really significant administrative cost burdens that are associated with kind of the health care in America. And then lastly, management of disputes. I would say that those are good in early work products, but we have a long way to go as we continue to move that forward. So that's a bit of an update on denials and underpayments [ improvement ].

And our next question comes from the line of Andrew Mok with Barclays.

Wanted to follow up on the slower conversion to Medicaid. Just curious which states you're seeing that slow down, whether you view that as a temporary or issue or durable trend? And when you take a step back on the broader uninsured ACA population this year, did you make any changes to your bad debt accrual process?

Thank you. So when I think about Medicaid and the slowdown in the conversions, we think, and it's still early, there can be potentially some other contributing factors. But we largely think about this as people, who, this year, are less willing to fill out Medicaid applications. And so we suspect that, that could be driven a bit by concerns around immigration and like. So that -- we're studying that. I'm not quite sure if that's the full reason why. But that is a piece of the story here in terms of the year-over-year growth in the slowdown in Medicaid conversions that's impacting our uninsured volume increases.

Broadly, yes, our budget is -- our plans for 2026 reflected the payer mix shifts and the patient amount due collections that we anticipated being impacted by the exchanges. And so that was reflected both in what we anticipated related to uninsured volume growth and related to the potential impacts in terms of patient due collection. So that was built into generally our models for 2026.

Our next question comes from the line of Matthew Gillmor with KeyBanc.

I wanted to ask about the hurricane-impacted markets. I think guidance didn't assume any continued improvement from those markets. Can you just give us an update in terms of how things are playing out and if there's any signs that those markets are improving, particularly in North Carolina?

So this is Sam. North Carolina, here's the short story. Demand is above our expectation. It's costing us more to serve that demand because North -- Western North Carolina has a significant workforce deficit. We're having to bring in labor, nursing, nonnursing to support the demand. We have a very aggressive recruitment campaign and compensation program to service that demand, and we're hopeful, over time, we can mitigate the cost. So we've seen more volume. It's cost us more to serve it. So we're a little bit behind our expectations in North Carolina on the bottom line.

The other thing, Sam, that we're seeing is the payer mix change. In North Carolina, the -- it clearly has been disrupted in terms of that workforce disruption is also impacted in a less favorable overall payer mix.

Broadly, when we think about the hurricane-related markets, in our guidance, we indicated that we did not think that we would see any kind of material improvement in year-over-year earnings from the hurricane markets. I mean, our Tampa facility [ Argo ] Medical Center has largely recovered in [indiscernible] but we don't think we're going to see any net material increase in year-over-year earnings from the hurricane markets due to the reason that Sam articulate.

And our next question comes from the line of Ryan Langston with TD Cowen.

On the impact from winter weather, should we expect any loss procedures in January to come back through the year? I think you said February, March volumes more in line or just wondering if you picked those January volumes up already. I'm sorry if I missed this, but can you quantify the impact from weather to the same-store inpatient and outpatient surgery growth?

So when I think about the winter storm specifically, in my prepared comments, we indicated that, that was 30 basis impact on year-over-year volume growth on admissions and a 50 basis impact on year-over-year ER visits. So just to keep that in mind.

From a recovery standpoint, we do believe that from the winter storm, that we largely recovered the surgical component of that with the end of the quarter. What was not recovered and what drove the net volume impact here was really the emergency visits and the related emergency admissions, where there was really not a second chance to recapture that volume. And so I don't think that the winter storm was really an impact on our surgical volumes in the corporate and material.

Yes, it's not going to be notable over the rest of the year that we -- and we'll likely recover some volume, but it will be sprinkled into our mix in a fashion that we won't be able to really discern it.

And our next question comes from the line of Justin Lake with Wolfe Research.

I wanted to follow up on your comments around exchange patients sitting in the grace period in February and March that you might not get paid for. My understanding is that managed care will let you know who these patients are in real time and that their coverage is suspended. Is that right? And just to be clear, how do you treat these patients within the exchange volume decline of 15% in the first quarter? And maybe share a little more color on how you accounted for this utilization during the quarter from an accounting revenue recognition perspective.

Sure, Justin. So if you think about the verification process that we have with our payers, we have some payers where we do receive some premium status information through our verification process. But the information that we are able to access is not consistent and is not standardized across exchange payers. As a result, we generally do not have reliable third-party visibility at the time of service whether a premium has been paid. When the information is available, it certainly helps us inform further patient engagement to encourage these patients to maintain their coverage. Generally, though, I would not characterize the eligibility and verification information we received at the time surface as comprehensive consistent are largely accurate as the verifiable data.

Let's talk a minute, Justin, about the grace period and how that's flowing through. Patients that received premium assistance, whether they are auto reenrollees, new exchange enrollees or switching plans, generally have a 3-month grace period after the coverage is effectuated. For the first month of the grace period, the payer is required to cover the care. For the remaining 2 months, the payer is not required to cover any care episodes, unless the premium was called out by the enrollee.

So our work, as we studied the quarter, was to first look at every patient that came in with exchange coverage and try our best to understand whether or not they attrited in -- they had an attrition during the quarter, at which point we recognize that revenue impact during the quarter, or to make an estimate of those that we believe will lose and come out of the grace period with attrition, where we will not get paid for that, and we'll know that in second quarter and beyond as they get past their grace period.

For that last part, we've made an accounting evaluation and a business evaluation that we included in our analysis about equivalent admissions and revenue. And so when we articulate that 15% drop in equivalent admissions, it contains both of those components and same thing with the impact on our revenue and earnings.

Our next question comes from the line of Scott Fidel with Goldman Sachs.

If you could talk about what you saw with acuity and case mix in the quarter. Maybe putting aside the lighter respiratory, which we know when probably drive a lower case mix. And then in terms of -- maybe in terms of patients and then some of the types of procedures and service lines, how that impacted the Q&A in case make as well.

So this is Sam. We saw increased acuity as reflected in our case mix. It was modestly up on a year-over-year basis. Inside of that, we did have the respiratory dynamic that we alluded to. But within the respiratory dynamic, we had a fairly acute component last year that was more pace mix driven than maybe we've seen in the past. But yes, we still jumped over that.

So when you look inside of our business, in the first quarter this year, we had really strong cardiac activity. So our cardiac procedures grew significantly. Trauma was up 2.5%, also driving acuity. We had rehab services grow at a very good pace. So a lot of the elements that we've had momentum and from a service line standpoint, over the past few years, continued into the first quarter, again, influenced somewhat in total by these other factors that we alluded to. So we continue to find opportunities in the market to develop more comprehensive programs as our communities grow and service our communities more effectively closer to home. That will continue to be a part of our journey here.

One other metric that I think is important with respect to case mix is our receiving of patients through our patient logistics centers grew by 2.4%. That tends to have a higher acuity level as well as rural hospitals, other community-based hospitals are using the deeper service offerings that we have in some of our tertiary and quaternary facilities. So all in all, we were generally satisfied with our case mix.

And can I just ask a follow-up, just around the payer buckets on acuity [indiscernible]. Were they relatively consistent or would the exchange sort of disruption, did you see any sort of movement around the different payer...

What's interesting, the case mix was pretty consistent. The respiratory effects were pretty consistent. So we had consistency across all aspects of our payer classes when it came to sort of the overall story for the company.

And our next question comes from the line of Kevin Fischbeck with Bank of America.

Okay. Great. Can you just talk a little bit about the $150 million impact from the exchanges this quarter and how that compares to the $600 million to $900 million annual number? Did you guys assume that, that number would build as the year goes on? Or are you saying that you're kind of trending towards the lower end for the year on that dynamic? And then also on the Medicaid side, is this dynamic something that you just kind of started noticing in Q1? Or has it been building for a while? And is it a dynamic that you think is peaking in Q1 or will get better or worse from here?

Yes. On the -- let's start with HICS, Kevin. If I think about the $150 million for the quarter, I mean, it's a quarter estimate. And obviously, that would put us a bit at the lower end of the full year range. But I think it's a bit early. I mean, it's dynamic. You can imagine, as we've gone through the quarter and we're trying to understand and analyze all of the moving parts around the exchanges, it's probably a little early to declare that the full year would be at the lower end of the range. So I'm not quite ready to say that.

But I would say that we were pleased that in the quarter, we think that this $150 million reflects not only what we saw in the quarter, but our estimates of the attrition rate and a life that we've built in to our counter team. So a little early to try to give you a broader sense for the full year yet. But I would say, like we do think that this range of $600 million to $900 million is sort of a reasonable estimate for the year. So let me leave that there.

On the Medicaid conversion slowdown issue, it's pretty nascent. We maybe saw a smidge of it at the very end of last year as well, but it really popped up on us here in first quarter. Given its nascency, again, a little early to call whether it's a sustained trend or something that just popped in first quarter, and we're watching it, as you can imagine, and we'll keep you up to things as we go forward. So that would be the...

Yes. I would say, though, Mike, just adding to that, I mean, our Parallon teams have a robust process for qualifying patients who need support through our financial counselors and other efforts. And so those continue. We're just dealing with some dynamics here that we haven't experienced before. And it's like Mike said, too early to really suggest that it's peaked or not peaked. We just need a little bit more time to judge it.

And our next question comes from the line of Sarah James with Cantor Fitzgerald.

And I'm sorry to circle back on to it. But amidst that March volumes were recovering towards the range of 2% to 3%, is that [indiscernible] possible for full year to hit the existing guide of 2% to 3% volume?

We couldn't hear what you were saying on the front end, but we think we know what you said, and that is how are volumes exiting the quarter and what does that do to our full year guidance.

February and March were generally in line, when you put the 2 together, with our full year guidance. January was the quarter -- I mean, the month in the quarter where we saw a decline in activity. So when we're making a judgment about the rest of the year, we're judging what we think is going to happen in the last 3 quarters of the year. And we think our guidance around volume of 2% to 3% in the rest of the quarters is appropriate. And what we see with demand in the market, what we see with trends coming out of the quarter and what we see with capital projects and other initiatives to develop our networks, we feel that that's still a reasonable target. And so that's where we are at this point.

And our next question comes from the line of Stephen Baxter with Wells Fargo.

Thank you for all the color on the moving parts in the quarter. If we think about -- I guess the only sort of year-over-year number you haven't given us yet is on resiliency. And I guess I'm wondering, is there any reason to think that just kind of a quarter of the full year impact that you talked about wouldn't be a reasonable placeholder for the first quarter? And then if we go through and kind of look at those moving parts, it does imply that the core growth in the quarter was probably closer to 2.5% or 3%. And I think you have a bit higher of a full year guide embedded here. Just wondering if you could help us understand what you think the shortfall was on the core kind of normalizing for all these moving parts?

When I think about the resiliency plan, and we're still confident in the full year $400 million guidance. So I'll leave that there. I mean I think that's a good estimate for the full year.

When I think about core growth, I mean, we -- our first quarter's EBITDA growth was, call it, 1.9%. And the midpoint of our full 2026 year guidance is kind of, call it, 2.8%, 2.9%. And so that gives you a sense. I think we -- we've articulated the drivers in the first quarter. And so we largely think that it indicates that -- we believe we're going to be largely on plan for the next 3 quarters in terms of the overall makeup of volume and revenue and earnings back to our original plan here over the next 3 quarters, and that's how we think about it.

And our next question comes from the line of Jason Cassorla with Guggenheim.

Maybe just to follow-up on the outpatient side. Historically, you've talked about some of the pressures you saw on Medicaid, but you more than made up of that on the revenue side of the fence. It looks like revenue was up just shy of 3% in the quarter for outpatient compared to the 9% or so you did last year. Sorry if I missed this, but can you give us any impact on the weather on the outpatient side? And then maybe how trends, revenue and volume-wise trended in the quarter, I guess, compared to -- with your ASPs compared to your remaining outpatient footprint would be helpful.

Sure. Let's start with the EV side the outpatient business. And yes, between respiratory and the winter storms, there was an impact on our ER volumes. And it's about 140 basis points impact on ER visits from respiratory, about 50 basis points of impact from the storm. If you think about that compared to the 23% growth in ER visits, it gives you a sense that you're back kind of a normal trends when considering things like the winter weather storm and in the respiratory season shortfall there on ER. Sam mentioned this, but we did have good growth in year-over-year things like EMR, EMS visits and trauma visits. So that was good.

On the surgery side, our outpatient surgeries declined 1.7%, and that was 2.1% in hospital-based outpatient and 1% in our ambulatory surgery centers. On the hospital side, we saw a little bit of weakness in our ortho-related cases. On the ASC side, it was really more of the low acuity service lines like ophthalmology and ENT that drove the statistical decline. I would say, we were pleased with our revenue performance in our ASCs for sure. And when I think about payer mix for surgery, really for first quarter, the 2 big drivers of weakness on the payer side was Medicaid and of course, the exchanges, which we anticipated. So those would be kind of a run down.

Let me give a little backdrop here. When you look at our outpatient revenue and the composition of it, about 1/3 of it is emergency room. About 1/3 of it is outpatient surgery. And the other 1/3 is imaging, primarily driven by cardiac and so forth. And so when you think about the storm, it affects, obviously, the emergency room and our outpatient surgery and our imaging, all 3 categories. The respiratory is mainly the emergency room. So all of it sort of comes together in this composite view. And that's how we sort of dissect the outpatient business. So as we push into the rest of the year, we don't really have the implications of either of those for our outpatient platform, and we're confident that we'll be able to generate the revenue expectations for the balance of the year.

And our next question comes from the line of Benjamin Rossi with JPMorgan.

Across your network development efforts, I guess, what's your current cadence of ramping new beds in OR capacity? And how much of your 2026 growth is depending on projects already coming online versus future years?

And then could you just give us an update on how you're generally thinking about M&A as a potential growth lever this year? And how inbound and outbound conversations with opportunities in your pipeline have developed to start the year?

So as I mentioned in our prepared remarks, we did see a number of outpatient acquisitions closed in the first quarter. Those were primarily related to opportunities in urgent care and ambulatory surgery and in our freestanding emergency room business unit. We had a number of acquisitions there. If we think about the going-forward aspects of acquisition, we continue to believe that's where most of our opportunities will be. It's in the outpatient arena and that complementing our hospital networks. And so our pipeline has a number of promising projects in it. And I'm hopeful that we'll get to close those as we push into the balance of the year.

With respect to capital spending, we do have a significant pipeline of projects that have already been approved that are in development. That's almost $5.5 billion to $6 billion of approved projects that will come online over the next 24 to 30 months throughout sort of different periods within that time period. A lot of those projects are long-lived projects. And by that, I mean they're adding hospital capacity, which is difficult to do because they're big projects, they're disruptive projects to our facilities, and it takes a while to get them done. And then at the same time, we try to build those future growth that we anticipate in the markets.

So there is a component of our growth expectation in '26 that's related to projects that have come online in '24, '25 and '26. And so we sort of blend that into our expectations every year. And we do have a slightly accelerated expectation in '26 as compared to the previous 2 years related to capital projects that are coming online. So we remain encouraged with the opportunities to invest in our networks. Our occupancy levels continue to be at high levels for us, and that presents opportunities for investment and growth. And as we build out our networks with outpatient facilities, as communities grow and as our overall hospital positioning increases, we think that gives us a good opportunity to grow our share and deliver positive returns. And we've had a tremendous pattern, I think, of producing positive returns on capital, and we still continue to believe we can deliver on that.

Andy, let's take one last question.

And our final question comes from the line of Craig Hettenbach with Morgan Stanley.

Yes. Just a question on kind of contracting just for this year, just kind of what you're seeing in the rate backdrop as well as any visibility into 2027?

This is Sam. For 2026, we're pretty much fully contracted at our targeted levels. As we push into '27 and '28, we're in a contracting cycle as typical with our payer contracts, and we're about 1/3 of the way through on '27 and modestly into '28. And right now, we're on target. We believe we're going to be able to get into a range that works for our business as we finalize these contracts with the payers. As Mike alluded to, we got other issues that we're working with them on, that we think can be additive to them, additive to us, beneficial to our patients and their customers in a way that makes the system work better. And so we're confident that we'll get to the good answers on these contracts that we're in negotiations on currently.

That concludes our question-and-answer session. I will now turn the call back over to Mr. Frank Morgan for closing remarks.

Andy, thank you for your help today, and thanks to everyone for joining us on the call. We hope you have a great weekend. I'm [indiscernible] this afternoon if we can answer additional questions. Have a great day.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Well, good afternoon. Welcome back to KeyBanc's Healthcare Forum and HCA's presentation. My name is Matthew Gillmor, and I lead healthcare services equity research coverage for KeyBanc.

Joining me on screen is Jon Foster, HCA's EVP and COO; Chris Wyatt, SVP and Controller; and Frank Morgan, Vice President of Investor Relations.

As most everyone on this call knows, HCA is one of the country's leading health care providers, comprising about 190 hospitals and 2,500 ambulatory sites of care. The company is also distinguished by the depth of its local hospital networks that are concentrated in faster-growing geographies.

This will be a fireside chat. I'll lead the Q&A. Feel free to submit questions through the dialogue box or you can message me.

So with that, Jon, Chris and Frank, thanks so much for being here. We appreciate it.

Thank you.

Well, guys, I think this is probably best directed to Jon, but anyone feel free to jump in. We did want to start off these conversations with a little bit of a state of the union and sort of review of what happened in '25. What were some of the positive drivers? What were some of the challenges? And then how you're thinking about '26. Is there anything new or interesting that you're focused on this year as it compares to last year?

All right. Thanks, Matt. Well, certainly, 2025 was another solid year for the company. We executed well on our strategic agenda. And our markets, our 43 markets, and all of our networks, we saw 47 million patients last year. And every 1 of our 15 domestic divisions had adjusted admission growth, which yielded 2.4% adjusted admission growth for the company for the year. I'd say also that we managed our expenses well, both from a labor and a supply perspective. And all those things combined drove a 90 basis point improvement in EBITDA margin, which ended up at 20.6% for the year. So all in all, felt really good certainly about 2025.

In terms of some unique challenges, I would just point out, we seem to have those in our industry. We get choppy waters every year, and HCA has a pretty successful track record of managing and navigating through those particular challenges. But if I were to call out just a couple of them, I would say that the lingering effects of Hurricane Helene, particularly in our North Carolina market, was a challenge. And the other that we've referenced I think in the past is some of the cost pressures related to hospital-based physician services. And so that's a particular challenge for us as well.

You may recall that a couple of years ago we acquired Valesco. And that's a large physician platform, primarily of ER physicians and hospitalist physicians. And at the time, our growth rate in hospital-based physician services was about 20% a year. So in 2024, it was 20%. We were able to bend that down to 10% in 2025 and are really pleased with the cost performance, the stability of our hospital-based physicians in ER and hospitalists as a result of that integration there.

When we think about 2026 hospital-based physician services in total, which would also include anesthesia services and radiology services, that's a pressure point. And we're managing through that. We anticipate that those costs will be in sort of the high single-digit range in 2026.

On other matters for 2026, we'll continue to execute on our strategic agenda. We're going to be very disciplined in our capital allocation, as we always are. We'll continue to make investments in our AI and digital capabilities and double down on our financial resiliency initiatives and continue to invest in our network optimization and network development strategies.

Got it. I wanted to build off of the resiliency topic. At least in my mind, that was a point of positive surprise as we're entering the year, just in terms of your all's ability to continue to advancing that initiative, and I think you built in about $400 million of savings from resiliency. And one of the things that struck me was it was -- these were also -- sounded like operational improvements, which is impressive given HCA's pedigree, and investors obviously view you all as a best-in-class operator.

So maybe just to start off on this topic, can you just remind us sort of where the resiliency program has been focused and what are the priorities as we're thinking about '26? And then we'll dig into some of the details.

Yes. Well, I appreciate your reference to it being a program, because it is that. It's a multiyear program; it's not just sort of a one-and-done for 2026. It's how we operate. It's how we do business.

And there are really 4 focus areas in our resiliency effort. First is in our revenue integrity, revenue cycle area. And then secondly, it's in sort of our operations area. It's in our sort of asset optimization area. And then it's in the fixed and the variable cost reduction area. And so those are the 4 focus areas for resiliency.

We have a number of capabilities and tools within the company that helped us supercharge that effort around financial resiliency. We have quite deep capabilities in benchmarking and analytics. Our AI and automation capabilities also help to supercharge those efforts. And then our shared service platforms, Parallon from a revenue cycle perspective and HealthTrust from a supply chain perspective. And all those things are coming together to give us confidence in our $400 million number that we shared with you all for financial resiliency in 2026.

Got it. Let me try to dig in, I guess, on some of those. I was curious to see if we could get some details on particularly revenue integrity and asset optimization and then some of the variable and fixed costs. But on revenue integrity, how should we sort of think about that opportunity? Are there certain payer classes or types of claims where you're just not getting the yield that you ought to be getting? How would you kind of characterize that opportunity for us?

Yes. Maybe we should -- let me pull up just a little bit and talk about what we're doing overall with our payers. And that's primarily focused right now on the digital integration of information between the payers and between HCA. Oftentimes, denials and lack of authorizations happen because the payer does not have the clinical information that they need in a timely fashion to make that determination.

And so speeding that up and creating the integration digitally between the payers and HCA, we think, is going to reduce friction, is going to improve that information flow. There's latency in there today that creates some real friction, as I mentioned. We think it also has the opportunity to lower the administrative costs, both for HCA and for payers, to the extent that we can do that. And we're having some success with some of the major payers.

Now that said, certainly, denials are increasing at HCA, just as they are across the entire industry. What I would say is different, however, is our response to those increasing denials. We've made significant investments in our revenue cycle capabilities, particularly in the AI and automation areas, that we think is having a very positive effect and mitigating largely the impact that we have on the incremental denials that we're seeing as a company.

Got it. And then on asset optimization, I think I've heard you all describe the opportunity to further improve throughput in OR and ER and focus -- continuing to focus on length of stay. Is this more about sort of benchmarking and getting hospitals that could be better performers today up? Or are there sort of systems and processes that are flowing through the portfolio that will raise everybody's performance? I'd just be curious how you're thinking about that opportunity.

Yes, I can address the asset optimization or the throughput item. It does start with benchmarking. That's where we start, and looking across our enterprise around where are there opportunities. And we look for both where are there assets that are performing very well. And we take time to go study those hospitals and understand what are the gains that they're making as it relates to, let's say, length of stay, and what are the initiatives they're putting in place that are allowing them to have such success in terms of reductions of length of stay.

And then we also look for some of our assets that are not performing well, and where do we need to be taking those best practices and then moving them over to those assets to be able to drive better throughput, better length of stay, better emergency room throughput, whatever it is inside of asset optimization.

So it starts with benchmarking. But then there, of course, is people, process and technology underneath that, that is part of what allows us to manage this better. So very focused on asset optimization. We had good gains in '25. We had about a 2% length-of-stay reduction overall. But we think there's still more opportunity ahead of us in that regard.

Okay. And then maybe last follow-up on this topic, on variable and fixed costs. Can you -- I think I understand conceptually what that means. But if you could describe any details in terms of where you're focused on this year or generally how you're thinking about the opportunity to address variable and fixed costs.

Sure. When you think about fixed cost and take our overhead structures that may be inside areas like our shared service platforms, where we are taking a really hard look at, for instance, in labor, spans and layers of control and as we think about opportunities there, or areas inside of contract services that we think may be opportunities in our fixed cost platform that we can address through the resiliency program.

And on the variable cost side, of course, we've got our labor inside of our hospitals or our supplies. If you take supplies, we continue to see opportunities around rationalization of vendors, where we see opportunities there, where we think about there's utilization opportunities. We still do have some pockets of noncontract spend where we think we have opportunities as well that are all part of our resiliency initiatives that we think will address the variable cost as well.

And I just want to go back on resiliency, to what Jon said, where we started here, that it really is a program. And we've got a very structured approach that includes a team that sits here very centrally located that is taking these initiatives and that is vetting these ideas that are coming out of the field that come from a bottoms-up standpoint but then we provide our top-down analysis as well to -- for idea identification, vetting them, what is the opportunity, what are the investments it takes to get after them, but then making sure we have the right accountability around it as well to ensure we're tracking and we're monitoring each one of these initiatives. And we're seeing the benefit that we expect to see inside of each one of these initiatives that we have across the revenue integrity or the capacity management or the fixed and variable costs.

So we've put a very structured program around this that, again, we think benefits us to the tune of $400 million this year. It's what gives us confidence in it. But then we think will also help us as we go forward and think about the multi -- the layered multiyear approach to our resiliency program overall.

Got it. Okay. Resiliency rolls on. I appreciate you letting us kind of dig deeper there.

Why don't we talk about AI or ask about AI? I know we've maybe kind of tangentially hit AI with some of the resiliency program initiatives. I think we've heard you all talk about the opportunity to improve documentation and nurse rounding and patient monitoring and improve patient satisfaction. Give us a sense for where you are in that AI journey and how you test some of these programs and what you think the opportunity will be over the next couple of years.

You bet. When we think about our AI agenda, we think about it within the context of what it is that we do every day, which is to care for patients. And as I mentioned earlier, we had 47 million patient encounters last year. And in that process, when you have 45,000 doctors and 100,000 nurses, there's friction oftentimes in some of those processes.

We think the use of technology and the use of AI is -- shows a lot of promise for us to be able to reduce that friction and help people do what they do best, which is to care for patients. We've made significant investments in our AI capabilities, both from a labor perspective, the technical resources as well as the technology. And we feel like that's really building our capabilities there.

We've developed some capabilities that we think are industry-leading. We're very disciplined in how we focus our innovation efforts on really large problems, not just small problems. So we're disciplined about what we develop solutions for and we're disciplined about how we pilot those solutions in our innovation hub hospitals, which are located throughout the United States.

And then for those scaled solutions that are proven, we move those out. We scale those across the enterprise. And with that many people, those aren't often just overnight rollouts. Some of those take a while and some of those might take multiple years. But we believe there's great promise in our AI agenda and what that can mean in terms of extracting the embedded value that we know is there in the organization.

We've organized our AI initiative into 3 domains: an administrative domain, an operational domain and then a clinical domain. So Chris, would you talk a little bit about and provide some color and fill in the detail around each of those domains?

Sure. First of all, as you think about the administrative domain and we think about our revenue cycle, and how do we manage things like denials and underpayments in a more efficient manner, whether it is creating appeal letters or summarizing clinical records as we have conversations between our physicians and the payers as it relates to addressing some of those denial and underpayment matters that we've talked about. So that's on the administrative side.

On the operational side, as we think about predicting demand in our facilities and matching our staffing and our scheduling to that demand, there's a tool that we've already rolled out across a significant number of our hospitals that we continue to implement that we think will be very helpful as again we predict and then match staffing as best we can to demand using AI technologies to do that. So that's part of the operational domain.

And then finally, on the clinical side, we think about nurse handoffs and how do we make our nurses more efficient. We have thousands of handoffs a day as we do shift change for our nursing colleagues. And how do we make that a more efficient process as we transfer information on patients as part of that shift change?

So that gives you a sense underneath each of the 3 domains that Jon mentioned, of some of the specific items that we're working on as it relates to our AI agenda.

That's great. Chris, this is probably a question for you. It's on the exchanges and the expiration of the EPTCs. And that is one of the headwinds that the company is having to overcome this year. I think you sized it at $600 million to $900 million. And this is an area that, of course, requires a lot of judgment in terms of just figuring out what that headwind may be. Can you remind us what are some of the assumptions that are underneath the surface in terms of how you're thinking the exchange subsidy expiration will play out?

And then not asking in terms of what you're actually seeing, but what are just the markers you're looking to see whether your assumptions are conservative-leaning or on the aggressive side? Just curious sort of what are those internal and external data points you're looking for.

Sure. Let me start with just context around the exchanges, and we've given this in the past. But the exchanges represent about 8% of our volume, about 10% of the revenue for the company in 2025. And as you mentioned, we went through a pretty extensive exercise as we came to 2026 to think about the impacts of both the expiration of the enhanced premium tax credits as well as the administrative reforms that were enacted in 2025, just thinking about their impact on the exchanges.

And so we took both internally-developed information that we have just about our historical experience with exchange patients as well as external sources, and we used that to come up with our $600 million to $900 million estimate in terms of the EBITDA impact. Some of the most significant assumptions that are underneath that $600 million to $900 million is, first, how much of our exchange volume did we think would go away as part of, again, the administrative reforms or the expiration of the EPTCs? And we think that's 15% to 20% of our exchange volume goes away.

And then of that volume that goes away, where do those lives migrate to? And of that 15% to 20%, we think 15% to 20% moves to employer-sponsored insurance. And there's a benefit to the company through that move to employer-sponsored insurance. But 80% to 85% moves to uninsured. And for that uninsured population, then we think there is a decline in utilization because those individuals without coverage just won't seek health care to the extent they did previously when they had exchange coverage. So those are a couple of our most significant assumptions that went into the $600 million to $900 million.

In terms of what are we watching, what are we thinking about for 2026, I would say in the first quarter we're really thinking about items such as effectuation. So if you looked at the enrollment numbers, I think everybody is aware, enrollment was maybe a little better than was initially expected for 2026. Exchange enrollment was down about 5% nationally, about 4% in HCA states. But what really remains to be seen as we move through the first quarter and beyond is the effectuation. How are individuals able to pay their premiums? And are they able to sustain premiums that may have increased with the expiration, for instance, of the EPTCs?

Secondly, we're also looking at metal tier shifts. Are there individuals that are trading down from silver to bronze, for instance, because it's a more affordable premium? And then what does that mean as it relates to, for instance, their ability to pay their co-pays and deductibles because they may be shouldering more burden individually from that metal tier shift? And then lastly, we're just looking at utilization of the remaining exchange population or from the uninsured utilization that I mentioned as well.

So all of those are items that we're watching. We're getting early reads on. And as we come to the end of the first quarter and we do our call, we'll be in a position to give more information around our thoughts and views and the experience that we're seeing as it relates to each one of those items. But that's what we're -- that's, one, how we constructed our guidance for this year; and then two, what we're thinking about as we roll through the first quarter here and what we're watching around the exchanges.

Fair enough. And Chris, another swing factor as we're thinking about '26 is just the state-directed payments. And I appreciate the assumptions you've built into the guide. There are a couple of states out there where there could be approvals, and there's maybe been a little bit of news over the past week or so. But just sort of remind us, for the states that are still in play, where there could be approvals, just so we know what to pay attention to.

Sure. Maybe let me start with just a reminder for everybody that under the One Big Beautiful Bill, the OB3, there was opportunities for states to submit incremental applications for some additional dollars to be grandfathered at a higher rate, that included higher provider taxes that came along with that.

And we saw, in late 2025, certain states get approved under these grandfathering provisions. Kansas, Texas are a couple of examples. And then as we've rolled into 2026, we've seen some additional states be approved, most notably, Georgia, was recently approved. I think you all may have seen, that's publicly available now. So we continue to be encouraged by seeing these incremental applications get approved by CMS.

I think the one that we're asked about the most that I know is a top of mind for people is the State of Florida. And we have seen some of the -- a certain news outlet mentioning there's some sort of agreement between CMS and the state. And we're aware of ongoing dialogue between the state and CMS, but the bottom line is there is no approval yet for the State of Florida. We'll continue to monitor that one closely. And we would comment on that as part of our first quarter call if there's anything to discuss at that point in time. But there is no formal approval yet for the State of Florida.

But we continue, as I started, to be encouraged by the fact that we see applications getting approval in a number of states. And we hope that will continue to portend good news for those that have not yet been approved.

Got it. Fair enough. Let me transition back to some higher-level questions, and particularly on the volume environment. So maybe Jon can lead off here. It's certainly been much more durable, I think, than the investment community at least expected over the last couple of years. Could you just give us some sense for what do you see as the big internal and external drivers? And what are the things that give you confidence on sustaining that 2% to 3% volume growth?

Sure, Matt. Well, I think I would start by saying that our significant capital investments in growing our local networks has given us a good bit of momentum, and there are sizable investments there.

Also if you think about our 43 domestic markets and you look at the population growth within those markets and you look at the demand growth within those markets, and you look at the effective execution of our network development strategies in those markets that are producing market share gains, it really frames up for us our thinking about growth going forward.

Now obviously, underneath that, there are specific assumptions, there's a bit of fluidity as it relates to the exchanges and things like that. And I don't know, Chris, whether you want to talk about any volume assumptions that we might have by payer, if you will.

Sure. I can talk about briefly the mix underneath that 2% to 3% as we think about how that breaks down by payer. When we think about Medicare and Medicaid and then the commercial, excluding the exchanges, we think all of those will grow around the aggregate 2% to 3% growth. On Medicare, we have seen growth that is within and maybe even slightly above that 2%, 3% range historically. So we feel good about that assumption.

On Medicaid, we know that's been depressed the last few years because of the redetermination process, which we think we have largely worked through and anticipate Medicaid would move back to more of a normal type growth, in that 2% to 3% range. And then commercial, again, we expect to be in that similar range, in part aided by the exchange dynamic that I talked about earlier where some of that growth will be fueled by individuals that lose their exchange coverage but we think will be able to migrate to employer-sponsored insurance.

And then we have the 15% to 20% decline in the exchanges that I've already spoken to. And then we do expect an uptick in uninsured as well, primarily driven by the exchange lives that will move from exchange to uninsured, in that 80% to 85%. So that's how we're thinking about the mix underneath that 2% to 3% growth assumption that we have overall for '26.

Got it. That's very helpful. And Jon had mentioned the reinvestment into the markets in terms of the in-flight capital. And just what you reinvest every year as being one of the things that sustains the volume growth? I think if I did the math right, you probably reinvested something like $40 billion into your markets over the past 10 years. That's my number, but I think it's pretty accurate.

Could you just give us a sense for your approach to capital deployment? What are sort of the big buckets of investment back into the markets? And how do you prioritize projects and measure returns? I'd love to get some perspective on that.

Sure. As we think about capital allocation for the company overall, we start with the cash flow production of the company. We generated about $12.6 billion of cash flow from operations last year. We are projecting $12 billion to $13 billion in 2026. So that provides us a lot of flexibility in terms of how we allocate capital.

And then we think we have a very disciplined process for how we go about our approach to capital allocation. And it starts with CapEx and reinvesting into our markets. And Jon spoke a little bit about the opportunities that we see to continue to invest at very significant levels in our market.

We spent a little less than $5 billion in CapEx in 2025. We're lifting that to $5 billion to $5.5 billion in 2026. We've talked about the over $7 billion in CapEx pipeline that we have in terms of in-flight projects, both building out our inpatient capacity as well as outpatient sites of care as we continue to surround our hospitals with a network and outpatient sites of care that we think are very productive for the company. And so we continue to see good opportunities to deploy capital, which is really our first thinking from an overall capital allocation standpoint.

In terms of the buckets that you asked about, in very broad brush strokes, when we think about our $5 billion to $5.5 billion this year, roughly half of that amount is what I'll call pure growth capital. It's the expanding our facilities like I've spoken about, it's building new freestanding emergency rooms. It's, in a couple of instances, new inpatient facilities. And so that's roughly half of the capital.

The other half of the capital is more routine or technology in nature. As you know, we're a capital-intensive business. We got to continue to maintain the assets in our facilities, maintain the equipment in our facilities. And so we had to devote significant CapEx to that every year.

And then we have the technology element of it as well where some of that is also maintenance capital for our technology and our computers and our systems. But then some of it is also fueling our digital agenda for the company that we've talked about, in part how we're, for instance, replacing our clinical information system in MEDITECH Expanse, or fueling our AI agenda. And so that's the other half, is that routine or technology bucket of capital that we have.

In terms of how we think about priorities for our capital spending, we think we have a very disciplined process that we go through. We have a centralized function inside the company that is charged with vetting, working with our group operators or other business leaders around our modeling for these projects. And we think about, say, a hospital facility expansion project, what are the right assumptions around our volume growth, our payer mix? And all the things that you would expect that we put into a financial model, that we vet inside the company and then move it up to the right levels of the organization to ultimately get to a decision of do we move forward with that capital project.

But it doesn't stop there. As you can imagine, it's, while we go through the construction project, are we keeping ourselves on time? Are we hitting the cost metrics that we expect during the construction phase of the work?

And then when that project is done and turned over and operational, then we're looking at how does it perform versus the models that we developed. And we do every year a look-back approach where we look back at all the capital projects over the last few years and see, "Did we meet our return expectations on those projects?" And the short story is, in the aggregate, absolutely, we're meeting and even exceeding our return expectations on those projects. Not every one of them is a hit, but way more hit than don't. And again, in the aggregate, we are meeting our expectations.

So that's all part of the process of how we think about the CapEx portion of our capital allocation, how we oversee it, how we think about the buckets, and make sure that we're being very disciplined in our approach to capital and CapEx allocation.

That's great. I appreciate it. Let me throw in a labor question, and I wanted to come at it through the angle of Galen. And it was certainly a really interesting investment you all made. But I was curious, just update us on what you're seeing with Galen in terms of the campuses you've opened and the impact it's having on both the community and supply of nurses, but also where do you see that impacting HCA in terms of controlling labor?

Yes. Well, a number of years ago, as you mentioned, we acquired the Galen School of Nursing. At the time, there were 5 bricks-and-mortar campuses. Today we have 25 bricks-and-mortar campuses. We have 20,000 nurse students in our Galen programs. And it is a really important dimension of our organization. We see that growing to 30 campuses at least over the next several years and up to 30,000 nurses enrolled in those programs.

And just for context, when you think about an organization that has 100,000 nurses, and if you assume a roughly 15% turnover rate or so, roughly in that zone, 15%, 16%, well, you're needing to replace 15,000 to 16,000 nurses per year, if you're sort of at that rate of turnover. When you're educating 30,000 nurses across all those different campuses, you have a really rich pipeline there. All those nurses get their clinical rotations in our hospitals, are socialized to the HCA Way, and we think it's very, very important for us.

From an overall labor perspective, let me just say that we're in a much more favorable environment right now than we were during the challenges that we had coming out of the pandemic. And our metrics are again down to pre-pandemic levels around turnover rates, et cetera, et cetera. So Galen has been certainly a vehicle for us to help in our recruitment and our retention efforts. But we feel really good about that particular strategy.

Got it. And then, Jon, would you also hit on Valesco? And you had mentioned at the top some of the pressures that I think a lot of folks are seeing on certain hospital-based physicians. Just remind us how HCA is leveraging Valesco to help mitigate some of those cost pressures.

Yes. Well, when you think about the importance, the role of an ER physician and a hospitalist physician in a hospital, there are a lot of opportunities there to drive quality, to drive service, to drive efficiency through the greater integration of what the ER physicians are doing and the hospitalist physicians are doing. So we spend a lot of time working on that integration. It has helped to drive quality, it's helped to drive service, and we think we're turning it into a real strategic asset for the company.

Also touch on, really related to the physician side of things, our GME programs. We have 5,800 residents that are operating in 90 different hospitals across our company and 250 different residency programs. And what we know is that residents tend to stay in the geographies where they train.

And so we're pretty disciplined about thinking about what kind of residencies we need and where geographically we need them. And it's a source of recruiting for us, obviously, to build the pipeline of physicians that we also know that we're going to need, some of whom are ER physicians and some of whom are hospitalists, obviously. So our GME platform is a pipeline, our nursing platform is a pipeline, and those are critical for us going forward.

Got it. And let me in the last few minutes here, I'd love to touch on the competitive environment and try to understand or better understand HCA's advantages really at the local level. So how has the competitive environment in your mind evolved kind of coming out of COVID? And what are some of the advantages that an HCA enjoys? And how does that compare to some of these really well-capitalized nonprofits that you're competing against?

Well, that's an important question because each market is a little bit different. And while, generally speaking, our strategic approach across our different markets is pretty consistent, how we execute those strategies needs to be nuanced based on the competitive dynamics. We do compete with a number of strong nonprofits across the country.

When I think about what differentiates our local systems and what makes them more competitive, if you will, there's a couple of things that come to mind. Certainly, our shared service platforms of revenue cycle with Parallon and supply chain with HealthTrust, our GME platform that we've talked about, our Galen School of Nursing platform that we've talked about, that is really beneficial to our local markets. It helps them be more cost-effective and it helps our speed-to-market with certain solutions that maybe our competitors don't have the ability to take advantage of.

Then I would say just the extent to which we are capitalizing our network development and network optimization strategy. When I talk about network development, when we talk about it, we're talking about investments in the inpatient capacity of our hospitals. We're talking about the deepening of clinical capabilities of our hospitals and raising the acuity level of what it is that we're able to care for in our hospitals, whether that be bone marrow transplant or solid organ transplant or trauma programs, burn programs, cardiac programs and the like.

And so those are very, very important, while we are simultaneously investing in our outpatient footprint or the access points, in essence, that support our hospitals. Today we have 14 access points for every hospital across HCA. And we want to grow that to 20 access points for every hospital across HCA, all in furtherance of our goal to have a composite market share of 30% by the end of the decade.

So we have these investments on the inpatient capacity, investments in the clinical services and investments in the network of access points that are all meant to meet patients and care for patients when, where and how they want to receive that care. And that's development.

Then there's the optimization side of it, which attempts to connect those access points, certainly, with our hub hospitals, and wrap around that a set of other services: ground transport programs, air transport programs, patient navigation programs, call centers, telemedicine, et cetera, et cetera, that help to facilitate the movement of patients to be retained inside the system rather than having to seek care somewhere else. That helps grow market share. So we think it's a very effective strategy.

But the differentiator I think for our local markets is that we heavily capitalize it and we're accelerating our development of our networks there. So all in all, I think that the company is really well positioned in terms of the breadth of our portfolio, the scale that we have and our ability to use that scale for the benefit of our local networks. A lot of companies say they have scale, but they don't necessarily know how to use it. And we do know how to use it. And then overall, just sort of the capital resources that we are accelerating into our markets for them to grow market share.

Well, Jon, I could tell you can go on and on about that topic, but I think we're up against time. So Frank, Jon and Chris, really appreciate you joining us today.

You bet. Thank you.

Thank you.

Good afternoon. Welcome to Oppenheimer's 36th Annual Healthcare Conference. I am Michael Wiederhorn, the health care services analyst. It's our pleasure to introduce HCA Healthcare and Jon Foster, EVP and COO; Chris Wyatt, SVP and Controller; and Frank Morgan, VP of IR to today's fireside chat. Appreciate everyone attending. I appreciate your time today. And we'll just jump right in.

So maybe just starting out, can you provide us an update on the business? And how do you feel coming out of Q4 into the new year?

Well, thanks, Michael. 2025 certainly was a solid year for the company. We executed on our agenda and our local networks across 43 different markets, we handled 47 million patient encounters last year. And really, all of our domestic divisions had adjusted admission growth year-over-year. And as a company that ended up at 2.4% admission growth for the year. We managed our expenses well, both labor and supplies and all those things collectively they drove a 90 basis point improvement in EBITDA margin, which ended up at 20.6% for the year. So we felt really good about 2025.

In 2026, we're going to stay focused on our strategic agenda. We're obviously going to be smart with our capital deployment as we always are. But we're also going to continue to make our investments in the digital and AI agenda and double down on our financial resiliency initiatives and also invest in our network optimization and development strategies.

That's great. So moving on, can you talk about emission trends in 2026? And what is driving your confidence in your historical 2% to 3% growth target despite some of the moving parts in the model?

Yes. Thank you. We do operate in great markets, and I think people know that. And when you look at the track record of our 43 domestic markets, you see population growth, you see demand growth and then our network optimization and development strategies, which are well executed, also add to market share growth. So collectively, across those things, we feel that there's durability there. And that tends to shape and frame up how we think about growth going forward.

Perfect. So can you talk about how you see some of your capital projects driving growth in '26 and beyond?

Yes. Well, I mentioned the growth in our markets. And so we're fortunate to operate where we do. And when you think about where we're investing our capital, again, it's in the network development and optimization strategy, which largely is investing in inpatient capacity and also expanding the footprint of our outpatient sites. Today, we have 14 outpatient sites of care for every hospital in HCA that is connected to each facility. We want to grow that to at least 20 sites of care for every hospital going forward. And that's all to drive towards a composite market share goal of 30% by the end of the decade.

I've talked about this network development strategy and the optimization strategy. But basically, it is, of course, capturing the patients and taking care of the patients, where, when and how they want to receive that care on the outpatient side and then helping to navigate those patients to the extent that they need downstream care in our hospitals. We have approximately $7 billion of capital in flight that's going to be coming online between 24 and 36 months from now. And so making significant investments in that particular strategy.

Perfect. So one of the things that keeps coming up is the exchanges. Can you talk about what you're seeing on the marketplace business? And what are some of the puts and takes to your $600 million to $900 million headwind estimate? And how does that estimate assume attrition play into that when we think about it?

Sure. I'll be happy to address the exchanges. And maybe, again, just a little context before we start on how we think about the exchanges for '26. First of all, you know that they were about 8% of our admissions and about 10% of our revenue in 2025. And then as we constructed our estimate of the potential impact in '26, that $600 million to $900 million that you referenced, we really put a very thoughtful and months-long modeling effort together to really work through the different pieces and parts considering internal sources as well as external sources that ultimately went into our estimates.

We talked about on our fourth quarter call some of the key pieces that go into that $600 million to $900 million for instance, looking at how much HICS volume do we think we lose, and we estimate that's 15% to 20% of that volume goes away. And then where do those lives migrate? We think about 15% to 20% of those lives migrate to employer-sponsored insurance. There's a benefit to the company from that piece. But then the remainder goes to uninsured. And then we also put a utilization assumption on that as well, where we think there will be a decline in utilization from individuals that move to uninsured because they just won't seek health care as much.

So that's how we thought about the $600 million to $900 million in some of the larger pieces underneath it. What we're watching now as we're in the first quarter, is one, effectuation rates. We saw the enrollment on the exchanges come in better, frankly, than we initially expected at about a 5% decline for the nation, about 4% decline for our states. But now we'll -- as we go through the first quarter and beyond, how many people are able to pay or sustain their premiums. And so what's that effectuation of coverage look like? Will we see a metal tier shift? That's something else that we've been watching as well. Will we see a shift from, say, silver to bronze as individuals look for more affordable coverage? And then just what does overall utilization look like for the remaining exchange population. So there's a lot that we're watching here as we move through the first quarter, and then we'll be in a position to talk about that further as we come to our first quarter call as it relates to the exchanges.

Perfect. That's great color. Pricing and acuity, that's something obviously comes up on a daily basis. Can you talk us about some of the price and acuity strength? And what's been driving that historically? And how we should think about going forward as well?

Yes. Let me take that one. Let's start with acuity first. That's something that we've been investing in for quite a number of years, in essence, deepening the clinical capabilities that we have within our networks, whether that be solid organ transplant programs or bone marrow transplant programs, NICU services, trauma services, burn services and cardiovascular services and the like. So that's what you've really seen over time lift the acuity of our hospitals. And again, that is connected to trying to make sure that patients who need care inside of our networks have that ability to get that care inside of our network. So there's also been a retention of patients because of the services that we've continued to invest in.

On the pricing side of things, we're 90% contracted for 2026. And the increases there basically come in within the range that we expected.

Okay. Mix, how should we be thinking about the impact of mix in '26 with all the moving parts from the marketplace and Medicaid with all these regulatory changes and so on?

So you know about our assumption on 2% to 3% volume growth overall that we have for 2026. If you look at the mix underneath that, as I think about just by payer category, Medicare, Medicaid and then our commercial, excluding HICS, we think all are going to grow in that 2% to 3% range. Medicare has been growing at that rate even a little bit higher. We think that sustains itself.

On Medicaid, as you know, the last couple of years, we've seen really declines in our Medicaid volume, largely driven by the redetermination process that is passed now. So we see Medicaid returning more toward that average overall volume growth that we see for the company. And then on the commercial side, we see the 2% to 3%, in part aided by the exchange dynamic that I mentioned just a few minutes ago, where we will see some patients move from exchange to employer-sponsored insurance that will help in that 2% to 3% on the commercial side.

On the exchanges, I've already mentioned, we see a 15% to 20% decline. And then we'll see an uptick in our uninsured volume as well, again, from individuals that we anticipate are going to lose exchange coverage. And so we'll see an uptick in that payer class. So that's how we're thinking about the mix of volume underneath our overall 2% to 3% assumption.

Perfect. Can you update us on the new state directed payment programs that could still be approved and kind of what's going on there? And also, can you remind us what drives the wiggle room between the top and the bottom end of the range?

Yes. So as a reminder, our guide this year on state supplemental payments was a $250 million to $450 million decline in net benefit year-over-year. And we said there's really 3 primary items that are driving that. One program that's been paused in the state of Texas. We'll have 4 quarters of benefit in Tennessee versus 6 last year and then a retro payment in the state of Virginia. Those are really the drivers for why we think we have a decline in state supplemental payment program net benefit.

What drives us within the range really comes into these retro payments that we might get in any given state and are they more or less than we expect. So that will be what will help determine where we are in that range. I think importantly, we've noted that what that range does not consider are these incremental applications that have been filed in states like Georgia and Florida for additional dollars that were allowed to be grandfathered under the Big Beautiful Bill. You have probably seen that the State of Georgia program was approved recently. So we were very glad to see that. That continues other states that we have seen get approved by CMS. And so we are very happy to see states continue to get approved under this grandfathered construct.

The state of Florida, we continue to watch. We know there is ongoing dialogue between CMS and the state regarding that program, but nothing has been approved yet. So we will continue to monitor that one, but we're encouraged about the ongoing dialogue in that state. And then again, just overall, that we continue to see movement in terms of state applications being approved.

Perfect. How do you see some of the Medicaid cuts under [ OB3 ] impacting you?

Yes. So I'll take that one as well. Just thinking about the Medicaid cuts under [ OB3 ] and maybe just to remind everybody about those cuts. What happens in 2026, we think, is largely positive for the company, and it really is about these incremental applications that I spoke of that some have been and then some we are continuing to be hopeful will be approved that will provide some upside in 2026 from a supplemental payment standpoint. Then in 2027 is when we start to see changes occur in terms of the cuts. Work requirements will be implemented starting in 2027 and then the supplemental payment cuts will start later in '27 and then move beyond that.

We've said in previous earnings calls, we think that those cuts are manageable for the company. One, because of what we have in terms of the incremental benefit. Two, because of the runway that we have for these cuts to take effect, as you know, the supplemental payment program cuts are going to be phased in over a number of years as the payment cap comes into place or the tax phases down in expansion states. So we have a time line for that phase in and resiliency actions that we can put in place to help affect that.

And then lastly, where we're positioned and the fact that we're positioned in heavily in non-expansion states. We've talked about 60% of our revenue relates to non-expansion states, and that helps us out because the expansion states are the ones that are going to feel we think the effect of the work requirements and the supplemental payment reforms more so than non-expansion states, non-expansion states can keep a higher tax and they have a higher payment cap as well.

So we continue to watch these things. But again, we think they're manageable for the reasons that I mentioned here before.

When we think about insurers, there's obviously been a lot of noise around denials. So what's your latest in seeing in terms of insurer denials and how is that impacting your business?

Yes. I'll take that. If you pull up a minute and just think about overall the work that we're trying to do with our payers, it really centers on creating more of a strategic partnership, if you will, with our payers. And what that looks like in terms of early phases here is to have more digital integration of data between the payers and between HCA. In essence, better and faster information flowing, clinical information, other information to the payers, which help them make their determinations around medical necessity and also around authorizations and such. We think it also is going to lower the administrative cost that HCA bears and that the payer bears in that whole process and maybe minimize some of the friction there.

But to be sure, denials are increasing, not just for us but for the entire industry. I think what's really different, though, Michael, is our response, will HCA's response to those increasing denials. We have invested significantly in AI and digital capabilities on the rev cycle side, which we think largely have positively impacted and mitigated, to a large extent, the impact -- the financial impact of those increased denials on the company.

Going forward, how should we think about the commercial rate environment, negotiations going in light of the high-cost environment that's occurring right now?

Right. Well, certainly, there are pockets of cost pressures, most notably in the hospital-based physician segment of our P&L. And that said, we're working on those matters to a large extent. As I mentioned earlier, we're 90% contracted for 2026. We're about 1/3 contracted for 2027. And those contracts that have been finalized are coming in sort of in that single-digit range of increase, which is what we expected to see.

Perfect. Obviously, AI is coming up in every meeting and discussion with investors. Can you comment on how is the company benefiting from AI and kind of your thoughts about AI going forward and as a tool and what HCA is kind of how they are positioned with it?

Yes, sure. When I think about AI and our AI agenda, we think about it within the context of what it is that we do every day, which is to care for patients. And as I mentioned, we had 47 million patient encounters in 2025. And so we think there's large promise to the use of technology and AI and helping our teams eliminate the friction and helping them do what they do best, which is care for patients. We've made significant investments in our capabilities from a people standpoint, from a technology standpoint. We've developed some industry-leading capabilities in that arena. We use our hub hospitals, our innovation hub hospitals across the United States to pilot those innovations and then we scale those innovations across the enterprise.

And when you have 45,000 doctors and you have 100,000 nurses, you don't scale those things necessarily overnight. Some of those take a little longer. Some of these are multiyear rollouts. But we think it has great promise for our organization to extract the embedded value that's in the organization, and we feel really good about where we are there and the investments that we've made.

Jon, I might also add, we think about our AI agenda across 3 domains. We think about the first one is administrative and what can we be doing on the administrative side, take the revenue cycle, for instance, and think about handling denials from payers and how do we respond to those denials, whether it's kickoff appeal letters or summarized medical records for our physicians to engage with our payers around certain claims. So that's the first is administrative.

The second is operational, and we think about what are opportunities operationally. We've talked about what we're doing on predicting demand and then matching our staffing and scheduling to that demand is something that we've rolled out to a significant number of our hospitals. So that's on the operational side.

And then finally, the final domain is the clinical domain and how do we think about making -- improving the ability -- our ability to deliver care. One of the things we're working on right now are shift handoffs for our nurses. These happen thousands of times a day across our enterprise. How do we make them more effective, more efficient, handoffs that happened so many times across our enterprise. So those are the 3 domains across which we think about our AI agenda and how we're trying to improve in advance there.

Perfect. So let's move over to labor. Can you talk about labor trends and how you view the outlook for inflation going forward?

Thanks, Michael. Well, certainly, we're in a much more stable labor environment than we saw with the challenges that we had during the pandemic era. And just to point to some metrics and some evidence of that, our turnover rates are down to really what they were pre-pandemic levels and our contract labor cost is also down significantly down to almost pre-pandemic levels. I think we ran 4.3% contract labor costs as a percent of salary, wages and benefits. So feeling good about where we are with that.

On the physician front, I mentioned earlier, we do have some cost pressures there with -- particularly in hospital-based physician services. And we think we're going to see sort of high single-digit inflation pressure there on that line item.

Perfect. How about -- when you think about physician specialty fees, that's obviously been something very under the microscope. How are you viewing this line item going forward? And what's the latest?

Yes. Well, certainly an area of focus for us, and people may recall that several years ago, we acquired Valesco, which is a large physician platform, largely with ER physicians and hospitalist physicians that we're caring for our patients in many of our hospitals. We feel great about how that integration has gone. We feel great about the cost stabilization within that platform and really turning that into a strategic asset for HCA.

When you think about all hospital-based physician services, not just what I mentioned there, there is obviously pressure there. And we're working on that. We have a number of different initiatives to deal with it. But think we're going to see sort of high single-digit growth in that particular area. People may remember that in this line item, that grew about 20% in '24 over '23. We brought that down to 10% in '25 versus '24, and we see single-digit growth -- high single-digit growth for that particular line item in 2026.

Okay. Let's move over to capital deployment. Can you discuss your strategy around capital deployment? And how should we think about share repos and how they might play into that as well?

Sure. Well, for us, our capital deployment starts with strong cash flow from operations. And we generated about $12.6 billion in 2025. We think we'll be between $12 billion and $13 billion in 2026. So strong cash flow from operations really gives us the flexibility to pursue what we believe is a very disciplined capital allocation program. It starts with capital expenditures. Jon has already touched on some of the opportunities that we see in our markets with over $7 billion in the pipeline for CapEx so that we can continue to grow our business both on the inpatient and the outpatient side. So that's the first area of focus from a capital deployment standpoint.

We think about second M&A-related activity. You know over the last several years, we are spending a few hundred million dollars each year, acquiring facilities, be it inpatient. We've bought 2 hospitals last year or other complementary outpatient sites of care as we continue to build out the networks, as Jon has talked about. So M&A comes next. We'll continue to pay a reasonable dividend. You saw was declared by our Board of Directors in January in terms of growth in our dividend.

And then lastly, we believe that share repurchase continues to be a very, very good use of our capital as well. We bought back about $10 billion in shares last year. You have seen that we have an authorization for another $10 billion from our Board this year, we anticipate, based on market conditions, completing a majority of that here in 2026. So we continue to see good opportunities to deploy capital. We'll continue to remain disciplined and we're fortunate because of the cash flow generation of the company that we have the ability to do that.

Perfect. So continue on when we think about your leverage, what is -- what do you think -- where are you comfortable with your leverage position? And how do you view the potential for M&A versus debt pay down?

Yes. So we feel comfortable about where we are and we've talked about we're more toward the low end of our stated leverage ratio. And of course, what that gives us is flexibility, and that's what we're looking for is flexibility in our capital deployment strategies, whether it's because we see incremental CapEx opportunities. I should have mentioned earlier, we spent $5 billion this last year. We're going to lift from $5 billion to $5.5 billion this next year. So it gives us flexibility there. It gives us flexibility from an M&A standpoint as well to the extent we see opportunities that we're able to move on inside of our markets or elsewhere.

And then obviously, it gives us the flexibility from a share repurchase standpoint as well to be able to pursue that at levels that we did last year and then as we think about our authorization this year, as well. So certainly, our debt is something that our team manages very closely and very aware of but we continue to believe that the right deployment of capital for the company is the disciplined manner between CapEx, M&A, dividend and share repurchase as we've spoken to.

Perfect. I know you talked earlier about the DPP program. I don't remember, did you talk about specifically around the opportunity around -- obviously with Georgia's DPP approval last week. I don't know if there are any numbers around that. And then secondly, the read-in for Florida, I think there's some recent noise out today saying that Florida potentially got approved. I'm not sure if you're hearing anything about that specifically as well.

Yes. I touched on both earlier. I'll just reiterate, we're aware of the Georgia approval. We're not ready to size that yet. We'll do that as part of our first quarter call. On Florida, again, we have not seen a formal approval of the program. We know about ongoing discussions between the state and CMS. So we're aware of those conversations, but we haven't seen anything formal on Florida. And we'll, like I said, update on Florida and Georgia and any other states where we're awaiting these incremental approvals when we cover our first quarter call.

Perfect. Also, skipping around here. How should we be thinking about the impact of the rural hospital fund? That's something that's come up in conversation?

Yes. That's the $50 billion fund that was part of the [ OB3 ]. We have seen that states received a full allocation of that first $10 billion of benefit. Right now, we're just starting to get some visibility into what the states are funding and the opportunities that they're making available underneath the Rural Health Transformation Program. It's too early to say any kind of sizing we were clear in our guidance for this year that we didn't assume any benefit from that program. But as states start to make applications available, we'll have some better insight into exactly what the opportunities are for the company, and we'll be able to speak to those down the road. But we're monitoring it very closely in terms of what the opportunities are.

Another area of expenses. Obviously, there's been a lot going on in the macro market. Kind of how should we think about supply expenses given some of the macro-driven moving parts right now going forward?

Yes. So first of all, on supplies expense, I think we feel good about supplies expense being part of that relatively stable environment as we think about our guidance for 2026. But there are certainly several moving pieces out there. Certainly, there are geopolitical related items that are out there. There are also tariff-related items that are out there that could potentially have an impact from a supply expense standpoint. We're fortunate, as we've talked about in the past, we have a HealthTrust organization that has gotten a lot of experience in the last several years managing through a pandemic, managing through geopolitical dynamics that we've had in past years.

And so being able to manage the supply chain through those dynamics and doing it in a cost-effective way, they have been successful at. The tariffs, obviously, we had the Supreme Court decision recently. It does seem like the administration will continue to look for other legal avenues to be able to impose tariffs. I think we're fortunate in terms of a lot of our supply expenses already locked down over 2/3 in terms of our pricing for 2026. So that gives us some protection. Where we buy our products from are largely in the U.S., Mexico and Canada. And so that helps us as well. So we think we're well positioned from a supply expense standpoint. And again, because of the strength of our HealthTrust organization, we think we're positioned to continue to be able to navigate any challenges that we see on the supply expense front.

We're running up to the clock here. I'll give you one chance. Is there anything that you guys would like to message to the investor community that is either misunderstood or underappreciated on an HCA story?

Well, I'm not sure that people always appreciate our scale, our shared services platforms and the competitive advantage that, that gives our local networks that we have across all of our different markets. So that has proven time and time and time again to be a benefit and to produce results for us. We've talked about supply expense. We've talked about labor expense. We've talked about rev cycle. So these are ways that really help us navigate sometimes some of the choppy waters that are out there. And I'm not sure that people always appreciate sort of that combination of very competitive local networks that are fueled by the capabilities of a national health system and how that combination really is a powerful combination.

That's great. Well, we are at time. I just want to thank you very much. I really appreciate the discussion today as I thought it was very insightful, and we appreciate your time.

Thank you.

Thank you.

Good afternoon. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I am the facilities and Managed Care analyst here at Barclays and we're pleased to welcome HCA Healthcare on stage with us today. We have Mike Marks, the CFO; and Erol Akdamar, American Group President. So thank you for joining us here today.

Just for a reminder, the American group includes 66 hospitals across Texas and a few other states, so very relevant for our meetings here today.

To start, Mike, HCA has delivered nearly double-digit EBITDA growth in each of the past two years and you're again guiding to core growth of roughly 6% to 9%. What feels most different about the sources of organic growth this year compared to the prior couple of years?

I think the fundamentals are the same. We have good momentum in our markets. Our 43 markets represent markets with really good population growth and long histories of good demand for health care services and deployment and coverage levels of employee-sponsored insurance. So the markets that we have the pleasure of serving are an important part of that momentum.

Our synergistic approach of multi years of capital investments and inorganic investments into our markets have really helped us build out our networks and we believe -- create a really competitive offering in our markets in a way that over time, we've been able to take market share. So that the fundamentals of our markets are still good.

When I think about the growing enterprise capabilities of the company, I would add to that equation and not only just our resiliency program, but our tech and innovation strategies, our organizational development, this continued focus on expanding our network. So as we look back over the last 5 and 10 years and look at what we've been able to produce a kind of annual earnings growth, we feel like we have good momentum coming into 2026.

Right. With that, there's a lot of policy disruption in the background. You've included a $600 million to $900 million ACA exchange headwind in your 2026 guidance. What do you view as the most important variables embedded in that assumption that will influence how the year plays out? And is there anything to call out at this point?

Well, when I think about the last, call it, 12 to 18 months, as we were coming into this year, our modeling teams have been really studying our past experiences with the exchanges and leveraging a lot of external analysis as well. And really, there's 4 major variables that went into producing this estimate of impact from the exchanges.

The first one is enrollment loss and the resultant volume loss from exchanges. And -- you know from our call, our guidance assumes a 15% to 20% drop in exchange volume on same facility equivalent admissions.

The second variable here that's on a range is of those people who lose coverage on the exchanges, how many end up in employee-sponsored insurance. And our model assumes 15% to 20% get converted to employee-sponsored insurance. That's a really important assumption as well because that has a benefit to the coverage of that community.

And then the third variable is utilization. And so I think about for those people, call it, 80% to 85% of the people who lose coverage on exchanges, they become uninsured. We believe that we could see something like a 30% drop in utilization from that population. But we've also studied and built into our model, the utilization expectations on a bit of a range on the people who remain on the exchanges, which is an important component.

And then the fourth variable would be patient due collectability. There's -- as some patients potentially move from silver to bronze on metal tiers, patients are going to owe a bit more of the total amount for health care under the exchanges. And so building into our models on a range on maybe some deterioration on collections from patients would be the fourth variable all of which kind of -- when considered together, created the $600 million to $900 million estimate. And we'll be studying those carefully as we go through the year and updating everyone as we go through our quarterly calls in 2026.

Right. And on that downshift into bronze tier coverage, what sort of impact do you expect that to have on utilization and acuity trends this year going beyond just payment dynamics?

Yes. Our model has assumed a bit of a range of potentially some deterioration of utilization as you go to bronze just again because patients owe more. The fact that this population uses the emergency room more heavily than traditional managed care. Our past look at silver versus bronze. There is some utilization difference, but it's not super material. So that's good.

And then on patient due collections, again, they do owe a bit more on bronze due to the benefit design. So there is a bit of a deterioration in the patient due collections range, and we modeled that on a range, and that's inclusive in the total impact that we highlighted.

Right. That's obviously going to be an important factor on compensated care and bad debt. this year. For those exchange patients that don't end up paying their premiums and enter the grace period, can you help us understand how that process works from the hospital standpoint? At what point does the financial responsibility ship from the payer to the hospital?

So it's a little different whether that enrollee is a new enrollee on to the exchanges or if they're an auto-reenrolled enrollee. So the auto-reenrolled enrollee will have a 90-day grace period. And during that nonintegrated period, we're checking and verifying their eligibility and the payer system showed them as eligible. And so in that grace period when we provide care, we're at risk. And so if they end up not paying those premiums, we're at risk of that take back. And we build into our net revenue accounting to ensure that we stated our AR and net realizable value related to those trends, the best that we can.

The new enrollees, we have a little less risk. I mean they have to pay for their coverage in kind of call it 30-day increments. So you have a little better visibility with that population. But broadly speaking, what you're talking about is the effectuation rate. And while that's always been a part of the exchange construct over the last many, many years. I think we're all concerned that this year the effectuation rate will be bigger just because of the expiration of the EPTCs. And that certainly was built into our model estimates.

Great. Let's move on to some of the resiliency and mitigation efforts that you're deploying this year. Resiliency has always been a defining concept for HCA, particularly during periods of stress and uncertainty, and it's no different for 2026. How would you compare the resiliency playbook you're deploying this year with the approach you took during COVID? And would love to hear Erol's thoughts on what he's doing at the local level to operationalize this?

Well, let me fill it in and we'll add color for the American group for sure. But you said this, but resiliency is not new for us. The origins of our resiliency program really started in our response to COVID, and we've been building it ever since. Over the last, call it, 18 to 24 months, we've been both accelerating and enhancing this. And we're really trying to build it out programmatically as an enterprise capability for the company. Our original intention was to try to offset as much of the headwinds from the Affordable Care Act reforms as possible, which led us to really think about this broadly. And so every corporate function, every shared service platform, every hospital in the company has developed and is executing their resiliency plan. This is a multiyear effort. And the $400 million that we included in guidance really reflects those work streams where we had enough visibility on their implementation status that we could track and execute and ensure that we could capture those savings in 2026 as part of that strategy.

But this is not a 1-year event. And we believe that we have set up our resiliency program to focus on revenue integrity and asset optimization and fixed cost and variable cost and really structured with a lot of capability building around benchmarking and our shared service platforms and a lot of AI and automation opportunities in a way that our intention is to build a lasting capability that will help us deal with challenges and then over time, improve our performance as we go through the back half of the decade.

Erol take a minute and kind of give them a sense of what it feels like in the operating environment.

Yes. Mike did a really nice job of covering financial resiliency, which is a journey we've been on for a long time, obviously, accelerated here recently with more structure tracking and execution orientation.

But there is a component also that we're carrying over into operational resiliency and really taking a deeper look at our emergency rooms. We've been on a maybe a 3-year journey to revitalize our emergency rooms. A fair amount of our patients are coming through the emergency room, sometimes referred to as our front door, just because of the amount of volume and patients that come through there. And so coming out of COVID where there was a deceleration in ER volume, and then there was workforce disruption.

And then there was more demand in the ERs. We saw the need to get back to the discipline of delivering an exceptional service experience and an exceptional clinical experience. And so we've deepened our work around ensuring that our arrival degree times, patients perceive their care in terms of how long they wait. And so we've been on a 3-year journey to really move back to best demonstrated practice, best company performance and industry performance around the wait times for our patients that -- to see a physician and then when they discharge and then some of them are admitted.

Similarly, we've been on a journey for about a year on our OR optimization. Again, a big financial engine for the hospital. It's where we generate surgeries and procedures. Most of our physicians are still independents that have a choice as to where they practice. And so that resiliency effort is to make our ORs the operating rooms of choice for our physicians. And again, it's around efficiency and giving our physicians time back in their schedule, which is a premium for them.

Great. Mike, you've organized AI initiatives into 3 domains: administrative, operational and clinical, which of those domains represents the largest opportunity today? And what is the furthest along in terms of execution and tangible impact?

Well, we have a balanced portfolio between the 3 domains that we organize our work in, but they have a different duration and different work process to deliver our administrative platform. So if you think about rev cycle and supply chain and IT, human resources, we operate in shared services. We have more centralized management, more centralized data and so we do believe that we'll be able to deliver digital products in our administrative domains a little faster.

So I think short term to intermediate term, over the next year to 3 years, you're going to continue to see digital products that we have developed, that we're piloting, that we're rolling out, come across the company in a way that we believe will have an impact here in the short to intermediate term. The operational domain is a little harder. We have 100,000 nurses. We have 50,000 doctors on our medical staff. And so just the energy and time it takes to both pilot, build, and then roll out digital products operationally are more challenging. And I've said this before, but the work to implement digital products and our operational domain is harder than building those products. You have a lot of change management and a lot of work to do to get the people to adopt and to make sure that you're taking that seriously.

And so it's a little more intermediate term, but it's also heavily impactful. Things like labor scheduling and staffing, using AI, things like length of stay management using AI, we see a world of opportunity to take the variability that we see and use AI to drive really a step change in performance. It just takes longer. So think about that being more intermediate to longer term.

And then in the clinical space, which is the Holy Grail. I mean, everyone's heard Sam say this, and largely because it's what we do. I mean, our mission is the care and improvement of human life. And what we do is take care of patients in hospitals and other health care facilities. And so when I think about the variability, the patterns that are in the data, there's tons of opportunity here to use AI to bring artificial intelligence alongside our care teams, our doctors our nurses to improve the safety of the care; the outcomes of the care and the efficiency of the care.

There's a lot of administrative burden on doctors and nurses in a hospital setting. And so using AI and automation techniques to try to reduce that burden and let them focus on patient care is the north star of what we're trying to do. But it's a lot harder. And so we find ourselves between our responsible AI programs, the way that we are doing human the loop testing, the time it takes to pilot and build and roll out, these are longer-term programs. And so think about administrative a little shorter term, operational, more intermediate and then clinical longer-term effects.

Great. And the company also highlighted investments into the EHR platform in conjunction with this. Erol, can you share what you're doing on that front in the American Group and what benefit you expect to drive with those investments?

Sure. So a lot of investment in technology in the company. I think some of that is in new technology and AI, and that's very exciting. It's also very exciting that we're investing in our EHR platform to get an upgrade there, taking our MEDITECH platform from MEDITECH expense. That has allowed us to really take a leap forward in our EHR product and what it delivers to our clinicians, our nurses and our physicians.

Part of that process is to really standardize data and to standardize workflows across the company that there's great variability of nursing unit to nursing unit, hospital to hospital as part of moving into this new HR, we've had to standardize the data and standardize the workflows. That then enables us to move into an HR that then allows us to put AI on top of that. So I think that's the great accelerator. So far, 40 of our hospitals have made the conversion. It's gone pretty well. We started slow and deliver it. We've resourced this from an HCA perspective to ensure success. It's gone well enough that we've accelerated our plans to actually be done by the end of 2028 and it's gone well in the hospitals we've implemented. And so we're feeling good about the work effort there.

Great. Over the last 6 months or so, the industry conversation around generative AI seems to be evolving from tools that primarily automate clinician workflows, such as ambient documentation towards applications that are deeply embedded in clinical decision-making. First, is that shift consistent with your experience? And second, as these tools move closer to physician decision-making at the point of care, how do you deploy that in a way that ensures patient safety and proper clinical oversight?

Yes, it's a great question. And I've covered a little bit just on how complicated the clinical domain for AI is because of these factors. At the end of the day, what you're talking about, is making sure that AI can support doctors and nurses and the care teams and taking better care of patients. And so you have to be mindful of that. We are seeing a shift from more just automation to more deeply integrated into process AI. But I would also highlight that the opportunities for automation using AI are still amidst minute in our hospitals. Yes, in documentation and ambience is a good example of that, and that's still evolving. I mean there's still a lot of opportunity there. But when you just think broadly across all the processes, the clinical workflows that exist in a hospital, the amount of pure AI automation opportunities that still exist are significant. So we're excited about that. Those are a little bit easier to get after.

And then as we start thinking about these more deeply embedded products, this is where that training and the way that you handle AI has to be way more sophisticated. And so it takes longer and it's lower. A good example of this would be our nurse handoff tool, it's still in development. And it has aspects that are using AI in a generative way to really support nurses in understanding risk and providing nudges to think about the full context of patient care. And so that takes longer. And we have a lot of structure around this to make sure that we're doing it right. And so I think clinical for AI is still the north star of the company, and it's going to take a long time to get it done and done correctly, but boy, there are a lot of opportunity.

Great. Another opportunity that we hear a lot about is revenue cycle management. That's become an increasingly strategic priority for all hospitals. Which RCM capabilities have driven the greatest benefit in recent years? And where do you see the greatest opportunity from here?

One of the things that we've been working on for the last really 12 to 18 months and really starting to get some traction on is better digital integration with our payers. And when you think about how payers and providers communicate, the amount of faxes, the amount of phone calls, the amount of administrative bureaucracy that has kind of infected our systems. This opportunity to partner between providers and payers and really drive towards digital integration, drive towards digital simplification is a huge foundational piece of this work. We have several engagements going on with several of our large payers and I'm getting excited about where that can lead both in terms of better digital workflows, but also in terms of over time, reducing friction between the parties. And I think that's going to be super beneficial.

The other area of our work over the last few years that has really helped us is all the work we've done in denial mitigation. And we've had to invest heavily in people, in processes and in technologies to deal with just the challenges of the prior authorization process, the authorization to get patients discharged to the right setting post-acute. And so that's required a lot of effort on the company's part. And those efforts, I think, have paid good dividends. And I think AI is a part of that, and we've talked about that before. So that whole part of denial mitigation, I think, is important and will continue to be good.

As I think about the future, the other thing that we're looking at is how to use machine learning to really study -- we have 47 million patient accounts last year and really study claims more holistically, the clinical data, the administrative data, the claims data and really try to understand what elements let a claim go through and get paid on time on the amount you expected versus claims that have friction. And then using machine learning to find those patterns in the data so that we can continue to be a process improvement organization over time and use artificial intelligence to help us with those insights. And so I think we're -- we still have a lot of work to do to continue to invest in our revenue cycle, but I also think that we've seen good results from those investments in 2025 in the past several years.

Great. Erol HCA has emphasized a network strategy that expands outpatient access points and the company now has 14 outpatient assets for every hospital. How do you decide where to deploy capital at the local level for new outpatient capacity? And what return or strategic hurdles need to be met?

Yes. I think when you think about our markets, on the American Group, Dallas-Fort Worth, Houston, Austin, San Antonio. We're a hospital-based company. But over the years, we've filled it in with a lot of other access points, I think ambulatory surgery centers, urgent care clinics, freestanding ERs and really, the goal is to take around one hospital and create a network to serve the community that then funnels patients, both into the hospital then back out into the community for their care needs. Then in those markets that I just mentioned, those hospitals come together and those networks come together, they create a health system, a local health system, but then really moves patients through a continuum to tertiary and quantinary care and then back out to the community.

So the opportunity we've had, particularly in Texas over the last few years is there was a fair amount of private and even PE investment in urgent care clinics and freestanding emergency rooms and some ASCs. The opportunity is available itself for us to be acquisitive in those areas and to tuck in those strategic assets where they round out our footprint and complement the growth of 14 access points to 20. And so that's really been the way we thought about it is the hospital, its network, then the market and the network as it develops. And so that's been our strategy and we think that, that's worked.

Great. And the Galen College of Nursing often comes up in conversations as it really fell during periods of labor pressure, but it tends to receive less attention when things are more stable. What progress have you made on campus expansion? And how is that strengthening your internal labor pipeline over time?

Yes, I'll go there. It's been impressive. We, in 2019, had 5 campuses. At the end of '26, we'll have 25 campuses. That campus expansion is focused on some of our core markets. Again, I'm an American group. So Dallas-Fort Worth has two. Houston has two campuses, probably going to 1/3 in each of those just because of the size of the population. I think roughly 7,000 graduates coming out of that program per year. Our goal by 2030 is to have 30,000 students in that program.

So I think it's been a strong solution to a macro issue, which is workforce development. Similarly, in GME we're up to 5800 graduate medical education physicians and training. We're the largest trainer of graduate medical education physicians across 81 hospitals, 270 programs. So again, these are all workforce solutions that we're bringing to bear to both help the communities we serve and to feed the needs of the health system.

Great. Maybe in the final minute here. I just wanted to touch on the Medicaid state-directed payments. You've had a few meaningful programs enhanced and grandfathered over the last 6 months. Could you provide an update on the program still pending? And to your knowledge, is the holdup in states like Florida related to the structure of these programs or the administrative backlog at CMS.

Well, I would say we're encouraged that these states that have grandfathered applications where the -- it's clear that the review process is between CMS and those states continue and we're aware of really good conversations and review to that end. We are encouraged that there has been approvals here over the last 3 to 5 months. I mean, Georgia, which was one of our grandfathered applications did get approved yesterday afternoon, which was encouraging.

And so when I think about what the process that CMS is going through, I mean, they're taking this bill, the One Big Beautiful Bill that had the grandfathering provision and they're starting to put the rule structures around it. They've issued guidance letters, they're doing rule-making and I think they're being deliberate in working through these programs in a methodical way. And while I can't sit here today and tell you when or if Florida or these other states will get approved, I am encouraged based on what we're seeing, both from the review and from the recent approvals.

Okay. Great. Well, with that, we're out of time. Mike, Erol, thank you so much for joining us here today, and please enjoy the rest of the conference.

Thank you.

Good morning. Thanks for joining us today. It's my pleasure to have the extended team from HCA with us. We've got Mike Marks, Chief Financial Officer; Erol Akdamar, that runs the American Group, I believe, compasses nearly 70 hospitals, including the important Texas market, and we've got some others in the room, including Frank Morgan.

Maybe just to start off, there's been a tremendous amount of focus with investors around unpacking a lot of the technology, the digital agenda, the -- maybe just spend a minute talking about some of the investments that the company is making either Mike or Erol. And I want to hit on a little bit about the MEDITECH rollout as well.

Well, as you think about our strategic plan for the future, this idea of AI and digital transformation is one of our really key strategic initiatives that we think will propel us here over the rest of this decade into the future. There's multi parts to it. And the first one is Expanse. And it's really important.

The MEDITECH Expanse rollout, which we're now live at just short of 50 hospitals, we think will be wrapped up by the end of 2028 is a really important foundation for the company. It's also the biggest project in the company this history from resources, time, effort. It's going well. It's cloud native. It gives us the ability to have more standardized data. It gives us the capability to manage workflows and master files in a more centralized way.

So it really sets us up for moving more to standard-based operations and for AI. AI rest on data and MEDITECH Expanse is really a key part of building that foundation. And overall, we're pleased with how that's going. We continue to invest heavily in our cybersecurity. As you can imagine, in today's world, it's a super important area. And that work would never rest, and our investments to continue to strengthen that is important and part of the story. And then you get into the innovation.

So you think about AI, you think about automation and digital tools. And the overall data strategy has been really important. Those are still more in the early innings, but our investments that have started here over the last call it, 3 years, continue to ramp up. And so broadly, the investment portfolio for HCA and tech and investments is growing. I mentioned this on our fourth quarter call, but for '26 guidance, but those investments are part of our story in 2026. And we're looking forward to continue to roll out this initiative is really one of our key strategic priorities in '26 and beyond.

What phase are we in this -- in the new MEDITECH Expanse rollout. Is that -- is it go live this year? Or I'm sure you like phasing it in across different hospitals or markets?

We're live in just short of 50 hospitals now out of our 191 or so hospitals. So we're about 1/3 of the way through. We think based on our acceleration of this, it will be done by the end of '28 roughly is kind of where we are in the rollout. Erol, take a minute and just -- Erol's had markets that have gone live. So you can just give a little bit of color of what that looks like on the ground.

Yes. I would just say the magnitude of change in changing your EMR even from MEDITECH to a newer generation of MEDITECH is a pretty heavy lift. It's gone really well. I think that slow at first and deliver well resourced from a company standpoint. To the point that the learnings and the integration, Mike talked about standard data and creating standard workflows, we've progressed along that continuum pretty well to the point where we've actually accelerated our plan to be complete by the end of 2028. So I would say that we're building momentum and that it's going well.

I'd be curious to hear something like the clinician feedback nurses that have -- how they responded to the new system.

Yes, I think well. I mean change is change, right, even going to a newer generation system. But I think evidenced by the fact that each install is a little less bumpy and a little quicker uptake, we have a better sense of how to resource it for at the elbow support. And I think, generally speaking, very pleased with the usability of the system getting used to some of the changes.

It is a leap forward technologically. Expanse replaces Magic. And Magic really was getting to be a bit of an end-of-life system. So moving into kind of more of a cloud, modern look and feel and workflow for clinicians, I think, is well received. Erol's point is not wrong. We have 100,000 nurses and 50,000 doctors. And so getting the change curve and getting them comfortable with the new routines is the work and we have to resource it and we have, and we have a big implementation team that does a lot of training and a lot of at the elbow support as we go through these, which is part of the drivers of success.

Okay. big focus, of course, this year on the expiration of the enhanced premium tax credits. I think even we had Elevance came out today and indicated that perhaps they hadn't seen as much disenrollment as they would have thought. And I know you framed up $600 million to $900 million headwind. I'm not asking to comment on the first quarter because I know you won't. But how do we think about the slope of that and how you've sort of contemplated that headwind over the course of the year?

Well, it is annual guidance. And that's important to note. We don't really give quarterly guidance, but I think it's instructive to think about the moving parts of that guidance. As you think about the enrollment reduction, the effect that has on volume. And then the key part that we're watching and that we will continue to update as we have our quarterly calls is this idea of the effectuation rate.

And so -- how many people do not sustain their coverage by paying their premiums. And in our guidance, in our model, it's a pretty key component of the overall annual 2026 $600 million to $900 million estimate. The other thing that we're watching that is key here would be what percentage of the people that lose exchange coverage convert to employee-sponsored insurance. And we have estimated in our guidance that it's about 15% to 20% of the people who drop coverage on exchanges go to ESI. That's another pretty important modeling component within the modeling we did for our guidance.

Let's say that a portion of the population that was engaged with HCA's networks lose coverage. and decide, I'm not going to engage anymore. And so a percentage of that is just lost volume, let's call it a point. Is there a scenario that you feel like you can absorb that lost volume headwind just by making adjustments as you normally do? Or is that -- or is that just a larger headwind in terms of lost earnings from the prior year?

Well, that comes down to variable costs. And so -- and it comes down to which payer category, the lost volume comes from. And so if we see less utilization from those people who become uninsured, then you would have less variable cost, and that would be a component that would produce a different financial outcome then if the utilization drop was in the exchanges or from people with employee-sponsored insurance, which would not be good. And so when you think about that range of 2% to 3%, the payer mix within that range is really important.

I know we're still just in the beginning of 2026. But when you kind of extend out to '27 and think about the subsidies and do you think that there could be a recurring headwind? Or do you feel like a lot of the decision around coverage will be enacted this year?

It's a little early to talk about '27, but I wouldn't be surprised if there's further enrollment loss in '27. I think these are -- these could end up being kind of multiyear decisions as people kind of go through and deal with cost of health care, deal with premiums and make decisions for their family. So I'm not ready to call '27, but I'm not going to be surprised if there's not a bit of further enrollment loss in '27.

All right. I'm going to get off the ACA topic. I could ask 10 more questions. Volumes have been clearly strong for a period of time. And now we're beginning to see, I think, things moderate to more normal rates. Plans are still talking about elevated cost trend.

And I'd just be curious, Erol, to hear you talk a little bit about how you're seeing the demand across the markets today, how different it could be this year across different service lines or payer categories? Just any observations you have would be great.

Yes. I think Mike has shared the sort of a forward-looking body and estimates as we go into '26, but what I would say is that if you look backwards over a decades worth of volume trends, I think the company strategy, the companies, markets that we operate in, the 46 team markets have good macroeconomics, good employment, good population growth trends.

And so we think the underpinning of the volume is still really solid and we'll continue to deliver sort of -- with the guidance that we've given on the volume rate, couple of that with business plans or strategic plans that are intact and forward-looking and so there is demand growth, and there's also market share growth. And so it's what organically are you growing in the market or how are you competing in the market actually move market share and I'll compete for the business that's already there and I think we feel good on those fronts there.

Yes. Maybe just to expand on just the capital. HCA is a very big organization, so making generalizations is a little bit difficult. But are there any particular areas that you would highlight for the capital that you've been spending across the entire organization, types of service lines or outpatient development, freestanding ED, urgent care, like where do you think that you guys have been spending a lot of time and effort investing in the last year where you may start to see some of those returns this year?

Let me kick it off, and I'll have Erol fill in with some color. But broadly speaking, we're pretty balanced on our capital deployment. On the inpatient side, we're continuing to add 600 to 700 beds a year to both deal with capacity constraints and make sure that we can capture the demand growth in the marketplace. We're continuing to add service lines on our main campuses and our hospitals.

And then broadly, we're expanding our outpatient footprint. And our goal here over the next several years is to have about 20 ambulatory sites of care for every hospital. As we finished 2025, we were at about 14. Erol, why don't you kind of walk through how we think about ambulatory and growth and development in that space?

Sure. I think one of the strengths of HCA is our network development, obviously, a hospital-based company. But what we've done, I think, really well is fill in the ancillary components around those systems.

So if you look at Dallas-Fort Worth or an Austin or San Antonio, we have a legacy of hospital assets, have added some hospital assets. But what we've really done is added access points in the community, think ambulatory surgery centers, freestanding emergency rooms, urgent care to create around our hospitals, a network of feeders that feed into that hospital.

And then if you look at particularly the Texas markets, Austin, San Antonio, DFW, Houston, that then fits into a health system profile. So even the local hospital has a tertiary quaternary referral center to an upstream hospital and/or the upstream hospital can take a tertiary quaternary patient that discharges and moves them down the continuum back into a physician's office or back into the community to use the urgent care platform.

In Texas, recently, with some of the growth in the last 5 or 6 years around independent private equity, private development of urgent care clinics and freestanding ERs, it's creating an acquisition opportunity for the company as these systems are built out and then they complement sort of what we already have.

So we've had some success doing tuck-in acquisitions, particularly in the urgent care space, some in the ambulatory surgery space to again round out that access point network and really create those systems of care that are supported by the heft and the depth of a corporate entity like HCA.

Any changes, pivots around the physician engagement strategy, employment models, nonemployment? Anything that's changed across your markets, Erol?

Sure. I think you'll recall a couple of years ago, we did an acquisition of Valesco, a joint venture between HCA and Envision, fully bought that out. That was largely around emergency-based medicine and hospital-based medicine, internal medicine.

That has created some stability and predictability both in the cost, but then in the sort of clinical offerings of those two key aspects of running a hospital. So we've gotten stability out of that. It's a couple of years down the line, more fully integrated into HCA. It's become our hospital-based services platform.

If you think about inpatient medicine, ER medicine, it's sort of the core of what a hospital does. So I think taking that from stabilizing and moving that to being a strategic asset has been the journey we've been on, and we've been very pleased with where we are just a couple of years in to really optimize both clinical care, the cost platform and really just internalize those services, which are, again, fundamentally at the core of running a hospital.

Have you expanded Valesco to new markets, new hospitals beyond where the legacy footprint was?

Yes, we have. It's -- we don't -- it's not our intention to have to employ every hospital-based physician specialty. So like if you think about ER and hospital medicine and anesthesia radiology. But in ER, we have found ourselves gradually moving a little bit more to employment.

We still have a lot of partnerships. I think Valesco is now in the 65% of our ERs are covered. So there's still a portion that are not. And we work with our partners well. And -- but having this capability of employing and managing hospital-based physicians, it just gives you the capability when you have a negotiation or you have a vendor partner that can't go the distance in a hospital, you have a backup. You have an ability to deal with that. So it's been a really key build for the company to have an internal capability here.

I would add just on the physician alignment component. I mean, a large portion of our medical staff is still independent. And so we compete to be the system of choice for those independent physicians.

That manifests itself in terms of OR optimization, which is our work effort to really make sure that our operating rooms are as efficient and as preferred for surgical-based physicians and proceduralists such that we're giving them back time in their schedule. We're creating a positive experience for their patients.

And so we're deep on and pretty good historically at operating hospitals, but optimizing things like the operating room, the emergency room, which in some ways is our front door into the hospital. Those are two key components that create physician alignment that really addresses that independent discretionary component of our business.

I think I remember talking late last year about some of the initiatives and conversations, dialogue you've been having with some of the larger national plans. There's been a lot of back and forth between health systems and payers and it feels like you've -- you're trying to reduce a lot of the friction around revenue cycle and whatnot.

Maybe just share some of -- maybe just an update around how those conversations are progressing, and I'll just kind of leave it there.

Yes. We're trying to build long-term strategic partnerships with our payers. It's really important to ACA. I mean we're -- as everyone knows, we tend to be -- we try to be mostly an in-network provider of care with long-term access to lives in our marketplaces.

And we try to think about these relationships over time as partnerships. Now they have friction, and those are realities in the modern health care system. But the thing that the payer and the provider always agree on is that there's way too much bureaucracy. And administratively, the administrative costs are really excessive. And so we feel like and we have a good group now of our major payers that are working with us on engagements to drive three or four kind of key components for us. It starts with digital.

And so it's madness, how many faxes and phone calls that hospitals send to payers. And so we're trying to send clinical data and administrative data in more modern digital ways to our payers in the right format at the right time and when they need it. That helps them process and review the claims. And then we're asking for them to reply digitally with things like APIs so that direct contact on things like claim status and eligibility status and the like are really important to help our workflows and advance and just advance this process digitally. So that's first is this idea of bidirectional digital data exchange.

And then second would be this idea of friction. And so there's a lot of work on prior authorization, and there's a lot of work on getting patients authorized for discharge and getting them to the right place post discharge. And so we're working with our key payer partners to try to make that more effective, more efficient, more transparent in a way to where we can try to both minimize friction and improve visibility and transparency.

And I believe and the payers that we're working and share this belief that over time, this is going to be important for our industry to advance this work to make it better for their members and our patients but also to make it better between each other. And we have this opportunity where we both can win, which is part of what we're trying to accomplish with these partnerships. And I'm pretty excited about them. I think they have a lot of potential in the future.

Okay. Maybe on that topic, I might just want to dive into a little bit more around the revenue cycle agenda. Anything new this year that you guys are focused on as it relates to revenue cycle?

So there's a few things. I mean, we've got a really strong revenue cycle operation in Parallon. They do a great job. We're really blessed to have them. Our work has been focused on the digital work I just mentioned with the payers. And then from a detailed standpoint, we're in a multiyear world of trying to mitigate denials.

And that's been a focus of a lot of work over the last couple of years. That work continues. And it's been the focus of a lot of our investments even in AI and automation to do things like do a better job of synthesizing medical records and kind of helping with the payer administration processes related to appeals of denials.

And then over time, investing a lot of resources, both people and process improvement and in technology for denial and underpayment mitigation. And those efforts have paid dividends, and those will continue. The other thing that's really, I think, in the future can help rev cycle is documentation.

And so making it more complete, more accurate, more thorough, more timely for physicians to be able to complete their medical documentation over time is one of the key solutions here, so that you have a complete picture of that patient and that you're able to get that data more timely. You hear all the stories from physicians going home after a 12-hour shift and then completing their documentation and their pajamas at home. And so trying to work on that administrative burden for our physicians, I think, over time, will also pay a lot of dividends.

We've got some work requirement changes that are going to be implemented across the states in a few years. And I know you guys spend a lot of time analyzing a lot of different things inside of HCA, kind of quantify everything. What's the work that you've done? And how are you just generally thinking about what the impact could be and maybe how you plan for it?

Sure. So work requirements are part of the one Big beautiful bill. And for HCA, one of the pieces of context is important is that 60% of our Medicaid revenue are in non-expansion states.

And the work requirements are really focused on expansion states. And so there's a bit of that, that just from the profile of our portfolio of markets is helpful to us. CMS is still issuing administrative guidance to the states. So for our expansion states, there's still a lot of work to be done between now and the end of this year to prepare for the work requirements.

The risk here is that it's not a coordinated effort and that the paperwork processes and administrative processes become complicated to the point where you could see some enrollment loss. And that would be the risk that we're watching for in those markets. At a company level, we don't really anticipate that work requirements will be a super material issue for us financially.

But in our expansion states, we're going to be working closely with our states and with CMS to try to support this process as best as possible. I think it will also put some pressure on hospitals as they continue to help patients navigate Medicaid. So if someone loses Medicaid because of work requirements, then our team of Medicaid eligibility counselors will be helping those people resubmit applications and the like. So a lot of kind of administrative process to work through here. But right now, we're not anticipating a super material outcome, but we are focused on it.

Yes. I would think that even if you have like coverage loss that was an improper coverage loss given the presumptive eligibility standards, you would they present themselves and you get that process going again and they get enrolled, you still get -- yes.

So some of our states have retro eligibility, some don't. But the teams on the ground and Parallon has teams in every hospital that focus on coverage, including Medicaid that -- where we try to help our patients navigate these administrative processes.

Directed payment programs, there's been a number of programs have been submitted to CMS that haven't been approved in Florida, a number of states. Is there any update or common theme as to why we're seeing maybe what most investors would call a delay in terms of the approval process?

There's a couple of encouraging signs that we continue to watch. And then I'll mention one state in particular. But we are aware of a lot of continued contact between CMS and these specific states with grandfathered applications, where it's clear to us that the reviews continue and progress.

And then second, we are continuing to see some approvals, which are encouraging. One of our grandfathered applications in Georgia got approved yesterday afternoon. And so that's an encouraging sign that there are some approvals starting to yesterday afternoon. So coming out as well. So there is some life there in terms of that, and we're still hopeful that the other states, including Florida, will get through this review and approval process with CMS here in due course.

Next month, we're going to get -- we start the rule-making cycle with Medicare. We can look at some of the files that CMS has around market basket update assumptions and whatnot. But are there any considerations that we should be aware of as we move into the April rule-making process? And really the corollary to this is this administration has such a big focus on just spending and whether or not that influences the outcome of the IPPS update, I just didn't know if you guys had any thoughts as to what we should be expecting?

Not really. I mean, I think last year's IPPS and OPPS rulings had some moving parts to them, for sure. But even at the end of those moving parts, our overall Medicare update was generally on trend last year under this administration. A little early to know what's going to happen for the '26 update. But I would just point you back to last year as a marker.

Again, they have moving parts, right? The inpatient-only list, et cetera, et cetera. But at the end of the day, between inpatient and outpatient, we generally landed in a pretty good spot last year and for the '26 update. So we'll see what comes.

Okay. Maybe back on the cost side of the equation, we've been in this environment of incredibly stable. It feels like clinical labor inflation, contract labor has come down a bunch. Wages feel fairly consistent. professional fees have been elevated, but it doesn't feel like it's getting worse or maybe better for you.

Are there any other pockets of strength or weakness as you look at just the overall cost structure of the organization today?

Well, when I think about -- let's start on labor first and then we can kind of go through. I mean I think we're in a generally stable operating environment with clinical labor, which is a reflection of some serious work over the last several years to stabilize our workforces and invest in workforce development.

I'll have Erol take a minute and talk about Galen here in a second.

On the physician cost side, they've been more elevated. And the physician costs have been the part of our cost structure that have been running hotter than inflation here for the last several years. And if you go back to '24, were pretty seriously elevated. I think we finished '25 with pro fees at about a 10% growth. I think as you head into '26, we noted on the call, high single digits. So we're working on it really hard, but there is still some cost pressures on the physician side.

On supplies, I think we're in generally good shape. We're watching tariffs, right, is the one wildcard that we're always watching. I think everyone is watching those carefully as we go through. But we're working carefully with our suppliers and vendors on sourcing, on long-term contracting at fixed prices and the like to try to really lock in a rational inflationary environment for supplies.

So the physician cost is probably the biggest part of the cost pressures and then followed by -- we all are going to wait and see what happens with tariffs and some of these geopolitical impacts that we're dealing with. Workforce development is really important here, both in terms of Galen and our graduate medical education programs, and it's how we have really navigated this. So take a second.

Just quickly, I think the Galen acquisition investment, if you will, has proven to be incredibly strategic. If you look back in 2019, five campuses, we'll end '26 with 25 campuses and our goal is to have 30 campuses by 2030.

And so this has been an investment in workforce, trying to develop some internal solutions to a macro issue. I think it's gone really well. You look at markets like Houston and Dallas that are of the size that they are. We have two campuses there, and we're looking at a third campus in each of those markets.

I think they're going to graduate 7,400 nurses maybe this year. And so it's been a good strategic investment. I think also we can use our expertise in running 190 hospitals and all the clinical nursing that we do to then build into the next generation of nurse, some pretty bedside applicable practices and innovations, particularly as technology comes to bear, we can get upstream into the school rather than waiting for internship or first year RNs or clinicians to develop them. So I think it's been a really good investment.

What percent of the graduates are graduating into an HCA system at this point?

It's still pretty early. I mean it's good. We do think that will continue to improve. Part of Galen, though, is an investment into our communities. And so what this does is it increases the supply of nursing into a community. And they go various places when they graduate, but we're in a good spot right now, but I think improving as we go over time.

And we're still aligned with many nursing schools in the community other than Galen. So the pipe is much bigger. And so we're working at all angles.

All right. Well, great. Well, we're just out of time. Appreciate it, guys.

So that's all good numbers. We've got Mike and Tim from HCA. We have an operator and we have the finance guy. And this is pure fireside. And we have lots of questions. So let's get started.

I think the -- in talking to people, the top of mind is -- and I saw your comments yesterday, but just to recap, where we are with the AI, and we'll have some follow-up questions, but just kind of the near-term, intermediate term opportunities by bucket and like the cadence of pulling that down into margin.

Good morning, everybody. So when I think about AI, I'll put it in context of our long-term strategic plan. AI is one component. And if you just kind of take AI and even broaden and think about digital transformation, of creating a step change in performance for the company over time. Given HCA size and scale, when you think about 47 million patient encounters last year, you think about the size of our revenue cycle, supply chain and related operations.

We are ripe for being able to use things like artificial intelligence and automation to drive effectiveness and efficiency. And so we've been about building our internal capabilities to both identify, prioritize and then build, pilot and then scale out key use cases in 3 domains related to AI. The first one is clinical and clinical is really our Holy Grail as a company because it supports our mission. And our mission is the care and improvement of human life.

So about 1/3 of our efforts related to AI are focused on improving clinical and this is the idea of supporting our physicians, our nurses and our care teams, with decision support and with use cases that reduce administrative burden. So those use cases in the clinical domain are going to take longer, they're riskier. And so we put a lot of structure with human in the loop and supports to make sure that those use cases are ready when they go to scale.

And we can give some examples in clinical. So those are longer term. And you just got to think about those use cases taking multiple years to build and scale out as we roll through the enterprise. The second area is operational. Think about just the running of the hospitals. And so the throughput of the patients and the operations around labor management and the like are a big part of our operations.

And so we have several use cases already in flight. And operations as a domain will be more intermediate term. So I think 3 to 5 years roughly in terms of really starting to see material impacts.

So let's just kind of break that down. An example of an operational initiative would be what?

Yes. Labor would be the first one that we're further so along the line. And we have a digital product that helps us predict demand and then schedule against that demand for all of our labor. So I think we have 100,000 nurses. We have 50,000 doctors. And so the ability to use AI to predict what the census level will be in a nursing unit, 28 days out is a huge help for us in terms of knowing how many staff members to bring in.

And then to use AI to really help balance that schedule and get the right care team members scheduled to take care of those patients over time. And so the first big digital product, and we're live in about 80 hospitals right now, is a product that we call Timpani, which is all focused on using AI to predict demand and then do a better job of scheduling our care teams. And we're really excited about that digital product, that's one.

And again, just -- I remember when the staffing companies were red hot a few years ago after COVID, you guys talked about maybe offering either an employee model or a pay-per-click model. Do you -- did that really happen? Do you have internal nurses like an internal staffing company where you can flex up and down on a variable basis? Or is most of your clinical labor still kind of salary and bonus?

It's a blend. So we own our own staffing company, under HealthTrust, which is our GPO structure. It's called HealthTrust Workforce Solutions. And in that organization, we have both what you would think of as travelers or contract labor that operate as travelers and then we also have market pools that operate on per diem. That's our variable workforce.

And that's where AI could really help out with that.

Yes, 100%. Okay. And so -- and that's part of Timpani. That's part of our labor management tool, is really thinking about the Flex path and how to flex up and down to volume over time. The other area operational that I would call that is throughput. And the importance of managing length of stay in the inpatient settings, the emergency department throughput, the operating room throughput is really important. And so we are developing several digital tools that really help us predict how long a patient will need to be in the hospital, identify barriers to discharge and then help our teams orchestrate care and streamline patients getting through their care journey and then out of the hospital with their next point of care.

And so throughput, given the importance of length of state management is another operational use case that we're in early innings on, but pretty excited about using AI...

How much you've been able to flex down length of stay so far using this tool?

Yes. Well, the tools are still pretty early. And our efforts around length of stay are broader than just technology. I mean we've invested heavily in people, heavily in our processes. And now our tech tools are just now starting to come out in terms of using AI. But we've had good success. I mean, last year -- I'm going by memory here, but it was about a 2% reduction in length of stay. And this is a multiyear effort. I mean I think between now and the end of the decade, we still have a lot of opportunity to reduce length of stay in our hospitals, and improve turnaround times in our emergency departments and operating rooms as well.

So asset optimization is a really key part of our work. The third area for AI is administrative. And so think supply chain, rev cycle, human resources and the like. For HCA, we tend to operate big shared service platforms. So we have centralized management. We have more standardized data. And I think you're going to start seeing, and we are seeing AI use cases even in the short to intermediate term with administrative. So I think '26, '27, '28, we are seeing digital products come into our hospitals from our efforts because we have a little more ability to move quicker in our administrative platform. And so I think about short term, intermediate term and long term, broadly speaking for AI, I think we're still pretty much in the early innings.

So guys said this in say me, [indiscernible]. Let's go from the general to the specifics. So rev cycle specifically, one thing we've heard is, it's now easier to submit a rejected claim using AI, especially the small. It wasn't worth it before. You don't do a lot of small claims. But what specifically in rev cycle as you fight through increased denials, what tools does it give you that you might not have had 2 years ago? And what -- any quantification around bringing down denial rates or just at least holding your own there?

Yes, it's a great question. Large language models. And so one of the big areas that we're working on, and these are products that are in beta and starting to scale out for us now. is using large language models to summarize and synthesize the medical record and the administrative record. That allows us to do really do 3 specific use cases. The first one is to help our physician advisers prepare for peer-to-peer consults with their payer partners. And it reduces the time they need to prepare, and it creates a more comprehensive review of the record. The second is appeals of denials. And so you can use large language models, and we are to summarize the record, summarize the administrative record and prepare, a denial appeal letter. Now those denial appeal letters, then still go through reviews by our doctors and nurses before they're submitted. But think about the efficiency gains and the accuracy gains have been able to appeal thousands and thousands and thousands of denials versus human beings having to type de novo every time, and that's going to be powerful.

The third area that the large language models, I think, will have a big impact on is helping us prepare for dispute resolution. So helping our legal department to summarize thousands of claims and get prepared for things like arbitration. So large language models in the revenue cycle, I think, are going to be a big help for us. The second area in rev cycle that -- and it's also related to the...

And this is being implemented, is being is fully implemented or it's being implemented?

Its not fully implemented . We're through alpha and beta, and we're starting to scale those out in '26. So that's my point about administrative a little quicker here in terms of seeing our efforts. The other one administratively in rev cycle would be what we think of as kind of intelligence. And so think about studying...

I'm not familiar with that concept.

Think about deciding of studying all of your claims. All the claims that got paid on time the amount you expected versus claims that had a denial or had friction. And then using machine learning to understand why a claim got denied from the clinical record and from the administrative record learning from those root causes and then trying to take actions earlier in a patient's stay to address any friction that you may see from a payer. So I think over time, AI is going to help us advance our work in terms of denial mitigation in a material way.

It's a little early to see results yet because these products are still pretty new, but we're excited about it.

These are all -- you're not using third-party point solutions, these are all internally developed.

So for our -- we organize our efforts under an organization called digital transformation innovation. So that's our department's name. When we build digital products, it is a blend of build, buy and partner. So for the specific ones that I just mentioned in terms of large language model and intelligence, we partnered with Palantir. And so that's one of our tech partners that we partner with. We -- I think everyone has heard us mention before, we use Google pretty heavily as well for our cloud and for our data science tools.

But that one was a partner use case. We have others where we build it entirely, and we have others that we buy just off the shelf.

Okay. Yes, there's a lot of ways we can go. I don't want to belabor this point, but you've spoken in the past about despite the ACA pressure, you're still looking at 2% to 3% volume growth this year. So in the simplest SEC math way possible, describe the decremental margin effect from the ACA and kind of the -- I know you quantified the balance, but maybe simplified that calculation a little bit for people.

Sure. I'll do my best. Is that work?

I got lost at the fourth step.

Understood. So when I think about the Affordable Care Act reforms. It's really a combination of 3 factors. It's the expiration of the EPCs. It's administrative rules that were passed as part of the one big beautiful bill at. And it's the administrative rules that came through rulemaking from the Trump administration last year. And so what we've ever to do is try to model what we think the potential impact of the comprehensive effect of those 3 changes are to HCA.

Just in a very simplified way. First, we believe that our exchange volumes will be declining about 15% to 20% and '26 versus '25 full year. So that's the first impact that we think we'll see. Out of that decline, we think about 15% to 20% of the people who lose coverage on the exchanges will get coverage through employee-sponsored insurance. And so that's a benefit. The balance, so that 80% to 85%, we think go become uninsured. And for the uninsured population, we believe that there will be about 30% reduction in utilization of health care services on that population that becomes uninsured. The comprehensive impact or calculated impact of those changes, including our assumptions around utilization trends and around collectibility of patient amount dues leads to that $600 million to $900 million of negative impact to adjusted EBITDA in '26.

So this one...

Was that close?

That's perfect. I'd like to get a joint answer here. So one thing that intrigued me was, 13 outpatient things around 1 hospital going to 20. So from your perspective, Tim, what are the most needle-moving investments you can make? And then what assets are getting to the front of the line be at surgery centers or imaging centers? And what are kind of more incidental?

Right. It's an interesting question. I think a couple of big -- bigger players for us, and we spent a lot of time and energy focusing on. The first would be freestanding emergency rooms. This puts care closer to people's homes. It takes, frankly, decompresses many of our hospitals that are incredibly full and trying to make a throughput for the patient experience be better. .

And it also, in some ways, funnels off some of those lower acuity patients into what I think of as a softer setting from being in an intercity emergency room. The second big one, and we -- today, I think we have 150 freestanding emergency rooms, I think in my -- I oversee about 1/3 of the company, have about 38 of those, and we just keep adding to those every year because it's a really efficient use of capital.

But more importantly, it's a great way to get patients to come in -- and maybe first touch points within our system. The second one is really the urgent care platform. This has sort of been going on for a while, but we've really doubled down, as you see the generational differences of people accessing health care. People don't go to their 1 family practice or internal medicine doctor for 30 years, they want to go when I want to go, where I want to go and I either I'm close to my work, close to my home and access that.

So we've really significantly beefed up the number of urgent care centers, some de novo, some through acquisitions across our markets. And then when ambulatory surgery centers has been a terrific way for us to partner with our doctors, also decompress some of our ORs in our hospitals as care has shifted to the outpatient setting.

And so that's been very material. And then probably the fourth is expansion of clinics to find opportunities where there's unmet need. We've spent a lot of time trying to acuitize our hospitals, that's been a little bit of -- I think of it as a secret sauce. And to do that, you have to have more cardiologists, more surgeons and so forth out in the communities and not be expecting all those people will be coming back to just the home base to get that care where it's more complicated to park and the like. And so we think that those are differentiating models of how our expansion has been.

So remind me of your ASC footprint, how much is on-campus HOPD versus now freestanding and physician fee schedule?

We have ASCs. So these are not HOPDs for the most parts. I mean, there's a small handful that are HOPDs. These are ambulatory surgery centers. There are a number of them that are on or proximate with campus, but we also have a lot of ASCs in the communities broadly. So one of the things I've mentioned and from what Tim said, if you think about the net effect of this, what we intend to do over time is build out a comprehensive network of different continuums of care. So as patients need to access physician clinics, urgent care clinics, emergency rooms, surgery centers, we're able to give to our patients, to our doctors and to our payers.

Different access is to price points to affordability points to provide the care that's needed at that time for those patients. So I think the idea of a network is this comprehensive nature of it over time. I think it creates competitive advantage, as Tim was mentioning.

So we were surprised your adjusted organic growth guidance this year is 8%. That's the departure from your long-standing 4% to 6%. Supplemented by resiliency, $400 million from resiliency. But would -- I think this is inevitable with just -- when somebody asked you, hey, that old 4% to 6% EBITDA guide and 19% to 20% margin with AI and all your efforts? When do you think you might be ready to revise those long-term targets?

Well, we clearly are going to have to get through this reform error. If you think about our guidance at midpoint for '26, it's just short of 3%. And that's our guidance for adjusted EBITDA growth. And that's reflective of the full nature of our guidance. And obviously, the audience knows this. We give full year guidance, not quarterly guidance. But in that full year guidance, what we highlighted on our fourth quarter call, was this reality is that we are facing $600 million to $900 million of headwinds from the Affordable Care Act reform items.

We're also dealing with something like $250 million to $450 million of state-directed payment headwinds as well. Now that assumes none of the grandfathering applications get approved, a different matter. I know we'll talk about that in a minute. But -- and so resiliency, we've been working hard to put a resiliency plan in place that would help offset as much of the adverse impact from the Affordable Care Act reforms as we could.

The net of all that, though, still yields is kind of just sub-3% at midpoint. And then as I think about the long term, what we've said is that we believe that between reilliency between the AI strategies and our network development and optimization strategies that we still believe that we'll be able to maintain our long-term plan. And so I think about this is advancing the company through this point of reform, getting to our long-term plan. And then over time, as our AI strategies and network strategies continue to mature, we are hoping that we bust through those margins and continuing to improve. But we're still talking about our long-term plan for now.

So a joint question. you've been a long-standing customer of MEDITECH. You're expanding from their legacy model to something more modern, mobile cloud based. How does that -- as an operator, is that how heavy a lift is that? How much help do you get from corporate? And then just practically speaking, what does it do for you? How does it play into your AI initiatives? Is it integrated or separate? And how do you partner with them on your technology?

When we think about our primary goal with MEDITECH expand is to reduce variation and optimize the care model so that we can take more accurate, more timely care and more coordinated care of our patients through our continuum of our systems. So I'll give you an example. Through COVID, you had care plans, policies, procedures change rapidly. .

And when -- if you go back to a system like we had MEDITECH Magic, now we've already implemented 40 of our hospitals into our new expense plan. We expect to have all of our hospitals converted for the most part over by...

40 for the company or 40 for your...

40 for the company . A lot of those were actually happened to have been in my group. And so through that transition, what we're finding is that in a COVID example, we can change the policy and procedure literally in minutes across those enterprises that are currently on the MEDITECH expense model that would have been more clunky in the past where we'd have to go one by one and do that.

A different example would be that for pharmaceuticals, there's an announced drug shortage of something. And in the past, the clumsiness of trying to go into each individual system and communicate, hey, that drug is not available, here's an alternative wasn't as readily available to do that. And so today, we can change that care paradigm immediately and then give -- and speed up the care.

So we're not going back to a doctor, "Hey, we don't have this, what would you like to use as a substitute and just improve the efficiency of the care.

And from your -- the ones that's gone live, how the transition is going?

Yes. Transition is difficult, really difficult with the complex thing like the EHR. But what's happened with the companies, the resources that the company has really put behind it and MEDITECH have enabled the go-live to go, frankly, smoother than what we even envisioned they could go. And so we're doing big complex hospitals in Nashville, Centennial Medical Center. It's a 800-pound -- 800-bed hospital. And that transition we just did in the recent months went really smoothly. And that's a differentiator for physicians who are understandably anxious about this transition or nurses who are using these systems.

And so now it's a much more intuitive system versus for folks and particularly when you have -- maybe you may have contract labor and others who are coming in and out of your system, to be able to utilize the system and take great care of our patients.

So last year, and I'm glad it's over way too much, Tom spend on the enhanced subsidy debate, hospital loss that round. This year, we've been looking at site neutral, and there's a little bit of a debate in the team of what could CMS do on its own versus what Congress would have to do. So talk about that -- I mean we think about it as drug administration, HOPD go into outpatient. We think about maybe tacking on a facility fee for a doctor visit maybe radiology being paid on HOPD going to half the rate.

So just talk about -- and you're talking to the average Congress creditor, how do you frame that debate?

We don't call them Congress critters.

I don't know. That's not -- majority. That's majority.

When I think about site neutroal at least to this point, it's been pretty limited. It's been limited to physician clinics, as you mentioned, that where some systems set up their physician clinics as HOPDs. HCA generally does not. I mean -- so that's one big distinction. And other is drug administration. And so for those 2 kind of current areas in focus, the impact HCA is pretty immaterial, pretty limited. It would just be a bit more notable if that starts getting expanded to things like surgery centers and radiology and the like.

And so we're watching that carefully. When I think about kind of what's in flight right now, there's not -- typically neutrality gets mentioned when their people are looking for offsets for other funding needs. And so right now, we don't see a lot in the near term that would drive that. But we're watching it carefully. And so for site neutrality for us, I would just say that it's not as material as a topic for HCA because of the way that we structure our operations as potentially the not-for-profits and the academics, which it would be more notable for.

But it is an area that we're watching...

So you're running a 1% operating margin. Some of these are negative operating margins.

And I think a lot of the not-for-profits, for example, they've set up their cancer systems, their outpatient infusion centers and their hospital-based clinics, they've set them up as hospital based. And so given the way site neutrality works, it would be a more notable reform for those systems than it would for HCA.

Great. Speaking of doctors, Valesco was mentioned 1 million times a couple of years ago, you guys had to do kind of an emergency bailout of your staffing provider. You haven't really cited pro fees, professional fees as prominently as maybe some of your peers. But maybe just kind of reset where we are with Valesco, how much is inside, how much is outside? And what are the pressure points in the physician -- hospital-based for this, is it radiologists? Is it pathologist? Is it ER docs? Where are you seeing the pressure? Anesthesiologist, I'll throw them all in there, for sure.

Yes. I mean clearly, you go back a couple of years ago, we had to complete an acquisition of Valesco. And Valesco just for everyone's memory, was mostly emergency room physicians. It also had some hospital medicine positions. And it was important at the time that we do that. We've largely integrated the Valesco team into HCA now, I'm really proud of that team. Our hospital operators like Tim. Our physician services organization has done a wonderful job of bringing those teams on board and now starting to manage our hospital-based physician platform in the emergency room area, in the hospital medicine area in the HCA way.

So people, processes, technology really making good investments. And we're seeing a good stability now in our cost factors related to the emergency room and related to hospital medicine and that -- and we're pleased with that. 2025 just to kind of size it in total, we were up about 10% on same facility pro fees. And if you go back to '24 and before, it was twice that level of growth because of the pressures we were seeing.

I still think -- and we mentioned this on the call, but I still think we have some pressures coming into '26. And it's now more related to radiology and anesthesiology. And so we're guiding something like high single digits for our professional fee growth. We're working really hard as a company, both in anesthesiology and radiology, and we're making investments. But we are not as far along in terms of getting through that change curve as we are in the emergency room and in hospital medicine.

So a little bit of an ad lab. We follow a company that has developed and there are others that radiology tools that use AI improve throughput? Or have you been studying those as a potential productivity and cost lever for your radiologists?

Absolutely. We have a radiology committee that has been hard at work looking at not only technology but teleradiology and all of the various components to improve our day-to-day radiology services. We work mostly with partners in radiology. We don't really have a big employee or in-source capability. So our partnerships with the big groups and a lot of smaller local groups are really important. And we are not only studying but started to execute on things like both enhanced radiology and identifying the right AI and automation plays as well, but mostly with partners, right?

We're kind of -- we got about 3 minutes. I did want to hit, we talked last night, I wasn't aware that you had a GME program, and Galen, I'd love an update on that. But just obviously, one of the things I've always thought about you is your tech platform, let's say, you hire a nurse, who's used to work on the Epic or [indiscernible] platform. So you've got to train this person on your MEDITECH, which I've heard that sometimes can be an issue. And then there's also a bottleneck in residency spots for a graduating physician. So you guys have kind of in your kind of classic Toyota long-term thinking you've made some investments there. So maybe just kind of level set where we are on that.

Just to touch on GME first. So today, we have 5,800 residents across 81 of our hospitals. And that covers sort of 270 different residency programs. And what that does for us, first of all, is -- it helps us plant doctors in our communities. If they do to the residency there, they're more prone to stay there and live there and have their families in those markets. So the alignment -- there's obviously, a natural alignment to that component. It also -- if you go back 15, 20 years ago, most of those residencies were in academic medical centers. And this just gives a whole slew of more choices to people in some cases, may be living in their hometown that they grew up in. And so when we think about our 43 major markets across the country, as soon as we open these programs, the demand is there.

As you and I talked last night, there's about 1,000 students that come out of Medical School and have no residency because of the limitation of available slots. On the Galen part, which has been really interesting, we acquired Galen, I think it was 2019. It was sort 5 bricks-and-mor campuses. Today, it's 25 bricks-and-mortar campuses, soon to be 30 over the next couple of years.

And this is now -- we now have about 20,000 students in our programs. If you think about the long-standing notion that demand has way outstrip supply of nurses. And so this program, one of the interesting things that it's done, it's to really allow for 1 second careers. People who are average age and that school is about 33 years old. And frankly -- and those are -- 50% of those people have dependents relying on them. And so they may be doing switching into a different course and frankly upskilling them to meet that demand, and it's been really a powerful connection not only for HCA, but the communities we serve. And so we're really excited about that launch.

And then the other real component for us is this thinking about clinical education. We spent a lot of time building sim centers and taking nurses or newer people in their field or new technologies come out. We can bring them in the sim letter, sim center. We can bring them for preceptors and get -- and continually push their skill sets in a sort of a safe teched environment that isn't directly with the patient.

And a bump of a guess sound, but what -- approximately what percent of the graduates end up at HCA hospitals versus other hospitals?

I think it's about 35% or 40%. Mike, is that about what you think it is?

Yes. I mean, obviously, some of them go out in the community, some stay with us. So over time, what we're trying to do is create a system where when some graduates from Galen, we're going to try to make it easy for them to come in to HCA. But over time, I think that will improve.

Okay. Thank you. That's good to break out.

All right. Well, thanks, everybody, for joining us here. I'm Ryan Langston, I'm the health care services analyst at TD Cowen, Day 2 of our conference. I appreciate you all making the time. Very excited to have HCA here. We have Mike Marks up here, EVP and Chief Financial Officer. We've got Frank Morgan, Investor Relations upfront, too. Real quick, probably don't need much of an intro, but HCA largest U.S. hospital provider, 190 hospitals, 2,500 ambulatory sites of care, surgery centers, EDs, urgent care, you name it, operates in 19 states in the U.K.

Mike, thanks for being here.

My pleasure.

Appreciate it. So maybe a good place to start for us. On the fourth quarter call, you sized this resiliency program, at least for 2026, I think around $400 million benefit to offset some of the headwinds from the APTC expiration. Maybe help us within that $400 million because we've been getting this question a bit. Just maybe some of the components of that, maybe between variable or fixed or rev cycle, rev integrity. Just how do we think about it maybe between revenue expense? Any way you can bifurcate that would be helpful.

Well, let me start by just providing the context. I mean we have 4 focus areas for our resiliency program. Revenue integrity is number one, asset optimization, which is throughput, which would be #2, and then fixed and variable cost. Within those 4 areas, we're really building enterprise-wide multiyear capabilities. So this resiliency program for the company, as you know, we've been working on for a number of years. And so coming into '26 over the last, call it, 12 to 18 months, we put forward a really strenuous effort to both enhance and accelerate our resiliency program overall to do our very best to offset as much of the headwinds that we thought could happen with the Affordable Care Act as possible. And so that's what you saw with the $400 million.

And it really reflects those work streams that we had enough visibility into their implementation status, their execution, their tracking. That we had confidence to put a number on for our guidance for 2026. But when I think about resiliency, I think about this idea of multiyear and being a program. And so resiliency will be a key strategic imperative for HCA over the next many, many years as we go through the back half of this decade. And it involves a number of work streams, hundreds of work streams across those 4 focus areas.

So think about the '26 component related to $400 million as being those components of the work streams that were far enough along that we had confidence in implementation that we could size and track. So that's how I would size it. I'm not -- we're not giving kind of breakouts into the 4 focus areas, but that's generally the way to think about the $400 million. And then we're going to continue to work on this through the back half of the decade.

Got it. Obviously, you also talked about sizing, you size the APTC expiration, $600 million and $900 million headwind for '26. So not looking for intra-quarter updates in particular, but just any insight you can give us in terms of what you're seeing on that population so far? I know we're only a couple of months in, but anything you can give us there on that sizing, again, not intra-quarter financial updates.

Well, let me stick with -- because to your note, we're not going to give current quarter viewpoints. But when I think about that modeling assumption, I always start -- and we said this on the call, I always like to remind everyone, it is the component of our guidance that involved the most significant judgments. And our modeling team has been working on this for 12 to 18 months. Both looking at our past experience with our exchange population and movements between exchange populations in Medicaid and ESI populations over time and a lot of external data from other modeling sources.

And so there are 2 or 3 really key assumptions that we are watching very carefully here in first quarter. And let me go through those and give you a sense of what we're watching. And then we'll give everyone updates as we go to first quarter and second quarter and third quarter. But the biggest one is the effectuation rate or the attrition rate. And so here in first quarter, really going through even April and May, we're going to start getting a better sense of the number of people who don't pay their premiums and leave the exchanges. And so that attrition rate is one of the modeling assumptions that we're watching carefully here. And again, we'll give what we can on our first quarter call about what we're seeing.

The second area of modeling that's important is that shift between metal tiers. And what happens -- how many people, in effect, go from silver to bronze or from silver to gold, likely more silver to bronze. And so that we're watching in a couple of ways, what happens to utilization on that population and then what happens to collectability of patients amounts due. So those are key components of the model.

And then the third one that we're watching carefully is for the folks that leave or don't end up being covered with the exchanges. We are estimating that 15% to 20% of those become covered by employee-sponsored insurance with the balance going to uninsured that movement is really important to the overall model. So validating here as we go through first and second quarter, did we get that movement back to ESI at 15% to 20% of those that left exchanges is going to be an important part of the model. And so all of that we're studying, and we'll give an update in first quarter.

So it sounds like at least in the first quarter, you might have a little bit more updates.

We'll have more, but it's going to take time, really getting a sense of this year. And I think everyone in the audience knows this, but we issue annual guidance, not quarterly guidance. So our guidance for '26 is full year. And so keep that in mind. And so we're going to have to just see how that matures over the next several quarters. We will give what information we can on first quarter.

Another thing you mentioned on the fourth quarter, I think Medicaid lower acuity ENT, I think, you called out specifically kind of a little bit softer on the outpatient side in the fourth quarter, but still sort of an attractive revenue stream for you. I guess, is that just more shift towards higher acuity? Is there something else in those lower acuity procedure categories that's maybe driving a little bit of that softness?

It's really interesting. When I pull up and think about outpatient as a component of our business, our revenue growth in fourth quarter on outpatient was actually higher, stronger than our inpatient revenues. And so broadly, we're still seeing good activity across all 4 of the segments of outpatient that we track, emergency room, diagnostics, our ambulatory platform and surgery. And surgery would be both hospital-based and our surgery center platform.

When I think about our surgery center platform specifically, we really saw 2 components that impacted the case counts versus the overall revenue production. One of them is acuity, and we are seeing declines in some of our lower acuity categories of surgery. The one that we called out was ENT, and that's one of the drivers. The other is payer mix, where we are seeing a decline in Medicaid volume in our outpatient surgery platform and good growth in the rest of the payer mix components, which has as you can imagine, has a positive impact on revenue.

And so our outpatient surgery platform continues to perform well when I think about revenue, when I think about profits. I think those 2 dynamics just impacted the case counts a bit for the year. On lower acuity, I think it's the puts and the takes. And the lower acuity has a little more impact on the surgery centers than it does hospital-based outpatient. So that would be the only other clarifying context I could give.

On the inpatient surgery side, fourth quarter, I think roughly flat volumes kind of year-over-year there. But if you look at occupancy in the inpatient side running really all-time highs, I think it's around 73%. Is that a capacity constraint issue? Or is that a mix issue or just this continued shift from inpatient to outpatient or anything you're seeing there?

Over the last several years, we've put a lot of effort into maintaining our surgical capacity. And so like you've seen us do for inpatient beds, we have had a multiyear effort to both invest in our operating room platform. So we've added operating rooms to our hospitals over the last several years. And we've had a pretty serious significant efficiency play where we're trying to manage things like turnaround times and efficiency.

So the combined effect of adding capacity and managing our operating rooms really have prevented a capacity block. We did not see in '25, and we do not expect for '26 to have capacity being an issue relative to our ability to grow surgical volume which is great, and that's reflective of the work that we're doing. Now I do think over time, there are shifts that occur on inpatient and outpatient. We're used to that. We're used to as well is that with new technologies and kind of the aging of the population and chronic diseases that you do tend to see a backfill on the inpatient side as well over time. So I think those trends that we've seen over the last many years continue.

And on the occupancy, you're sort of hitting on those all-time highs. Where is sort of the rev limiter there before you really have to maybe make sort of a step investment. I mean you're always investing in beds and building new hospitals and things. But is there sort of an average occupancy we should think of where you're going to have to make those investments in another inpatient wing or something so you don't run into those capacity constraints?

It's a great question. We have a multiyear capital planning approach. And so we are looking out because building inpatient beds is you don't fund a project and it opens this year in the hospital business 6 months later. So we look at a multiyear approach to both adding beds, and we've been adding, call it, 600 to 700 beds a year in our inpatient units and our length of stay management routines through our resiliency plan, where we've had really good results the last couple of years in managing length of stay.

Length of stay is also a big part of our resiliency plan into the future. And so the combined effect of adding beds and reducing length of stay have allowed us to even with the volume growth we've had in the last several years, to keep our inpatient occupancy in this 70% to 75% range. And so our plans for the future include a planning component to try to manage that occupancy level by adding beds and continuing to reduce length of stay. There's not a perfect number that you would say above which you have a trouble. And of course, we have 191 hospitals that have different levels of occupancy, right? 73% is the blended average. But when you get to 80% to 90% full, it does start challenging your operations. And so we try to make sure at a hospital level that we're looking at those units and hospitals that are running hot and that those generate the funding request and frankly, even the enhanced effort on length of stay.

On adjusted admissions, guiding to 2% to 3%, again, look back through our model, I think it's been a decade ex-COVID that they haven't been in that level. But we do get some questions occasionally, so I'll just ask it. What gives you sort of that confidence that you're going to hit that 2% to 3% again in 2026?

Well, I mean, the first thing would be the momentum of the company. And I think the HICS reforms are noted, and we took those into account with our guidance. But when you just kind of look at the track record of our 43 markets and what we see from both demand growth and our ability to take market share as we've invested into our networks and continue to invest into our networks, there's some durability there that we see in demand over time that's important.

And then the other thing I would just note is you just think about those payer categories underneath that is that I think we still think Medicare based on what we've seen in the past, should be 2% to 3%, if not even on the top end of that range from the -- from our past trends and from the number of people aging into that program in '26 and beyond.

And then number two would be Medicaid, whereas in the past, we've gone through a couple of years here with Medicaid redeterminations where our Medicaid volumes were running below prior year levels. Those seem to have recovered if you look at the back half of '25, and I'm expecting 2% to 3% growth in Medicaid in '26, kind of on par with our average. HICS will go down 15% to 20%, as we noted on the call. I do think that our commercial population, excluding exchanges, will be 2% to 3% in that range is kind of built into our assumption of our overall range. And then with this movement out of exchanges into uninsured, our uninsured volumes will be hotter in '26 with that conversion. It could even be 10% or so.

So I think on balance, this idea of 2% to 3% still makes sense to us. It feels durable from our past. It feels durable from the investments we continue to make and have been making. And then you see the trends that you see by payer.

Inpatient-only list going away, how do you think about that given your sort of very heavy bend to inpatient? And does your sort of 50% of the business in Florida, Texas have any sort of impact on that? Or just maybe general thoughts on that kind of as that phases in, how you'll sort of approach that?

Sure. Well, the inpatient-only list is Medicare. So keep that in mind, and it's phased out over 3 years. And so when we look at the modeling of this reform, if you will, of the inpatient-only list going away, I think about this as each year a set of procedures where now the surgeon, the physician gets to make the decision. In the past, being on the inpatient-only list means that you had to do that case as inpatient. And so the physicians are going to be making a patient-by-patient assessment on what that patient needs. Do they need inpatient level of care? Do they need hospital-based outpatient surgery or procedures? Or is that patient appropriate to go to a surgery center? And so we will see some shifting of that over time. Our modeling suggests that it's pretty manageable for the company.

But it does highlight, I think, the value of HCA's network model. And if you just think about our network model, we invest every year into our inpatient facilities to handle the capacity challenges we just talked about on the previous question. But we're also adding outpatient facilities pretty significantly. And we added over 100 outpatient facilities last year. By the end of the decade, we intend to have about 20 outpatient facilities for every hospital. We're at about 14 as we close 2025. And we believe that network model will give us the network access and the convenient of care sites for patients to access close to where they live. And then when they need more acute care, an optimized system to help them get to our acute care settings. In that model, I think this expansion of our outpatient footprint will be helpful. It will give us the capacity as things move around between inpatient and outpatient. And it will help us continue to build our competitiveness and take market share as we give patients more access to care across the spectrum from inpatient all the way to ambulatory.

Got it. The Medicaid supplemental payments is expected to be sort of a net headwind this year, if nothing changes, you had mentioned the Texas, [ Atlas ] program, I think, on the call. I guess anything there or even on anything you're hearing from your state program partners on some of these pending programs? Obviously, everybody is focused on Florida. There's a couple of other ones. But anything there?

Well, let's talk about the grandfathered applications first. And there's approximately 5 states that are meaningful with Florida being the most, to your point. And we continue to be aware of review and conversations between CMS and those states specifically even over the last few weeks, which is encouraging. So the review activity seems to be continuing.

I am a little encouraged over the last 3 to 5 months that certain programs have gotten approved. So it's not as if all approval activity has ceased. I can't sit here today, though, and predict when or if those 5 programs will get approved. So we're watching it carefully. We're advocating, as you can imagine. But we're all going to just have to wait and see the status of that.

On [ Atlas ], really nothing new to report. The new commissioner has started. They're reviewing the program, and we're waiting to see if that the new commissioner will take that program off pause and reinstate it or not. But just to be clear, when I think about our guidance for '26, it assumed that [ Atlas ] goes away. So just in that 250 to 450 is the assumption that [ Atlas ] does not get restarted.

We don't get to see the back and forth with CMS on these programs. They just post them to the website for the most part. Is there -- there's sort of a general rule of thumb because we do get this question about, is there a date or sort of a soft date where if these programs are not approved by X, that may be sort of a leading indicator that these programs may not be approved.

I don't really think so. I mean I think what we'll see is they're going through an active review process. They're being very deliberate. There's no question about that. And some of this makes sense within the context of the One Big Beautiful Bill. I mean, if you think about the grandfathering rules that were part of that bill, frankly, it was one of the components of that bill that was favorable to hospitals, right? If you just think about the give and the take in that bill between the Medicaid reform, the Affordable Care Act reforms, one positive for hospitals was the states could still pursue grandfathering.

And so CMS is clearly still working through the rules of how grandfathering is going to work. They issued a couple of guidance letters last year. I think there will be rule-making to this end. So I think what this reflects is them being deliberate and trying to get the structures set appropriately for grandfathered applications. And I certainly have not given up hope. And I don't have a date on a counter that says if they don't get approved by here, then they're gone. I think what we've got to continue to watch is that there's an active review process and that they're working through their administrative processes in a normal fashion. And so that's what we're watching.

Yes. So capital outlays, I think you increased the CapEx spending a little bit, $5 billion, $5.5 billion, $10 billion share repo program. Just thinking about sort of it's a positive, but where the share price is at. Does that change your approach to share buybacks versus as you talked about sort of heavily investing in your markets on the capital spending side, especially given your ability and opportunity to take market share from maybe some of your competitors?

Well, we try to be pretty disciplined allocators of capital. I mean it's one of the hallmarks of HCA over time. We look every year and frankly, in our year as well, but we look every year and we try to think about what's the right balance and allocation of capital. As I think about '26 and the guidance we just updated, first, it was clear to us that we continue to see good opportunities in the hospitals, in our markets to fund CapEx for organic growth. And so that's what led us to increase our capital spending from, call it, just short of $5 billion in '25 to $5.25 billion to $5.5 billion next year. And that's good. That's positive signaling that the opportunities, the pipeline of projects that we continue to see that come up from the field warrant incremental increases in our investments there.

We did a reasonable update on our dividend. And then we've got M&A opportunities, and I know we'll likely talk about that here. But -- and then the balance is share repurchase. And so I think share repurchase has been a good component of our capital allocation strategy over the last many years to return shareholder value. We look at it carefully. We do intrinsic stock analysis and all the things that you would expect a company like us to do. But we're comfortable that for '26 that this idea of a $10 billion authorization with the intent to complete a majority of that is the right allocation for us this year.

When I think about the future of the company, we continue to be encouraged. We encourage to see the opportunities in our markets for network development. I continue to be excited about our opportunities with AI and automation to drive long-term value. And this building of enterprise capabilities, I think, will continue to help us leverage the scale and scope of the company into the future. And so I'm a believer. And so you see that reference in our kind of balanced and disciplined approach to capital allocation.

Skip ahead then to M&A. So you guys -- I mean, if you look back over the past few decades, you've not been afraid to take some bigger swings. I think Mission Health was probably the most recent example of that from a larger asset. You tried for a few hospitals in Utah didn't work out. So I guess the question becomes it's been almost a decade now since you've done a very sort of larger deal like Mission. What's the opportunity going forward, thinking political, regulatory, but also just sort of opportunity of assets?

Yes. I mean if you go back and look at the, call it, the last decade, our average M&A capital allocation has been, call it, $600 million a year in that zone. So it's meaningful. I will tell you that in our past, what you've seen is a lot more activity on the outpatient side, in market. And so -- and the good news with outpatient is they're a little more economic, right? In other words, you can buy a number of outpatient assets for the same spend as one hospital. And so you pick up this ability to really invest in your networks and expand your networks by doing M&A a little bit more on the outpatient side.

We do inpatient acquisitions when they're available. And last year is a good example of that. I mean we acquired 2 acute care hospitals in 2025, one in Florida and one in New Hampshire. And so when we find especially end market opportunities that we can execute, we tend to be aggressive at that and try to make sure that we take advantage of those opportunities.

I think over time, you will continue to see us be interested in M&A to build out our networks, both on the inpatient and the outpatient side. I do think that for on the inpatient side, it has to be for sale, which 85% of the hospitals in America are not-for-profit or academic. And so those come for sale when they come for sale, and we're going to have to watch that over time. But M&A is an important part of our balance of capital allocation. And I think what you find with HCA is we tend to be disciplined. And so we try to find acquisitions that fit our model, that fit our market strategy and that we think we can integrate into our system in an effective way. And so within that semblance of balance and disciplined approaches, we're interested in M&A.

In our January hospital survey, we had a fairly large health system respond and say the denials activity from a year-over-year perspective was pretty rough for them, to be honest. Where are you guys seeing sort of that activity from the payer side just in terms of denials or medical necessity or whatnot? Just anything from the payer side versus what you're seeing maybe historically?

Yes. I mean the ramp-up in -- and I'll just -- let's just stick with denials, but the ramp-up of denials over the last several years have increased, and they increased again in '25 from an activity level. So I've not seen the payers change their approach towards medical management. And I agree. I do continue to see that.

What's different with HCA is our response. Over the last several years, we've been investing heavily to be able to manage and mitigate denials in a more effective way. And so that's resources, that's systems, a large component of our AI and automation strategy that within rev cycle are really pointed towards denial mitigation. And so when I look at '25, and I'll use '25 is our most recent period, we were able to mitigate the year-over-year impact of denials on through our response. So even though the activity levels have increased a bit, I think our response has allowed us to manage those. Now they're still too high. In other words, the denial write-offs are way still high, and there's a lot of effort that we're putting in to try to clear that cash. That leads me to this important part about partnerships.

I mean one of the things that you've heard us talking about is this idea of building strategic partnerships with our payers. And within that, this idea of digital integration and reducing administrative costs for them and for us. And I'm actually hopeful when I look at the status of some of our engagements with several of our really key payers that there's an opportunity here to help the industry, both parties, us and them, do a better job of data, of digital and reducing administrative costs. And part of that, I think, has an opportunity to get to this notion of friction or disputes. So that's my sense of things.

From the commercial payer side, obviously, during COVID, salaries, wages went up, not keeping pace with that. Post-COVID, I think you were successful and some of your competitors and getting maybe a little bit more of a yield on the commercial side. We're sort of coming into that sort of every 3-year now renegotiation period. So the question is, are you able to or do you foresee the ability to sort of keep that sort of, maybe call it, 100 basis points extra yield versus maybe historically where you've gotten on the commercial payer side?

Well, for context, let me give you an update of where we are. We're at, call it, 90% plus contracted for '26, as you can imagine. And we're about 1/3 contracted for 2027. I'm pleased with our access to lives. Our in-network status continues to improve across our products, categories. And generally speaking, for the contracts we've completed, we're still in that mid-single digits range that our targets have been.

I do think as we've headed into '26, we are operating in a bit more of a stable operating environment from labor standpoint, which was really challenged during the pandemic years, as you know. I am continuing to see inflation in the physician cost side, and we've talked about that. I mean I think we're better today than we were in '24 and '25. But as we head into '26, I mean, we're still expecting to see high single digits cost inflation here.

And then broadly, when I think about things like tariffs and the potential impact on supply costs, we're monitoring that carefully. And so I don't know what inflation broadly will look like over the next 3 to 5 years yet, and we're still trying to get beat on that. In the meantime, we continue to work with our payers to try to land our contracts appropriately. And I think the fact that we're generally moving through our contract renewal cycles in a rational way is a good sign.

A couple of minutes left. You touched on AI. It's always the big buzzword now. Maybe give us a sense where you think those opportunities? I know you've sort of sized it for this year. But is this like a 2- to 4-year opportunity? Is this like a 2- to 10-year opportunity? And maybe how you think that paces as we move through the years?

Yes, it's a great question. It's not short term. This is a long-term capability build for the company. We have -- we've been building our team. So we have an organization in the company called digital transformation and innovation that we've been building up over the last couple of years, going on 3 years now, data scientists, engineers, AI, process people and the like. And we've been really organized about building long-term inventories of use cases. We're trying to find practical real problems that if we solve will help really change our business. It will help us administratively with things like rev cycle and supply chain and IT and human resources. It will help us operationally, manage our hospitals and then it will help us clinically. It's more like 5 to 7 to 10 in terms of the full weight of getting all of those digital products designed, piloted, built and scaled across the company.

A little bit quicker in administrative. The administrative for us is shared service platforms with centralized management and more standardized data. So I think over the next 2 to 4 years, you're going to see a lot of activity in the administrative work. Operational is a little bit longer because of change management. We've learned the hard way that implementing digital products across 100,000 nurses and 50,000 doctors is harder than designing them. And so it takes longer. And you have to implement and then iterate, implement then iterate. So 3 to 5 to 6 on the operational side, and then clinical takes the longest because of the risk. And so we're going to be very diligent to ensure that our clinical use cases are managed appropriately, and it will take a bit longer to see those come all the way through to fruition.

Great. I think that's all the time we have. We'll leave it there. Thanks very much, and thanks, everybody. Enjoy day 2 of the conference.

Thanks.

Ladies and gentlemen, welcome to HCA Healthcare Fourth Quarter 2025 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. Frank Morgan. Please go ahead, sir.

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take questions.

Before I turn the call over to Sam, let me remind everyone that should today's call can take any forward-looking statements that 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 now turn the call over to Sam.

Good morning, and thank you for joining the call. We closed out the year with strong results that were mostly consistent with the previous quarters in 2025. We delivered our 19th straight quarter of volume growth, reflecting continued solid demand across our markets. The benefit of network investments and improved results in capacity management, quality patient outcomes and stakeholder engagement.

Revenue increased 6.7% compared to the prior year quarter. and with disciplined expense management, margins improved both sequentially and year-over-year. For the quarter, net income attributable to HCA Healthcare increased almost 31%. Diluted earnings per share as adjusted increased 29%, and adjusted EBITDA increased around 11% versus the prior year period.

Reflecting on 2025, this was another successful year for HCA Healthcare. Throughout the year, our teams executed at a high level, we gained ground with our strategic agenda, and we stayed focused on the fundamentals. Additionally, we invested significantly in network expansion, workforce development and clinical capabilities. These investments helped deliver positive outcomes across the HCA Healthcare system. As a result, our networks had approximately 47 million patient encounters during the year, representing a record level of patient care activity for the company. I want to thank my colleagues for their outstanding work, their dedication to our patients and their unyielding commitment to our mission.

Now let me transition to the policy environment. We continue to monitor several policy matters, including the expired enhanced premium tax credits, the ongoing developments related to Medicaid supplemental payment programs and the rural health transformation program. These matters continue to evolve. As we learn more, we will provide updates at the appropriate time. That said, we believe our core business remains strong with forecasted volumes in our long-term 2% to 3% growth range.

This past year, we strengthened the company's resiliency program in 3 important areas, and this gives us confidence that we can navigate effectively through these policy dynamics. The first was organizational. In this area, we added new capabilities that were aligned around the company's operating imperatives Next, we strengthened the management systems to enhance execution. And lastly, we ramped up a leadership development.

The second area relates to competitive positioning. We increased hospital capacity clinical service offerings and outpatient facilities across our networks to create greater patient access and address the needs of our communities.

The third was financial. Here, we advanced our cost management agenda and improved our balance sheet with strong cash flow and disciplined capital allocation. These results allowed us to invest significantly in our networks our people and our AI tech agenda.

In closing, we are well positioned to move forward as we begin 2026. We continue to believe the HCA way of combining high-quality local provider networks with the distinct capabilities, talent and scale of a national health care system creates sustained value for our stakeholders and allows us to deliver more effectively on our mission.

With that, I will turn over the call to Mike for more details on the quarter and our outlook for 2026.

Thank you, Sam, and good morning, everyone. We were pleased with the results of the fourth quarter which reflected strong operational performance combined with disc -- capital allocation. Let me note some same-facility volume comparisons for the fourth quarter of 2025 versus fourth quarter of 2024. Admissions increased 2.4% and equivalent admissions increased 2.5%, in line with our expectations of 2% to 3% growth. Inpatient surgeries were flat and outpatient surgical volume is down slightly. ER visits increased 50 basis points. Overall respiratory volumes had no material impact on year-over-year volume.

Regarding payer mix for the quarter, same-facility total commercial equivalent admissions increased 1.1% over the prior year, with exchanges growing 2.5% and commercial excluding exchanges, increasing approximately 1%. Medicare increased 3.5% and Medicaid increased 2.2%. Same facility net revenue per equivalent admission increased 2.9% versus prior year quarter. The 80 basis point improvement in adjusted EBITDA margin in the quarter was driven primarily by solid revenue growth, good results in labor management and improvements in other operating expenses. Adjusted EBITDA grew approximately 11% compared to the prior year quarter, primarily due to strong operating performance and an approximate $150 million increase in our hurricane markets.

As we've stated in the past, Medicaid supplemental payment programs are complex, variable in timing and do not fully cover our cost to treat Medicaid patients. due to a retro payment from Virginia in the fourth quarter. The net impact of supplemental payments was approximately flat versus the prior year quarter.

Now let me discuss full year results for 2025. I which reflected good demand growth in our markets. On a same-facility basis, we posted growth in revenue of 6.6%, equivalent admissions of 2.4% and net revenue per equivalent admission of 4.1% versus prior year. Consolidated adjusted EBITDA increased 12.1% over prior year, and we delivered a 90 basis point improvement in adjusted EBITDA margin. The net benefit from supplemental payments increased by $420 million. Hurricane-impacted markets contributed approximately $125 million in adjusted EBITDA growth. Diluted earnings per share, as adjusted, increased 28.5%.

Moving to capital allocation. Capital expenditures totaled $1.5 billion in the quarter and $4.9 billion for the year. Additionally, we purchased $2.6 billion of our outstanding shares during the quarter and $10 billion in the year. We paid $162 million in dividends for the quarter and [ $160 million ] and $679 million for the year.

Cash flow from operations was $2.4 billion in the quarter and $12.6 million for the year. This represents a 20% increase in operating cash flow in 2025 and over full year 2024. Our debt to adjusted EBITDA leverage remained at the low end of our target range. Given our strong balance sheet, we are well positioned for the future. So with that, let me speak to our 2026 guidance. We expect revenues to range between $76.5 billion and $80 billion. We expect adjusted EBITDA to range between $15.55 billion and [ $16.4 billion ]. We expect net income attributable to HCA Healthcare to range between $6.5 billion and $7 billion. We expect diluted earnings per share to range between $29.10 and [ $31.15 ] in fees. Further, we continued to see opportunities to deploy capital and drive organic growth in our markets through investing in high acuity programs, increasing our network through new access points and building new inpatient capacity. As a result of these opportunities, we have increased our capital spending range from $5 billion to $5.5 billion.

Our 2026 guidance includes the following assess growth in equivalent admissions between 2% and 3%, an adverse impact on adjusted EBITDA between $600 million and $900 million related to the health insurance exchanges. This includes impact from administrative reforms enacted in 2025, the One Big Beautiful Bill Act and the expiration of the enhanced premium tax credits. We expect an offset to this exchange headwind of approximately $400 million through resiliency initiatives designed to generate efficiencies throughout the organization. We anticipate decline in supplemental payment programs net benefit between $250 million and $450 million. The expected decline in net benefit is driven primarily by Tennessee's program reverting back to 4 quarters of net benefit versus 6 quarters in 2025, a pause on one specific program in Texas and a onetime retro payment from Virginia. This guidance does not include any potential impact in 2026 from additional approvals of grandfathered applications. We do not anticipate any significant growth to adjusted EBITDA from our hurricane-impacted markets over prior year. We expect full year margins to be slightly above 20%, consistent with 2025 and cash flow from operations to range between $12 billion and $13 billion.

Lastly, we plan to continue investing in our technology and digital innovation strategies, which we expect will deliver long-term value and help position the company for the future. Considering these factors, our overall 2026 adjusted EBITDA guidance reflects strength and momentum in operations, increased investment in strategic initiatives consistent business fundamentals and a disciplined approach to capital allocation.

Given what we see today, including the demand in our markets, our resiliency program, and our digital transformation initiatives. We remain comfortable that we will perform within our long-term plan over time. As noted in our release this morning, our Board of Directors have authorized a new $10 billion share repurchase program. We currently anticipate completing a majority of the existing authorization in 2026, subject to market conditions and other factors. In addition, our board declared an increase in our quarterly dividend from $0.72 to $0.78 per share.

In conclusion, 2025 marked another year of solid operational performance for HCA and we believe that we are well positioned for continued progress and success in 2026. With that, I will turn the call over to Frank for questions.

[Operator Instructions].

[Operator Instructions]. Your first question comes from the line of A.J. Rice with UBS.

The detailed commentary on the guidance. I wondered maybe the focus is on the top line, of course, in your comments. Can you talk about the expense items supplies other operating expenses, professional fees, et cetera. What are you what are your underlying assumptions there that are embedded in the guidance? Is there margin improvement opportunities on any of those lines in '26?

When I look at the margin -- and I noted this in my comments, but the midpoint of our revenue and adjusted EBITDA guidance range suggest expectations for pretty stable margins in '26 versus '25. As we noted on our third quarter call, we continue to expect mostly stable trends in our operating costs, consistent with the last couple of years, I might note that we do see and expect continued physician cost pressures and believe that those could even be maybe in the high single digits growth in '26 versus '25. So those would be kind of some comments on the cost side of our guidance.

Okay. In the contract labor and just general labor that's steady year-to-year underlying assumptions?

It is. I mean the only thing I might mention is that contract labor as a percent of SWB, we came in at about 4.2% for the fourth quarter and that feels like kind of our run rate now as we come into 2026. But other than that, I mean, the resiliency plan is reflected in our guidance, as I noted in my comments, and largely, the resiliency plan is there to help us offset as much of the adverse impact of the exchange headwinds as possible. And you see that in our guidance as well. And I think it reflects really strong cost and operating leverage as we head into 2026.

Your next question comes from the line of Ann Hynes with Mizuho.

So it sounds like the net negative headwind from HCA subsidies is in the $200 million to $500 million range. Can you just go into more of the resiliency programs provide some more detail on what's making up that $400 million and obviously, the confidence in executing throughout the year just from a timing perspective and when you expect to lose potential volume?

Sure. I'll start with resiliency and I'll pick up the second part and the end of your question related to the exchanges. But as we've talked about over the last really year plus, we have been implementing steps to try to mitigate the impact of this health insurance exchange headwind. We've been working to both enhance and accelerate our financial resiliency program. I would make a couple of contextual notes related to our program. The first is that our program has 4 key areas of focus: revenue integrity, variable and fixed cost efficiencies and capacity management. We are leveraging 3 primary capabilities in driving our financial resiliency program.

First, internal and external benchmarking and advanced analytics Second, digital transformation with AI and automation; and third, expanding and leveraging our shared service platforms. Our 2026 plan includes significant efforts at corporate, in our large shared service platforms and in our hospital operations. We have planned elements to drive better capacity management, including managing throughput and length of stay, our inpatient settings and our emergency earnings in our operating rooms.

On the cost side, we have robust plans to drive labor efficiency, supply cost actions and operating costs covering both variable and fixed costs. We're proud of our teams, and I think they have done a wonderful job embracing resiliency as a strategic imperative. And we have confidence that we'll be able to execute on this $400 million of incremental cost savings in '26 versus 25.

A little bit more on your question related to PIX. And let me just say this, our estimated range, as I noted in my comments, of $600 million to $900 million adverse impact to EBITDA includes the potential impacts from administrative reforms that were passed as part of the One Big Beautiful Bill Act and enacted through rulemaking as well as expiration of the EPTCs. And so as a reminder, our health exchange volumes represent approximately 8% of admissions and 10% of revenue in 2025.

And the estimate impact centers around some key variables that are included in our calculations. First, how many people lose exchange coverage. And what form of coverage, if any, to those lives migrate to. And for those retaining coverage, is there a change in metal tier or utilization? As you can imagine, assumptions around the variables are informed through our own data and experience as well as incorporating external studies and analysis. These variables are difficult to predict and require significant judgments. Our model contemplates a 15% to 20% decline in our fixed volumes for 2026. We assume this volume will migrate to either employee-sponsored insurance or to uninsured.

Of the decline in our high volumes, we assume approximately 15% to 20% will move to employee sponsored coverage, which carries a benefit with the remaining migrating to uninsured, which includes a decline in utilization from those individuals no longer having to.

From a timing perspective, we are watching the enrollment figures carefully. As you know, they were released recently by CMS. But these recently released enrollment data include a couple of key areas that will dictate the timing of the impact. And the first one is whether people can pay and sustain their premiums, given the significant increase they are facing from EPTC expiration. The second one is if there will be a metal tier shift from Silver Bronze, and the impact on utilization and collectibility of our patient new balances. So we're watching these trends carefully as we go through the opening days, weeks and months. And we will keep you informed as they play out during 2026 on our quarterly calls.

Your next question comes from the line of Pito Chickering with Deutsche Bank.

2026 guidance question here, just are there any one-timers we should be adjusting out for 2025? But if you take the baseline of '25, to pull out, I think, $450 million to $900 million from HCA supplemental payments offset by the resiliency programs. I just want to make sort of calculating the core growth of what HCA is doing at sort of 3% to 12%, the 7% at the midpoint versus just your long-term guidance of 4% to 6%, so you're still guiding core above your long-term guidance?

Let me say, I think from a range perspective, I would just reiterate 2 or 3 of the moving parts for clarity. We've noted the range of potential adverse impact from the exchanges of $600 million to $900 million. We've noted that we believe that the supplemental payments could have a $250 million to $450 million decline in net benefit. And that, that decline in net benefit does not include any potential new approvals of grandfathered applications by CMS. And lastly, resiliency, we are confident that we'll be able to execute on our plans for 2026, given the $400 million target. So I think in taking those kind of swing factors into account -- PO, we do agree, and we're pleased with the strength and the performance of the company and the momentum of the company as we go into 2026.

And then you can size out the potential DFL approvals come through, how much that could add to '26 EBITDA?

Yes, we're not sizing the due approvals until we get a sense of the actual approval from CMS and what changes, if any, they make through their review and approval processes. So not quite sizing that yet.

Your next question comes from the line of Justin Lake with Wolfe Research.

This is Anna on for Justin. Just wanted to ask, the $400 million of resiliency benefit in '26 is impressive. Can you talk about how much of that comes from ramping AI initiatives and how we should think about further resiliency opportunities beyond 2026 as some of the Medicaid cuts begin in the out years?

Yes. And we've mentioned this before. But I think the way to think about a resiliency program is that it's a multiyear program. The $400 million came from our assessment of implementation status of the long list of opportunities that we're working on. And based on that assessment of our implementation status, we gave us confidence to include $400 million of savings in 26 versus '25 in our overall guidance.

As we move forward, we continue to work on our resiliency plan. It's a program. And I mentioned on the previous question, components that we're working on, but we're really pleased with the depth and breadth of our resiliency program and believe that it gives us good support here as we move through the back half of the decade.

Your next question comes from the line of Whit Mayo with Leerink Partners.

You guys have been working on some digital efforts with payers recently, I think at least some of the large national ones around data and disputes. Can you maybe talk about that and how it's manifesting into revenue cycle, yield collections or pricing or maybe just reduce payer friction?

Sure. We thank you. We have -- over the last year, have launched a series of engagements with many of our major payers. And these engagements kind of focus on digital integration. So think about electronic data exchange Think about the kinds of activities that HCA and our payers can partner on to produce administrative simplification. And I think they also include a dispute resolution and trying to find better ways to resolve the speeds between the parties. We're pleased with these engagements. And I think it gives us strength in our overall relationships with payers.

And frankly, we continue to work with our payers to find ways to make things better for their members and our patients. and to digitize the whole workflow between ourselves and our payer partners. So I think overall, these engagements have produced good progress. the relationship between us and our payers. And so we're excited as we head into 2026 to continue to work with these -- with our payers on these initiatives.

And Mike, I speak to the working capital improvement this year, which are part and parcel to some of that, not entirely all of it, but I think that is reflected in the cash flow production that the company had and then our working capital improved this year. I mean, we had a nice reduction in net days in AR, especially in the fourth quarter. And that really reflects the benefits of sharing data and exchanging data from payers digitally and certainly is a part of what's driving those enhancements.

So I think the efforts here are clearly on the administrative simplification. I do think they have impacts in our revenue cycle, both in terms of getting claims paid more timely but also through potential mitigation of denials and disputes, which is beneficial for both us and our papers.

And Mike, let me add to just the whole resiliency agenda. This is not an episodic event for us. It just happens to be a maturation of what in my estimation is cultural within HCA, and that is being cost effective in finding ways to leverage scale, utilize best practices. Now we have tools, as Mike alluded to, that are in front of us as opportunities to create even more consistency, efficiencies and transparency in the company's overall cost. And that's why the program is lining up in a well-timed manner with some of the enhanced premium tax credit challenges.

But we see this program continuing to mature. And as we get more capable at using these tools, it's going to help us find even more opportunities. But this is not a onetime event. It's a cultural dynamic in our company around being cost effective, being high quality and finding ways to improve from a process standpoint and a leverage standpoint with our overall scale.

Your next question comes from the line of Brian Tanquilut with Jefferies.

Mike, as I think about the rural benefit from One Big Beautiful Bill, curious if you have any updated thoughts they finalized the rules there. And then just any call out in Q1 that we think about other than sort of the tough comp that we should be contemplating?

On the rural health transformation program under the One Beautiful Bill Act, all 50 states have been allocated their program funding. But these are largely state-driven programs, and most of the details have not yet been released. We do not yet have timing, the structure, the size of any state level wards or how much of the funding will be distributed with any state. So our approach, Brian, has been to really stay actively engaged with our state and federal partners regarding both the program design and then our response to programs signed to ensure that once the applications are open, that we will participate in a way of this meaning.

At this stage, we do view the Rural Health Transformation fund as a potential opportunity, but it's not something that we have reflected in our guidance given the remaining uncertainty. When I think about the quarter, we had a strong quarter. We noted that there's one part of that, that was a little different than we anticipated when we gave our third quarter update, and that state settlement payments. You may recall that on our third quarter update, we thought we would finish the full year at $300 million net benefit state supplement payment programs for the quarter up for the year because we were anticipating a year-over-year decline in fourth quarter given some known headwinds from the prior year.

We ended up getting a retro payment from Virginia in the fourth quarter which kind of pushed us flat in the quarter and led us up to a $420 million net benefit for the full year. So that's the only thing I can think of, Brian, that would be a little different than we anticipated when we gave our update for guidance in our third quarter call. I mean volumes came in largely where we anticipated, we -- our rates were stable, a stable operating environment with rates. And our expense management, I felt was really good in the quarter. So overall, we deem our fourth quarter performance as being strong.

Mike, let me add to the rural discussion, just 1 minute here. Roughly 15% of our hospitals, we believe, are rural hospitals of some sort. And so that's a large footprint that we have that's complementary to the networks across the company. And so we have a number of assets in rural communities. Secondly, we have a number of programs health system from 1 community to the other provides services in rural communities, whether it's telemedicine, transport system, satellite clinic with our physicians, urgent care whatever. And so that's another vehicle.

The third piece for us is workforce. Our graduate medical education programs, even our nursing rotations with our Gale and College nursing programs, create opportunities for us to, we believe, participate in the programs. But as Mike said, we're having to work through roughly 20 different programs in our company to understand how those funds are going to be applied. But we do think we have elements of the company that are in rural America in a way that deserves funding through these programs.

Your next question comes from the line of Ben Hendrix with RBC Capital Markets.

I was wondering if you could provide some thoughts on the potential for a transition to a health savings account construct for enhanced subsidies. Assuming those funds go directly to customer HCAs, is there any initial thoughts you have on how it would impact your current assessment of the EPC expiry headwinds? And then how should we think about the impact on uncompensated care patients have access to the funds but may not be purchasing insurance.

So I think as you think about President Trump's health care plan announcement last week, I think the plan, as we understand it, was really aimed at approving a forbid. The themes seem to be, including insurance plan, account -- pharmaceutical prices increasing price transparency. And to your point, potentially changing the way that the set of exchanges with tax credits, maybe a little bit more related to cash coming into health care savings accounts. It's a little early to get a sense for what aspects of that plan will come to fruition. We're monitoring, as you can imagine, closely, is Congress pick those up and decide how they will react. So at this point, it's a little early to try to size potential impacts related to those kinds of potential changes. We're just going to see how they flow through Congress and see what comes. But obviously, we're monitoring it just like you are. And we'll update we know more.

Your next question comes from the line of Matthew Gillmor with KeyBanc.

I want to follow up on the exchange discussion for '26. Can you give us a sense for how the exchange reforms and subsidy expirations will impact the volume outlook. I'm curious if there's a drag that's being absorbed within the 2% to 3% volume outlook from the exchange expiration. And can you also give us a sense for how you're thinking about the decline in utilization from folks that moved to uninsured within your outlook?

Sure. So if you just think about the modeling, and again, I think it's important to always start the context this model and these judgments are significant, and they're early. And so part of our work as we go through the next days, weeks and months will be to test these assumptions against our actual experience. And so we're going to do more, Matthew, at the end of the first quarter in the second quarter, and we will keep you updated as we learn more.

But yes, I do think that the overall volume of the company, although it's within that range of 2% to 3%, and has an impact here on exchanges. And if you think about the walk through the math, and so I'll just go back through it because I think it's instructive, we contemplate a 15% to 20% decline in our HIX volumes in 2026, and that this volume will migrate to either employee-sponsored insurance or to uninsured. All the decline in our volume, we assume approximately 15% to 20% of those people will end up with employee-sponsored insurance coverage, which does carry a benefit. But the remaining will go to an insured.

And for the ones that go to uninsured, we do anticipate a decline in utilization from those individuals no longer having coverage. And we believe that, that decline is somewhere in the 30% range compared to their utilization of health care services when they had a health care insurance through the exchanges. The only other thing I might mention with the exchange population is we find that they tend to utilize the emergency room in a way that's heavier than our traditional managed care or commercial population. And so clearly, that's the folks that become uninsured even with this slight decline of utilization, that population as well almost entirely uses, the emergency -- so those will be some additional comments on the impact of volume.

Your next question comes from the line of Andrew Mok with Barclays.

Outpatient surgeries declined year-over-year on a negative comp and moderated from the previous quarter. Can you elaborate on what you saw there? And if there are any payer categories you would call out driving some of that volume pressure?

Andrew, absolutely. If I pull up Atlas, just outpatient surgery, let me just talk about outpatient in general first and then we'll take surgery. But our overall, on the outpatient side, we were pleased with our outpatient revenue growth, which actually grew at a rate higher than our inpatient revenue growth. As a reminder, we kind of characterize our outpatient revenue into 4 categories. emergency services, outpatient surgery, which includes both hospital-based and ASCs.

Our ambulatory platforms, which include physician clinics and urgent care clinics, and other hospital-based outpatient services, including cardiology, diagnostics and live. All 4 categories experienced solid revenue growth over prior year in the quarter.

A couple of notes on outpatient surgery specifically. Our same-facility cases were down about 50 basis points in fourth quarter over prior year, with hospitals being about flat and ASC is down about 1.5%. Payer mix though continued to be solid with declines to prior year primarily driven by Medicaid. In addition to the payer mix environment, we saw a decline in lowering intensity cases like in tea. So as a result, we had good growth in net revenue and earnings in our outpatient surgery business overall, inclusive about the hospitals and the ambulatory surgery center platform.

And Mike, let me just add to just the whole outpatient discussion. We continue to invest significantly in outpatient facility development just this past year. We added roughly 100 business units to our outpatient footprint across the company. And we find ourselves heading into 2026 and in 2027 with significant capital in the pipeline that's geared toward yes, some inpatient capacity and inpatient capabilities, but also quite a bit of outpatient development.

More overt, I would suggest that we have a better pipeline for acquisition opportunities inside of our outpatient footprint than we've seen in a few years. Again, allowing us to complement the existing networks that we have. And so when we look at overall revenue production of the company, I think, Mike, in the fourth quarter, our outpatient revenue as a percent of total was actually up on a year-over-year basis. Some of that is due to the components that Mike laid out. But it's also due to the fact that we're adding units at a greater pace than we are, obviously, our inpatient hospitals.

And so the combination of that, we think, is important to our overall network resiliency. And by that, we mean creating an environment patients have easier access into the HCA healthcare system, and our payers actually have price points for their members, such that they can get into the system with urgent care or physician clinic or an ambulatory surgery center in a manner that is most productive them as a patient, but also for their insurance company.

So we're pretty excited about the overall construct that's evolving for our company. I think today, we have about 2,700 outpatient facilities or so that continues to grow, and we see that pushing toward our targets of 18 to 20 outpatient facilities per hospital as we finish out this decade. And that, again, will come through capital development in greenfield projects, but also acquisitions that make sense for us strategically.

Your next question comes from the line of Sarah James with Cantor Fitzgerald.

It's Gaby on for Sarah. I just wanted to double click on the payer mix. And if you can share any color on how it played out compared to your internal expectations, specifically in Medicaid inflecting positively for the first time in 2025? And if that's something you expect to present.

Yes, good question. So when I think about fourth quarter volume and the composition, and I mentioned this in all, I think on the exchange side, we had a 2.5% growth. We were actually down a little mid sequentially from third quarter to fourth quarter. I think that really reflects a couple of things. One, and this also impacted Medicaid is just the timing of the Medicaid redetermination process in the prior year. So we think we have fully sunseted that time line in prior year. And so you saw less exchange growth, and you also saw a bit more Medicaid volume in Medicaid of 2.2% growth over prior year. Seems to be now back to kind of a normal growth rate more consistent with our overall volume growth rate for Medicare. And the health care exchanges clearly, we did not see a pull forward of demand as people were anticipating premium increases. But the 2.5% growth we do believe reflects that timing of the Medicaid redetermination process in prior year. Otherwise, I think, we were generally pleased with our payer mix in the quarter and our overall volume growth to be Medicare up 3.5% and total equivalent admissions up 2.5%, I think it really reflects a solid demand for the company as we finish the year.

Your next question comes from the line of Ryan Langston with TD Cowen.

I guess with the balance sheet in a pretty good place and maybe fair to expect smaller hospitals and health systems seeing more detrimental impact from subsidy exploration and impact of soon [ 1BBB ] I guess now the subsidies are expired, can you give us a sense on your M&A opportunities if that pipeline is bigger, smaller size of the assets? And then maybe kind of touch on capital budget priorities for 2026.

So as I just mentioned, this is Sam. We have seen some acceleration in the outpatient space in our pipeline through acquisitions is a little greater than it's been in past years. and we continue to execute on those appropriately assuming we can get to a reasonable deal and we've been able to accomplish that in certain circumstances. So from that standpoint, that's been what we've seen mostly in the market is in-market type transactions that are complementary to the network and again, create a better patient offering for us overall.

With respect to hospitals and tax-exempt hospitals, specifically, we just haven't seen it yet that there is a significant opportunity for the company that makes sense from a financial standpoint. We continue to be well positioned, as you just mentioned, with our balance sheet being in a great position the capabilities of the company as a scaled player allows us to assimilate individual hospitals or hospital systems synergistically. But we haven't seen it. And so we obviously are open to those type of transactions if and when they present themselves. We're fortunate, as we've mentioned in the past that we do have great markets within HCA's portfolio overall.

And the opportunities to invest in those markets organically is compelling. And we've been able to do that again in our outpatient space but also with our hospitals. Our hospitals are running 73%, 74% occupancy. We have many strategic positioned hospitals that need capital. I think our capital is at an all-time high for approved projects that will come online in '26, '27, maybe early '28. It's almost $7 billion of capital that's in the pipeline. Mike alluded to the fact that we're lifting our capital spending because of those circumstances to somewhere between $5 billion and $5.5 billion, and we will continue to evaluate that. So we're finding ways to invest productively as well as use our assets productively with acquisitions where appropriate, investing in our networks and then looking for out in-market opportunities if, in fact, they do present themselves in an appropriate way.

Your next question comes from the line of Scott Fidel with Goldman Sachs.

Curious if you can talk a bit about your expectations for growth in terms of specialties and procedures and 2026. Maybe talk about some of the areas where you're expecting outsized procedure growth around some of the categories that we've certainly seen the company investing in and then also just underlying growth due to different trends that we're seeing in the market.

This is Sam. We said this in the past, and we have a geography that's diversified in the sense that no one division in HCA generates more than 10% of the profits of the company. We also have similar diversification, if you will. And services in that no specific service line generates any more than 15% of the revenue of the company.

So given that, we haven't seen anything that's disproportionate vis-a-vis one other service line. I will tell you that we've seen reasonable demand for cardiac services, some of that's technology-driven in electrophysiology. We continue to believe that, that pattern will persist into 2026. Obviously, within our emergency room. We continue to believe that our emergency room services are a very important component to community health and at the same time to our networks. And so we're investing in our emergency rooms, both from a patient care standpoint. An operational throughput standpoint as well as the supply standpoint to make sure we have sufficient resources in that particular area. And then within surgeries, I mean we do have specific efforts afoot, but they're more generic, if you will. They're not necessarily specialty oriented. I will tell you that our case mix continues to grow. And that growth is driven, we believe, by the acuity of the patients in many instances, in our medical space. So we see a lot of patients who have intense medical needs, creating more acute care requirements, whether it's intensive care or deeper Med-Surg capabilities, and that's part of what is going on in the communities that we serve as well. So that's a bit of an overview. I don't have any other specific for 2026 around different categories of growth that we expect, but we can try to get that to you if that's something that would be helpful.

Your next question comes from the line of Raj Kumar with Stephens.

Maybe just in line the kind of recent winter storm, maybe any operational disruptions to call out? And maybe kind of any considerations for the 1Q relative to annual guidance that we should be kind of thinking about related to any potential impacts there?

Well, it looks like are getting out here in Nashville right now. So to say that we're aware of what the impacts are going to be at this point, we're not. I mean we've had snow storms before we had a massive storm in Texas a few years ago, and we were able to navigate through that. My sense is as we close out January, we'll have some sense of the impact of the storm here in Nashville as well as a few other markets for the company. But I don't think it's a in most other markets as we maybe are experiencing here. Having said that, we have plenty of opportunity, I think, to recover some of the challenges that are typical for these type of storms.

Your next question comes from the line of Steve Baxter with Wells Fargo.

Could you expand a little bit on the pause Texas Medicaid supplemental payment that was mentioned during the guidance color? I guess what exactly is happening there? And what needs to happen for that payment to come back online in 2026? And how much, I guess, of the year-over-year impact is that driving?

So the POS program is called Atlas, stands for aligning technology by linking -- intrasystem. There was a commissioner that issued a termination notice on that program on their way out as they were leaving office. The new executive commissioner that has -- is now in place has agreed to review that program effectively putting it on pause versus terminating. We don't know yet the time line for this review but we are encouraged that the department is willing to review the program, consider a potential reinstatement.

From a sizing standpoint, when I think about the overall guidance for '26, and we've highlighted a $250 million to $450 million decline in net -- from state central payments. This Texas pause is about 1/3 of that decline. The other 2 that we noted that are the other 2/3 of that decline, one would be the retro payment from Virginia that we received in fourth quarter of 2025. And then second is the Tennessee program we had 6 quarters of benefit in '25 and only 4 quarters of benefit in '26. So that's the -- each of those 3 items are about 1/3 of that decline of $250 million to $450 billion.

Your next question comes from the line of Josh Raskin with Nephron Research.

I know it came up a little bit, but can you speak to your technology agenda and where you think the greatest opportunities are for HCA? And specifically interested in areas where you think AI can help already looking at both the administrative costs but also as well as the revenue enhancement opportunities.

So we are investing, as Mike said, heavily in our tech agenda. And it's got multiple components to it. We're investing in our electronic health record transition from one system to another. We're accelerating into that platform. That's a very important foundational piece for our company and that we're going to be able to standardize data sets across all of our hospitals.

Heretofore, our hospitals had a variable data set that created some challenges for us where we were using the big data and big data for us, we believe, is the next scalable asset inside of HCA to produce better performance broadly. So we've organized ourselves into 3 domains. We are extremely energized by the possibilities here in each of the domains.

The first domain is administrative, and you alluded to that, that is an area that's focused on revenue cycle, human resources, IT, supply chain in many instances and a few other areas that we think we can accelerate into because we're more consolidated in our operations. And so we're implementing as we speak in our revenue cycle and supply chain and other areas to move through some transitions into artificial intelligence, supporting better functioning, more efficiencies better interaction with payers and vendors and so forth. And we should start to see some value, and that's part of what Mike alluded to again in our resiliency agenda in 2026.

The second domain for us is what we're calling operational and that's where we're delegating operational responsibilities to each of our hospitals and facilities. Here again, we have areas of focus that we think are going to create incremental value for the company and allow us to be better at throughput, asset productivity scheduling and staffing our hospitals, scheduling and running our ORs and so forth. And so again, a lot of good ideas and a lot of tools we think AI can bring to the operations of our hospital. Allowing us to be a little bit more standardized, allowing us to be a little bit more consistent in performance and then giving our management teams greater tools to run their business even better than they do today and they run it incredibly well currently.

The third area is what we call the Holy Grail. And the Holy Grail for us is really centered around clinical and what we can do to support our doctors with insights that come from the patterns that we know exist in the services that we offer because of our volume. We believe with HCA's proprietary database that we have a wonderful opportunity to use those patterns to help our physicians in the moment, make better decisions more informed decisions potentially for their patients in a way that will improve care.

The second thing on the clinical side is nursing. The opportunity to support our nurses tools that make it easier for them to do shift change, to have a safety net underneath their day-to-day activities, so they can make the patient environment safer and more efficient is in front of us. And again, we have some solutions that we're implementing this year. our leadership challenge and our leadership responsibility is to help our facilities manage this change, get to the other side of it, so that we can create value for our patients, value for our facilities and ultimately, value for the organization. We are all in on the possibilities with artificial intelligence, merging with what I call the human intelligence that exists within our facilities. And if we can put that together in an appropriate way, and we think we can -- we see a lot of value potential across quality, efficiency and just management effectiveness.

Your next question comes from the line of Jason Cassorla with Guggenheim.

Maybe asking the payer mix questions in a little bit of a different way. I know you've talked with the exchange enrollment kind of transitioning into uninsured. But can you give us a sense in terms of what 2026 guidance assumes for overall bad debt and uncompensated care and how that compares to 2025 levels? And perhaps if there's offsets at the external level in terms of state uncompensated care pools or programs that you could tap into as offsets there?

Well, I would say that our assumptions in our guidance certainly includes this movement for the people who lose the exchange coverage, the ones who don't go to employee sponsored insurance will likely become -- and for the if you just think about kind of that component when someone enters our hospitals and their uninsured, we do anticipate it's inherent in our guidance that we'll see an increase in the amount of people who are entering our facilities with no insurance at '26 versus '25. And that is part of the math that I walked through earlier. As you know, when someone with that insurance comes into the hospital, we largely -- those patients are reserved right away, right? So that growth kind of immediately transitions in uncompensated care.

The other component that we're studying carefully is the amount that patients or when they do have insurance. And so within the exchanges, I think the potential impact here is when someone goes from silver to bronze. And if we see a significant movement in metal tiers from silver, I do think there is a potential for there to be a bit more due from patients that's our past experience is that the folks on the exchanges are a bit more than people with traditional managed care.

And then when we think about collectability, the collectibility of patient balances within the metal tiers on the exchanges, the bronze enrollees have a lower collection rate than the silver. And our modeling and based on our past experience with silver and bronze, I would say that the -- our belief is that the impact to patient balance collections appear to be relatively immaterial. And so overall, I think the bigger impact will be just the growth in the insured first is the uncollectibility of patient balances do as people go from silver. Again, lot of modeling assumptions and that a lot of judgments in that, that we're going to have to test as we go through the first weeks, days and months of 2026. So that's our current thinking.

Toby, let's take one more question for almost an hour.

Okay. Your last question will come from Kevin Fischbeck with Bank of America.

Maybe just one prediction on that last point then, so what is the collection rate on like a bronze versus silver just so that we can think about it. But then I guess, more importantly, you guys have been over 20% margin last year this year, even though you've got these headwinds coming in. We kind of think about 20% margin is kind of the high end for you guys, you're out competing that even with pressure. So how do you think about what kind of margin HCA can point to you generally bullish about cost savings going forward. Should we be thinking about something north of 20% as a sustainable margin for HCA?

Well, let's start with '26. I mean I think given the headwinds from the exchanges and -- payments, and the fact that we've been able to develop and implement a resiliency program that has allowed us to offset as much of that as we can we're really pleased with the guidance around margin, which we've been able to get pretty consistent with where we end in 2025. That obviously reflects a ton of hard work in our resiliency plan our ability to drive operating leverage through our volume growth and our overall cost management activities as a company. it's a little premature to talk about what could happen in the future other than to just point you back to my comments, Kevin, where we noted that given the demand in our marketplaces, our resiliency programs and the digital transformation that Sam just talked about that we are comfortable that we will be able to maintain our long-term plan over time. And so I think that's a good sense of the confidence we have in the company and our performance. So I think we'll end there.

Okay. Thank you, Koby, for your help today, and thanks, everyone, for joining us on the call. We hope you have a good earnings season. We are around this afternoon if we can answer -- questions. Thank you.

This concludes today's conference call. You may now disconnect.

All right. Welcome, everyone, to day 3 of the Stephens 2025 Annual Investment Conference live and in person in Nashville. I'm Raj Kumar, health care services analyst here at Stephens. We're closing out our conference with HCA Healthcare, who's the largest for-profit operator of acute care hospitals in the U.S. with 191 hospitals and an extensive network of 2,400 sites of cares across 20 states and the U.K. Overall, kind of framing HCA's presence, they saw 44 -- or they oversaw 44 million patient in [ encounters ] in 2024. And from the company, we have here presenting is Mike Marks, Executive Vice President and CFO. And in the audience, we have Frank Morgan, John Hackett, Jon Connor and Luke Elliott as well.

I want to thank the HCA team for joining us at the conference today. And I think if it's all right with you, we'll just jump right into Q&A.

That's it.

All right. We've been starting off kind of these conversations with essentially a year-end review and maybe just kind of talking about updated guidance. 2025 is set to deliver another year of revenue and earnings growth that's above the long-term guidance that was set at the 2023 Investor Day and clearly support from policy tailwinds, but also underlying operational initiatives that have kind of helped that around caseload optimization, LOS and service line optimization as well. So maybe diving deeper into kind of the operational aspects of the kind of performance and thinking about the ever-evolving needs of stakeholders in your communities, can you just walk us through some of the big changes that your health systems have incurred, at least when we think about kind of retrospect to pre-pandemic, where kind of the health care environment has broadly changed?

Sure.

Well, first, welcome to Nashville. It's always good to have you -- all of you folks here in our hometown. It's a little easier, too. So we're a 10-minute drive instead of having to fly. So this is great for us. So thank you. When I think about the work of the company, I always try to remember that our job is to take care of patients. And so when I think about kind of long-term guidance demand, that just reflects the fact that in our 43 markets here in America and in Central London, we see a continuing demand for health care services. And I think that reflects the strength of our markets. So we have markets that have above-average population growth that tend to have strong economies and produce pretty strong levels of employer-sponsored insurance. And then we approach those markets with this idea of network. We are a hospital-centric health system, but we surround our hospitals with a network of outpatient facilities to really meet patients where they are and provide a convenient and easy access when they need outpatient care and then a network that makes it easy for them to access acute care when they need acute care.

And so this idea of network development from our capital investment programs and for our acquisitions allows us to really do 2 things in terms of taking care of patients. One is it allows us to serve that demand growth because we're adding network facilities. We're adding beds every year. And so that's important. But by strengthening those networks, it makes us more competitive. And so it allows us to take market share. The combination of that in our long-term plan speaks to this idea, we believe in our markets that we get somewhere between the 2% to 3% volume growth, as a reflection of both the strength of the markets we're in and the strength of our networks and the competitiveness of our networks. And then we couple that with a lot of operating discipline. And so we operate at scale.

We have significant shared service platforms that allow us to be really operationally excellent. And so you see that in the operating leverage of the company. And we're pleased this year as you kind of think about where we are here at the end of the third quarter with our margin performance, our cost management performance. And you've seen us really be able to leverage that volume growth, cover our fixed cost and produce leverage.

So broadly, things are going well, and they're going well from a finance perspective, but more importantly, from an operations perspective. And if I look at our trends on things like quality and patient experience, employee and physician experience, broadly, the work of the company is performing really well right now as we sit here through the first 9 months of the year.

Great. Great. And just maybe just following up on that front. It's like what is the kind of embedded runway on some of these initiatives that you've previously called out that are underway to sustain that 2% to 3% from -- at least thinking about it from a same-store perspective because clearly, there's a development pipeline that's very intensive as well. But how should we think about what still remains from that -- from what's been disclosed? And has that been really realized in '24 and '25? Or is there still kind of some of that legroom that can extend beyond into 2026?

So I think -- the way I think about this is really in kind of 2 major buckets in terms of sustaining growth and where we are kind of using the baseball analogy, like what inning are we in. On a capital investment program standpoint, you've seen us deploy between $4 billion and $5 billion of capital for several years in a row now. We'll be right at $5 billion this year. And I'm really encouraged. I mean we continue to see significant opportunities coming up from the field to continue to invest and expand our hospitals and our networks. And so we have $6.7 billion of capital in flight and the pipeline of project requests that we continue to get from our hospital operating teams are really good.

So I think we have a good runway. We have markets that are growing, which allows us to continue to invest and strengthen those networks. So that's really good. The second thing I would add would be the work we've done on network development. And so if you go back in time, we had something like 10 outpatient facilities for every hospital. We're sitting here today at about 14 outpatient facilities for every hospital. Between now and call it, the end of the decade into the next decade, we will probably be at 2:1.

And so the reach of the company and adding things like urgent care centers and freestanding emergency rooms and surgery centers and physician clinics to continue to deal with the growth that we see in our marketplaces is good. And so I see that as being a continued driver of the volume growth or demand in our markets. It's a little bit of like what we said at Investor Day. I mean, there is a durability in HCA. And I think that's a representative of both the markets we operate in and how we operate and the strength of the company in driving that market share growth.

And speaking to the durability, I think it's kind of important since 2026 has unique dynamics that still are uncertain from a broader perspective, but you have resiliency initiatives that you have in place that you're going to speak more towards on the fourth quarter earnings call. But maybe just kind of from a qualitative perspective, what kind of some of the things that we could expect on those types of initiatives and maybe bucketing them in terms of what are revenue drivers and what are cost optimizers.

Sure.

We have 3 major buckets of resiliency. And the first one is really our organization. And so we continue to invest heavily in our leaders and do things like workforce development to really help strengthen our organization. So HCA has great management teams and continuing to invest in their development and the pipeline process of that's important. We continue to work hard on workforce development. So think about the Galen School of Nursing. Think about the GME residency programs for physicians coming out of medical school. Those investments that we've made and are going to continue to make in workforce development builds resiliency in our organization. The second area of resiliency for us is our networks, our operations. And we continue to make significant investments there. We've talked about the capital investments and things like the acquisitions that we do, a lot on the outpatient side. But we also work hard on just overall operational resiliency. And a great example of that would be asset utilization.

So we are several years in now into a length of stay management plan. That has allowed us to reduce length of stay and our performance this year has been really good, call it, 2% length of stay reduction. That is a way to add capacity and give you staffing capacity without spending a dollar of capital. And so we're still in kind of early to mid-innings using baseball again for our length of stay initiative, our case management initiative. We still see a lot of opportunity over the next few years to continue to use our assets in an optimal way. And that applies to emergency rooms with ER turnover and operating rooms with the way we schedule and operating our operating rooms.

So this idea of asset utilization is a key part of resiliency. Then you have financial resiliency, which we've spoken about. And I really think about it in 3 buckets: one being revenue. And we've worked really hard and are continuing to work hard to clear our revenue and to have revenue integrity. And so a lot of that is pointed at denials and underpayments from payers. And so that's a piece of that work. But end-to-end, making our revenue cycle more efficient and more effective is a big part of that. So revenue is a big chunk of what we're working on. And then variable cost and fixed costs are the other 2.

We broadly approach these areas with things like benchmarking, which we -- have a very robust benchmarking capability in the company, adoption of digital tools and AI and really a fairly significant component of our digital agenda is pointed at our administrative platforms and our operating platforms. and then the third being clinical platforms. So that's important. And then the last one I would say is shared services. I mean it's a hallmark and a strength of the company, our 5 big shared service platforms.

And we're always finding new ways to leverage that and giving them more scope, more functions to manage and then also investing them to drive more process improvement as they go through their work. So broadly, we have been hard at work over the last several years, especially over the last 12 months to get prepared for '26. And I think these resiliency domains have put the company in a good position, the best position we really can be as we go into a period of time where we're all waiting to see do EPTCs get extended or do they expire? And the job of the company has been to prepare for either outcome. And so that's what we've been doing.

Great. And kind of on that, just we touched on the operational efficiencies and initiatives and kind of how that's driven 2025. Now maybe touching on the policy tailwinds with Medicaid supplemental payment programs. There's a couple of states that are still on the docket, Florida, Virginia, Georgia kind of come to mind that may come to fruition in this year, although TBD on that front. But maybe firstly, any updates on how CMS is progressing through the approval pipeline now that the government is kind of back in or back online? And if these do kind of get pushed into 2026, how would you kind of frame the initial DPP-related headwind tailwind in '26 if we try to bridge from the kind of what we have from a benefit perspective in '25 and then relative to if these programs kind of get approved in '26?

We'll give '26 guidance on the fourth quarter call. So I'm not going to size what the benefits or tailwinds or headwinds yet in terms of state supplemental payments. But what I would say in making sure we provide context is part of the one big beautiful bill that was a positive. Every bill has some positives and negatives. And clearly, this bill had -- was mostly using cuts to Medicaid to pay for the individual tax cut extensions. And so over a long period of time, there's pretty significant reforms to Medicaid included in this bill.

The good news about those reforms is they were bifurcated depending on expansion states versus non-expansion states. And the reform was less impactful if you're in non-expansion states. So for HCA, 60% of our Medicaid revenue is in non-expansion states. So that was a bit of a helpful piece of context there. The other thing I would say, the fact that the reforms generally don't start taking impact until 2028 fiscal year, and then get phased in over a fairly elongated period of time, call it, 5 to 7 years from '28.

Generally, for HCA, we believe we're going to be able to manage the Medicaid reform components of the One Big beautiful bill generally well. And I don't think it's going to take us off our long-term plan related to the Medicaid reforms in the bill. The positive aspect of this bill, though, was the fact that they allowed states, if they filed on time to get approvals to enhance their programs and is under the grandfathering provisions. And so HCA had 5 states that are more material for us. There are a few others, but 5 states that met the deadline had their application filed on time.

Two of those 5 have already been approved, and that's Kansas and Texas. And based on our understanding of the review process from CMS for those 2 applications and a few other states that we're just not in, but that also had gotten approval. It feels like to us that these are active reviews. They kind of shut down with the government, now reopened and the reviews are continuing. You may have noticed that Virginia got approved this week. So from what we can see, it looks like CMS is continuing their reviews, and we've now -- or the 3 states that have been approved. So the other 2, I know are in review, and we're waiting to see the timing and what happens.

Great. And kind of -- you talked about [ HCA ] subsidies and we just kind of don't know, but you're budgeting kind of for the scenario that if they do get extended if they don't. So maybe...

We're preparing.

Well, preparing Yes. But I guess when we think about the kind of viewing the impacts of kind of how it might impact your beneficiary base, when we think about 2025 guidance, is there an embedded view that you see more kind of that Medicaid redetermination type of dynamic where utilization kind of spikes up as people get notified that their premiums are going to go up and likely exit the market?

Well, I really can't talk about fourth quarter yet. But when we look at third quarter, which would be the most current quarter that's public, we did not see any significant sign that demand had been pulled forward into the third quarter on the exchanges related to people's concerns. I think from the broad population perspective, they're going to start experiencing this as they start going through the enrollment process. And so that open enrollment started November 1. There's this kind of time period where people generally come in and start doing that work. And so we'll see. I mean it's a legitimate question to ask, would we have some pull forward in demand, and we'll tell you on our fourth quarter call. But we did not see any significant sign of that in the third quarter.

Okay. And maybe just kind of focusing on the patients that you serve and kind of that within the HICS population. Any kind of sense of kind of a conversion to Medicaid or commercial employer sponsored or any kind of breakout in terms of where you think the beneficiary pool kind of breaks out if the enhanced subsidies aren't extended?

Yes. So if they expire, I think there will be a time line where people start making adjustments. There will be a group of people, we believe that will stay on the exchanges for sure because there are some people who need to stay on the exchanges. They need coverage, maybe people with chronic diseases and the like. So they may go a metal tier, but we think there will be a group of people who choose to stay on the exchanges in a pretty material way. For the ones that leave the exchanges, there are a group of people that we believe will go back to employer-sponsored insurance and are eligible for that.

And I'm not going to size it for you. It's an estimate no matter who's predicting it. But yes, I do think there's a component of people who will be able to go back to employer-sponsored insurance. Our view of it is that there will be no return to Medicaid. To be eligible for the exchanges, you have to not be eligible for Medicaid. So I don't think people broadly are going to be going back to Medicaid as it's just a matter of the way the policies work or the way the structures work.

And then there'll be a group of people who become uninsured. And our view of that is that when people become uninsured, it's not like they quit using health care. It's just -- they just use ERs, emergency rooms. So I think there's a little bit less volume when someone loses coverage and becomes uninsured. And I think the access point changes to being really heavily weighted towards emergency rooms. But it's not like they go from having coverage and using and demanding health care to no utilization overnight.

And maybe this is -- that maybe hasn't been framed like this, but I guess we've seen the expansive population increase in the health care exchanges. But is it just a function of volume growth that it's -- because there's more people, there's more volume? Or is it the more chronic population portion of the exchanges are using their benefits more?

Yes, it's an interesting question. Here's what I would say in the last couple of years would be illustrative of this in our view. So in '24 -- 2024 versus 2023, exchange enrollments in our states went up 30%. Our volume went up 40%. And so just to give a sense if we had 30% enrollment growth and 40% growth in volume. And then in this year, our enrollment went up about 13%, and we're up about 10%. And so there seems to be a correlation between enrollment and volume. Now how much of that volume is coming from people with chronic diseases versus people who are covered but don't use it as much is a very difficult question. But the way I see it is we have seen in the past good alignment between enrollment and volume. So that's the way I would answer that.

Got it. And kind of going from the exchanges to a different payer, looking at Medicare Advantage into next year. Clearly, a lot of significant changes on the -- around cost sharing and benefits as we look into plan year 2026. Perhaps too early to tell the impacts just given how [ AEP ] is trending and there's a difference between plan projections and what will actually happen from an enrollment perspective. But just kind of curious if there's been changes around utilization management kind of preceding this open enrollment period that will kind of continue into 2026.

I always like to start when I'm talking about Medicare at the macro view. As we sit here today, about 58% of our total Medicare business is Medicare Advantage. The rest is traditional. And when I look at 2025 and '26, the number of people in America that are aging into the program is at a pretty high level when you compare it to the past 20 years, right? I think it's a function of the baby boomers retiring and the like are aging into the program.

And so I do think next year, you're going to see another year of pretty big overall enrollment growth in Medicare, at least compared to a 10- or 15-year trend and probably at least consistent with this year. And then there will be some movement as there always is. But in '26, there will be some movement between traditional and Medicare Advantage and within Medicare Advantage by payer as each payer kind of designs their benefit plans and sets their premiums and the like, they'll be moving through all that. And so broadly, I think our Medicare volumes should be pretty durable because of the overall enrollment growth that we're expecting.

Within Medicare Advantage, I mean, our view in working with our payer partners is they've been pretty active at utilization management in the last several years, really active. And so this idea of moving people from PPO to HMO are changing the utilization criteria, which if I were them, I would do too, right? I think there are going to be efforts there. But I think it's coming off of a pretty high baseline of utilization management that's already been in place. And so I'm viewing it as being maybe a little more incremental, but we're just going to have to wait and see. I don't think they're going from a scenario, though, where they had no utilization management to where they're going to have more utilization management. I think they're going to try to continue to improve their processes. And I suspect it may be a little more incremental.

Yes. And kind of speaking to one of the aspects of utilization management, just kind of pre-auths and denial of claims -- some of your peers have kind of called out an acceleration in that. We didn't really see that for HCA in 3Q, just kind of still heightened, but not anything beyond the realm of what has been discussed over the course of the year. But I guess I'm curious on where HCA stands in terms of a denial rate relative to the industry and kind of how you've kind of been able to drive that differentiation from a blocking and tackling perspective, especially as payers continue to comment on upcoding pressures from especially inpatient and outpatient settings.

Well, these are 2 different things, right? But let me cover denials first. Over the last several years, we've seen the payers, broadly, not just in Medicare Advantage, but broadly, increase their activity levels around denials. Their investments in their resources, their processes, their technologies and the like, and you've seen it, and we've seen it. HCA, given our scale and our ability to resource initiatives, we've been working really hard as a company in responding to that trend. And so the investments we've made in our contracting teams and efforts, the investments we've made in Parallon and our revenue cycle efforts have allowed us to respond to denials in a much more advanced way. And I think that our response is what's creating a different outcome. In other words, when I look at 2025, and I just kind of look at kind of concurrent denial levels, the new denials that come in, they're not slowing down. And if anything, they continue to see more and more activity. I think our response is allowing us to manage that environment in a way to where it's not having an overall incremental net impact to the company.

Now it's having an impact, but not any more than last year. And so you've seen us say that like when we look at our net revenue per equivalent admission growth, that growth rate is not being impacted by denials because of our response. And so that's my thought process related to the denial trends. The activity level keeps going up. Our response keeps going up with it.

Great. And maybe speaking broadly to just kind of the aggregate mix of -- on the rate side. Clearly, commercial [indiscernible] is a larger book of business, but I think you don't really break it down by payer segment. But in the past couple of years, we've seen roughly 3% to 5% kind of rate increases across this aggregate payer base. But longer term, the algorithm for HCA is 2% to 3%. Does that kind of -- do we start seeing a normalization towards that as we kind of head into 2026 from a rate perspective?

Well, let's deconstruct that a little bit just for clarity. Our long-term plan on net revenue per equivalent admission growth is 2% to 3%. But when I think about our net revenue per unit growth, there are several drivers, right? You have the rate equation from both the payers in Medicare and Medicaid...

Yes.

You also have payer mix, you also have acuity and then you also have things like denials under payments in the adjudication process. So that 2% to 3% growth in our long-term plan is the accumulation of all those drivers, not just rates. When I think about the payer rate environment, what we've said publicly is that we're about 80% contracted on the commercial book for 2026, and we're still in our target rate range of kind of mid-single digits.

Yes. And I think it's -- maybe we should kind of break down the kind of that rate component that's related to some of the service line optimizations made because I think it kind of gets muddled up in the broader scheme of things as you try to drive more acuity or higher acuity case loads, that might not yield more volume, but it's kind of more on the rate side. So I think kind of that balancing act when we think about it, how much of that contribution on the rate perspective in terms of 2025 year-to-date has come in from the case load optimization that you've done?

Well, this year, we are pretty consistent on our case mix index. And on the inpatient side, we measure this with case mix index for the most part. So our case mix index, I'll use third quarter, it was up about 30 basis points to prior year. So we're pretty consistent. And it's been pretty consistent kind of broadly across most of the major payer categories as well. So over time, the way HCA thinks about our service lines is part of our networks. And so we try to both deepen and broaden our service capabilities that we offer to patients in our networks. With the idea that we want to be as comprehensive as we can. And so that patients don't have to leave our system for complex care. And so you've seen us over the last decade, and you will continue to see us over the next decade, both broaden our service lines. What does that mean?

That means taking service lines and taking hub hospitals, but adding those capabilities in our feeder facilities as well, cath labs, open heart programs and the like and then deepen our service lines where -- and I'll use cardiology as an example, where we'll have kind of hub hospitals with really deep complex capabilities in things like structural heart and open heart and valve replacement and electrophysiology and the like. And so I think that work over time has allowed us to also increase the complexity of our revenue composition, especially over the last 5 or 6 years. And as I think about into the future, that work of service line development will continue. And so I think it's a piece of the story on overall net revenue per unit growth.

Okay. Great. And I think just maybe focusing on the policy, but instead of kind of ACA, let's think about kind of Medicare fee-for-service. By this point in time, we usually have the outpatient prospective payment system rule, but we still kind of haven't had that. But one of the biggest items in that was the elimination or the drawdown of the -- or the phaseout of the inpatient-only list over a 3-year time frame and largely focused around MSK procedures in year 1 and then kind of there on and therefore.

I guess, how have the conversations progressed during the comment period around the elimination of that? Clearly, the physician fee schedule came out during the government shutdown, but it seems like the CMS might be doing some more legwork in the background before the final rule comes out. So just curious on if there's a kind of ability or notion that CMS kind of treads back on that elimination of the inpatient-only list aspect of that rule.

Well, we don't know yet, right? So we'll know when you know and when it becomes public. We commented. Clearly, we were disappointed in the proposal. And not only just on the inpatient-only component, but also the acceleration of the 340B recoupment were the 2 components. So just to note though on the inpatient only. So this is traditional Medicare only. And within that, what it does is it helps physicians to use their judgment on where the patient needs care. And for some of those cases, they very easily could continue to say these patients need to be inpatient. Others may need to be outpatient.

So if they get rid of the inpatient-only list, it's not like all those accounts automatically go to outpatient, right? It becomes the physician's judgment on what the patient needs instead of a rule. But broadly, and especially when I think about next year, the inpatient rule was actually favorable to ACA and more favorable than our past several years of updates. And for our traditional Medicare book, 70% of the revenue is inpatient.

So for '26, the combined of the inpatient and outpatient rule, if it gets enacted as if it was proposed, which we hope it doesn't, but even if it does, we're going to still have an overall Medicare update that's equal to maybe even a smidge better than the past several years. And so that's how we think about it broadly. And then we'll just work through these components if they end up getting finalized into the bill.

Great. And then on the Medicaid side and with the kind of One Big Beautiful Bill, something that came out of it that's kind of beneficial for the industry is that the rural health transformation front. All 50 states applied for it. I know kind of when we think about HCA's network, also housing the outreach networks, right, that may be eligible for these kind of funds under the programs criteria. Would you kind of frame that benefit being material if there is kind of funding that is available to those outreach networks?

We think maybe 15% of our hospitals would be eligible in some way for -- potentially eligible, I guess, I should say, for these funds depending on how the applications get reviewed and approved by CMS. A lot of unknowns yet in terms of what they fund, what they don't fund. If you read through the applications on kind of the other half of the money, there's a lot of ideas in there beyond just handing money to hospitals. So it's a little too early to tell whether it will be -- how much of an impact it will be to HCA. So too early to judge. But at the end of the day, it's still a good thing, right? So it could be a potential upside for HCA depending on how that goes. A little early to size it yet.

I know I've been rambling for 30 minutes. I want to make sure if anyone in the audience had a question.

All right. Great. As we kind of get towards the latter half of our conversation, maybe I just want to focus on 2026 on a few broader topics, maybe starting with the development or potentially M&A pipeline under the new administration, there might be kind of more leeway on that front. But any update on the approved capital projects in the current pipeline and kind of how those investments pan out across the different asset types? I know you touched upon this on our kind of opening questions and remarks, but I think it would be helpful in terms of where some of the investments are being focused around.

Sure. On the capital investment side, it's always a mixture of inpatient and outpatient. We have been averaging about 600 beds a year of additions on the inpatient side through our capital investment program. I mean, that's kind of our program at this point. That will continue into '27 -- I mean, '26, sorry. And so that's important to deal with hospitals that get into a high occupancy scenario so that we can make sure that we have the capacity to service the demand growth, take care of patients, say yes to transfers and the like.

So we will continue on the inpatient side, adding beds. Within our inpatient program as well, our acute care program as well, we're making investments to expand hospital emergency rooms, operating rooms, cath labs and the like. And all of that's also based on volume and occupancy and capacity. So inpatient projects tend to cost a little bit more than outpatient, a bit more, a lot more. And so on the dollar standpoint, when you look at our growth capital, more of the dollars go on the inpatient side just because of the cost of those projects. But we have a significant pipeline of outpatient development as well.

And so you'll see a number of units getting added every year on the outpatient, again, urgent care centers, freestanding emergency room, surgery centers, clinics. And so that work continues, and it's in concert with that network development plan I walked through earlier. And so I think largely, that idea of taking care of inpatient and expanding our outpatient facilities over time will be what you see from HCA on the capital investment side. On the acquisition environment, we're acquisitive now. And the way I would say it, though, it's been tilted a bit more to outpatient where there is a bit of more of a competitive market. In other words, these are tend to be more for-profit private businesses that you can acquire. And so we've had a number of acquisitions in the outpatient space over the last 2 years, and we will always be looking to add outpatient capacity in our markets when attractive acquisition opportunities come up.

On the inpatient side, especially in-network, there's still FTC friction. Now I think that the current administration's FTC is better for private companies than under the Biden administration for sure. But there's still friction, right? So what we see more in our current markets are tuck-ins. We've done 2 this year. We bought a hospital in Manchester, New Hampshire. It's part of our New Hampshire market and one in Florida in the Fort Myers area. So when we find opportunities in market, we still take them. But the bigger the end market competitor is, the harder the friction is. So you just have to accept that. And move through it. In terms of new markets, we tend to be pretty disciplined in entering new markets. We've done it before, and we'll do it again. But you've got to find a meaningful hospital system in the right kind of market for HCA that is for sale. And so we take a look at all of them that come available. And the current policy environment may change the market a bit over time, but that's the way we think about it.

And I think everyone appreciates this. HCA is a really disciplined allocator of capital. And so on the acquisition side, it's going to have to be the right market and the right asset for us to dive in.

And you've had this framing of kind of getting to 29% market share nationally by the end of the decade. So how much of that contemplates just existing market or in-network kind of growth relative to just pursuing growth in new markets to achieve that target?

Yes, it's tied to our existing markets.

Okay. Perfect. And then, as we think about just some of the cost dynamics heading into 2026, I think one of the areas that have been persistent pressures in the industry is professional fees. HCA made kind of the investment of acquiring or wholly acquiring Valesco, which was priorly a joint venture [indiscernible]. And so when we think about professional, one of your peers kind of called out September seeing heightened radiology pressure, which radiology seems to be more persistent than last year's anesthesiology. But I think -- are you kind of seeing that same type of pressure kind of hiking into 4Q or just kind of maybe broadly speaking? And as we think about next year, is that rate of growth expected to moderate on your end as you continue to make more leeway on kind of your Valesco acquisition?

Well, Valesco was emergency room physicians and hospital medicine physicians. And so we acquired that company, and I'm really proud of that team. We are now -- they've not only stabilized that operation, but that's going really well. And so all the work of our hospital management teams and our physician management teams and that group of physicians and staff have really produced a great outcome for HCA. And I think we're in better shape now in those 2 service lines, emergency medicine and hospital medicine to deal with not only the cost pressures in those areas, and it's not like they're gone, but we can better manage them now, but also to create a strategic asset for the company. And so things like managing length of stay and managing ER operations for effectiveness and efficiency, we now have a home team that's really aligned with that vision.

And it's -- I think it's setting up the company well. The challenges really last year and this year are more in anesthesia and radiology. And so as we sit here today through third quarter, our same-facility professional fees have been up about double digits, about 10%, which was in line with our expectations as we started the year. And it does represent those challenges. There are supply and demand challenges in both anesthesia and radiology in terms of providers and physicians. And so we're still working through that.

And we're applying all the same kind of HCA strategies that you would think of in terms of the way we build and manage the vendor relationships, the way that we manage the allocation of these scarce resources and scheduling and performance in the hospitals and the like, including in anesthesia building our own internal capability where when we have to, we can employ anesthesiologists. And so we're working on these areas. I'm not seeing any expansion of the pressure. But I think as we go over the next -- not only in '26, but probably in the next 2 or 3 years, we're still going to be working through anesthesia and radiology pressures. It's the one area of our cost structure that is still a bit challenged.

And then are there kind of other specialties that you've kind of been more proactive on since you've seen these pressures in anesthesiology and radiology from a contract perspective that are kind of maybe being forecast -- or not forecasted, but being showcased in a 2025 P&L as you kind of become more proactive on that front?

Well, I just would tell you that broadly, a lot of our growth in terms of this double-digit growth has come from anesthesia and radiology. And our work to manage emergency room, hospital medicine and the like have allowed us to keep those growth in a little better control. And it's not like we're not working on it. I mean '26, we'll talk about what we think the marker will be in '26 on our fourth quarter call. But I think it's still going to be a little more than just average inflation as we go into the future.

Great. And kind of now thinking about other cost pressures or not cost pressures, but cost items, supply expenses, drug expenses, clearly, economic policy have made those pricing fluid. And so you called out immaterial impacts from tariffs. But as we think about kind of underlying growth trend for 2026 on that regard and kind of your majority stake in GPO, how should we kind of think about the opportunities on the supply expense front? Clearly, it was a big portion of the Investor Day in terms of the incremental savings that you -- that the company can generate. So just kind of maybe any color on that front.

Well, I think before I answer the operations question, we have to acknowledge tariffs, right? I mean we've worked really hard this year with HealthTrust and our GPO to manage the tariff environment the very best we can. And I think that the work that they do to try to get longer-term fixed price contracts, the work that they do with our vendor partners to change sourcing and to change product selection and the like has added a lot of value to the company and helping us to navigate the tariff headwind. But I can't tell the future on tariffs yet because any time I try to predict what's going to happen in the next day of truth, social comes out, and I look like an [indiscernible]. So I'm going to stay away from yet trying to call what's going to happen with tariffs other than saying that I think HealthTrust has helped HCA do a really good job of navigating that challenge the best that we can and has put us in an overall pretty good spot.

Broadly, in supplies, and I think this year is a great evidence of this. We've been able to manage the inflationary pressures through our contracting and procurement processes in a way that coupled with our resiliency plans and how we manage things like new technology adoption and mix of products and the like that we've been able to have a pretty good year this year on supply cost. I mean we've had a bit of margin even improvement in supplies. And I think that's a reflection of the work of the company. That's not meaning that there's not inflationary pressure. There is. And so we work with our vendor partners to deal with that the best we can. But that we couple that with the strength in the size of HealthTrust to help us manage that really well. And then our resiliency plan has a number of initiatives pointed at supplies that will help us continue to find ways to be efficient in our supply management processes.

Great. And I guess we're almost up on time, but maybe...

I'll mention this, too, because you haven't asked about digital. Supply chain is a great example of one of the administrative platforms that has the most opportunity from AI. If you just think about hundreds of thousands of SKUs with tens of thousands of vendors, supplies coming in from all over the world, big data, data science and building data products that help us manage that, not only the inventory loads, but the cost of the supplies are going to make a big difference over time.

Got it. And clearly, AI is a very incremental tool even from a labor standpoint as well. And that's kind of getting into the next question, just expectations for labor and wage trends heading into next year. Clearly, your investment in the Galen school or College of Nursing is very incremental to the future pipeline of acquisitions. And maybe just kind of talking around the conversion rate. There's a philosophy of having a Galen College of Nursing in every HCA market. Where are we on that perspective and how that kind of is developing from a pipeline?

Yes. It's a big part of our overall workforce development plan. Now we also work with the legacy nursing schools, too, and very heavy partnerships. I mean what Galen has allowed us to do is not only fix an HCA problem, but support our communities. The issue in most of the communities we serve is there's just not enough nursing schools, not enough spots for people who want to go to nursing school. And so it has clamped down on supply over the years. And so Galen opens up all these new nursing school spots for people who want to become nurses. And in our markets, when we acquired Galen, there were 4 campuses in 2021. And as we sit here today, there's 20, I think it's 21.

And as we go between now and 2030, we'll be at about 30. And so 30 of our 43 markets will roughly have a nursing school. Some of those markets will have 2. And we believe by the end of the decade, we'll have about 30,000 students in Galen and probably 8,000 to 9,000 annual graduates. So it's been a really good program for HCA and the communities we operate in to build this better supply of nurses in our markets. And we're real proud of those teams. They've done a great job.

Perfect. I think that puts us up on time, and that wraps us up. I want to thank the HCA team for joining us here today.

Thank you. All right. Thanks, everybody.

All right. Good afternoon, I guess, right? It's 12:00. I want to thank everybody for being here with us. My name is Justin Lake. I cover health care services here at Wolfe Research. Very excited to have the HCA team here. We've got Mike Marks, company's CFO; as well as Frank Morgan, the [ czar ] of Healthcare IR. Appreciate you guys being here with us. Maybe we could just start off, Mike, with a few reflections on the year-to-date positive, negative surprises and how you think the company is positioned for 2026.

Sure. When I think about -- the overall work of the company is really taking care of patients, right? So we always kind of start with that. And when I look at the work of patient care, the outcomes so far this year, including our trends to the past on things like quality outcomes, patient safety are going well, and we're pleased with the work and the efforts of all of our clinical teams in that work.

Engagement. So we're in the people business. We're 315,000 colleagues. We had the great pleasure of serving 44 million patients last year. So the engagement and satisfaction of our employees, our physicians and our patients continue to improve, and it's a huge part of our work every year. On the people side as well, I think of things like retention and reducing turnover as being really important and workforce development and things like the Galen School of Nursing and our physician residency program. So broadly, on the people side, we're pleased this year with our work.

On growth, this is maybe one of the surprises. I mean we started the year thinking we would be more like 3% to 4% volume growth. We're in the kind of back to our long-term trends of 2% to 3%. So we're in the mid-2s as we here 3 quarters into the year. It's kind of interesting when you think about what fell short. We were short on self-pay. We're short on Medicaid, a little less Medicare than we originally thought as we started the year. But broadly, that little bit of a shortfall in volume is really not translating into an economic issue.

The payer mix is good here as we started the first 3 quarters. So the last thing I would say just in terms of the work would be our operating leverage and the expense management capabilities of the company. We've been really working hard to improve our margins, to focus on our resiliency programs. And I think our margin performance as we've gone through the first 9 months have also performed well as a company.

So I think we're heading into 2026 with good momentum across kind of all of our pillars that we work on. And I'm really proud of the colleagues and the teams in the field who do the work. They're doing a great job.

That's exciting to hear. As you might expect, we get a ton of questions on what's going to happen in 2026 with provider taxes, with the exchanges. I know those are topics that we're not going to even try to pin down numbers around, right? There's just too many moving parts. But I did listen to your conference presentation last week, where you talk about the volume discussion and the thought process that we think 2% to 3% -- a company thinks 2% to 3% is the right ballpark for next year and probably the swing factor between the high and the low end of the range will be those exchange subsidies, whether they're extended.

So if I just think about that as a 1% swing, I'm just curious how you think about the -- some of the factors that could play into that in terms of the shift from exchanges to commercial -- back to commercial employer, which I know is very likely to happen in your states, but the order of magnitude there, how much of that volume that might move, let's say, to the uninsured, but it's still going to stick around. Any of those kind of moving parts that you can share with us in terms of -- that might be helpful to think through from an economic perspective for the company?

I think that the right way to think about it is that 2% to 3% long-term growth plan, including we think will hold for 2026, really kind of comes from our confidence in our markets and the work we do on the ground to spend capital, to expand our networks, to optimize our networks. And that work has yielded almost 19 straight quarters now of year-over-year growth. And so I think that demand really starts there in our markets where we serve. I think the EPTCs, though are a swing factor for 2026 for sure. And so that the payer mix underneath a 2% or a 3% could look different. If EPTCs get extended, you'll get -- I think you would get closer to 3% and you would have a better payer mix. If they don't get extended...

Stable payer mix year-over-year, maybe a little bit better.

So definitely better than if they expire, so for sure. And then if they expire, I think you're going to see some people move back to employee-sponsored insurance. We're not sizing that yet. A lot of people have sized it, but there's clearly people that have found their ways to the exchanges that are eligible for employee-sponsored insurance. And I think there'll be some movement back. And then I think there'll be some movement to uninsured.

And then I think there'll be some people who stay on the exchanges as long as they can because they want and need coverage. So that will kind of filter itself through. Our past experience through past recessions, as an example, is that when people go from being covered in some way to being uninsured, they still access health care services. They tend to do it through the emergency room at hospitals, but they tend to access it, but at a bit of a lower rate than when they had coverage.

So that's the way to think about that kind of movement in '26 should EPTCs expire. Now obviously, we're still advocating heavily that there would be a potential deal, but that's the way I think about it. The demand really reflects what we see on the ground. And then the difference will be the payer mix of that demand in '26, depending on what happens here.

Got it. And I promise this is the only question I'm going to ask on numbers around this. I do think it's really interesting, the analogy back to kind of changes in recessions, for instance. The -- when someone loses coverage, I don't need a decimal point number, but does utilization go down in your mind by 50% or 75% or 20%? Like any rule of thumb that you could share with us from previous history?

Yes, it's less than 50%. So let me just leave it there. It's more than 0 and less than 50%. It's in that range. But it's so different. This is very difficult to predict. And here's why is that unlike past recessions, this is a bit of a unique event. And so trying to figure out, this is why I think as much as people have wanted us to size all of this. Getting a beat on exactly what's going to happen here is a very difficult set of assumptions. So that's why we're trying to be as patient as possible to get more information about what's going to happen before we get too close on record.

Perfect. Just to be clear, I asked that question in terms of decline. I just want to make sure we're on the same wavelength. So when you said less than 50%, you're saying there's a less than 50% decline in utilization.

Yes, when people go to self-pay, yes.

Got it. So then on the DPP side, right, the provider taxes. You guys have talked about that being -- it's going to be a headwind. Just from a timing perspective, some companies I talked to said it could start in the back -- effectively, the legislation says fiscal 2028. Fiscal '28 for CMS starts in the fourth quarter of the previous year. So it will be fourth quarter of '27. A lot of your big states like Florida and Texas start in the middle of -- would start in the middle of '27 their fiscal years, right, like July, September type of thing. Just curious, do you know what fiscal -- like do you think this is going to start in '27? Or do you think it's really completely a '28 start in terms of provider tax reductions?

Well, I mean, the One Big, Beautiful Bill kind of specifies fiscal year '28. CMS is working on guidance now. And so I think to get much more precise to answering that question beyond that we know it's going to start in fiscal year '28, we're going to need to wait until CMS clarifies a lot more detail here than we have today, and they're starting to work on that. So we're going to need to wait to get to those kinds of really nuanced questions.

I think from my seat, it's -- the good thing about this is that the way they built their reforms under the One Big, Beautiful Bill is, first, they bifurcated the policy between non-expansion and expansion states, and that helps HCA because the reform is not as impactful on non-expansion states. And then second, the phasing in to not start the STP reforms until fiscal year '28 is a good thing. It gives health systems time to adjust and prepare.

And then the third thing I would say is the phased-in nature of it. It's 5 to 7 years likely post fiscal year '28 before the reforms are fully in place. So I think broadly, that's a good thing. I mean when I pull way up and I think about Medicaid, as we sit here today through 3 quarters of 2025, when all in, when you think about the revenues associated with Medicaid, the base revenues and the supplements and all the cost, the patient care cost plus the expenses, we're still not fully covering the full direct cost and allocated cost of Medicaid.

And so the idea of in that reform giving health systems time to react and then giving us this opportunity around the grandfathered applications is what really makes this bill a little more manageable for health systems.

Got it. And last question on this is just there was a letter from CMS that came out on Friday. I read it, my team read it. I think we all got a headache and didn't really understand if there was anything new in there. So I'm just curious, I know you have a lot of people who do this day -- minute by minute. Was there anything in that CMS letter that clarified, for instance, like any changes to your view of -- I know you've got a few states still hanging out there, for instance. Any changes to your view there post that CMS letter? Or they clarify anything for you that we should keep in mind?

Well, we're assessing it too, just like you are, and we'll need to get some questions answered before we give any specific thoughts about it. I think it is evidence that they're working on kind of the rules as we go forward. My initial read is it's a little bit more about when reform starts and how reform will be processed starting in fiscal year '28. But a little early, we're not fully through our review of it yet.

Got it. So switching to kind of core operations, right? A lot of talk about AI, both from the payer side and the provider side. I know you guys are always kind of ahead of the curve here in terms of implementing this stuff. So maybe you can talk a little bit about how you've rolled it out? What are some of the details in terms of -- for instance, you had a really interesting example on the last call in terms of what you're doing in terms of shift changes.

You talked about it's going to both reduce time to time invested in a shift change as well as the risk of errors during that shift change. So maybe you could talk a little bit about that in terms of what did a shift change used to take in terms of nursing hours versus how much you think they'll change in '26 once you roll that out?

So it's live in 8 hospitals now. The nurse shift handoff tool, it's a large language model. We've worked with Google to help build it. And I put it in context, it's in our clinical domain. We have 3 domains that we work on with AI. We have clinical, operational and administrative. So this is our -- one of our first bigger clinical use cases that is kind of through alpha and beta. And so we're looking to start rolling it out in 2026 more broadly.

And it's really focused on 2 major objectives of the tool. The first objective is patient safety. And it's -- we believe that this idea of the shift change is being one of the riskiest events in health care when one nurse is leaving and another nurse is coming on. And they're taking 4, 5, 6 patients and they're trying to transition their way through to get the nurse coming on shift ready. And so this really is a more effective tool at helping our nurses go through shift changes as we believe.

So it's a patient safety factor. And the second is it's about administrative burden. When you watch a nurse go through a shift and all of the note taking and all of the work they're doing as they go through those 12-hour shifts, mostly 12-hour shifts, they are spending a lot of time on a lot of manual ways preparing for shift change. So this will allow them to take that time and largely reinvest it back into patient care. We haven't exactly sized publicly yet what -- will there be a reduction of the overlap time.

But I do think it's going to allow our nurses to be done with their documentation and done with shift change and be able to go home a little bit earlier, which is great. But what we're really after here is patient safety and the administrative burden of nurses. So in those 2 fronts, our alpha and beta pilots have gone really well.

And I assume like revenue cycle management, would that be under ops or admin?

Admin. Administrative would be things like revenue cycle, supply chain, IT, human resources. In HCA, our administrative platforms have been in shared services for a long time. So these are big, scaled, centralized shared services. So the data is more standardized and more centralized. And we believe of the 3 domains, we're going to be able to go fastest with the administrative domain with AI.

Got it. The managed care companies I cover are all talking about the fact that hospitals are doing a better job of coding their patients, right? And they're not -- even managed care is always looking to lower costs and always looking to take costs -- they'll point a finger when they can, but they're not pointing the finger at providers and saying, you know what, they're making stuff up, at least for the most part. They're just saying you guys -- our providers are doing a better job of coding or doing -- finding more codes than they did before. The big one I hear about all the time, you probably heard about is sepsis.

A lot of managed care plans are saying sepsis diagnoses in hospitals are up 50%, 100% year-over-year. I'm just curious in terms of -- I assume you guys are at the forefront of this. Maybe you could talk about the revenue cycle benefits here, both from a revenue and a cost side and how far along you think you are and what the opportunities are down the other side?

So we're working hard in our revenue cycle work on AI. Most of our AI that we're working on rev cycle are really pointed at things like denials and underpayments. So when we started this work, the issues that we were dealing with in our rev cycle was this kind of growing level of denials and underpayments from the payers. And so the vast majority of our AI tools that were -- that are either in flight or already in use are really pointed there. So it's things that really help us organize our effort to appeal denials to get ready for dispute resolution, should we have to go through dispute resolution to summarize clinical records and make our revenue cycle more efficient through all of this back-end kind of payment adjudication process.

So that's largely where we have focused because of the pain points that we were suffering. And so -- and that's paid dividends for us here. On a coding perspective, our coding processes are really stable and consistent. They have not changed. And we're using the same general approach to our coding technologies and processes that we've had for the last 5 years plus. And so we use a tool from Solventum -- but there's really 2 tools that hospitals use, Solventum or Optum. And they're computer-assisted, but they're not really AI.

So coding for us has been really consistent, Justin. When I look at our coding audit results, which we have multiple layers of audits, it's a pretty regulated space, as you know. Our coding accuracy is really good. And so -- and I think you're seeing it too relative to our consistency in case mix. I mean as we noted when we've gotten this question on the public calls, our case mix index is pretty consistent over the last 3 years. It's up a bit. I think it was up 30 basis points in third quarter, but nothing that would reflect some kind of structural or fundamental change here would be what I would say.

We are rolling out ambient documentation tools. So ambient AI documentation in our ambulatory clinics -- and in -- with -- right now, it's still a pretty limited but small group of pilot facilities for hospitalists. And I would tell you that what we are seeing, and this may be a little bit with what the payers are saying is what we're seeing is it does help doctors get more complete, more accurate and more timely in documentation, which is a good thing.

It's a good thing for patients because those patients have to go through the continuum of care and having a complete picture of their diagnosis, their complications, comorbidities and the like are really helpful. So ambient is still in early innings for us, but I think that's going to be a really good thing for hospitals, for patients and frankly, for payers. I mean payers want and need to know the conditions and kind of treatments that their patients and their members, our patients are getting. So that would be the one area that I think you may be talking about. But for us, we're not seeing anything from an HCA perspective that would suggest that our coding intensity has changed.

Got it. And you talked about outpatient and some of the AI investments you're making there. And I think you also talked about recently your capital deployment. You gave a little bit of a breakdown there. I think you said $5 billion, $2 billion kind of into the typical maintenance of the existing facility, making sure you got the right technology, et cetera. I think you talked about 600 beds a year, give or take. If I throw $1 million a bed out there as an average, that gets you to kind of half of your capital deployment. What's the other half? Is it mostly just the outpatient side? I know you talked about the number of outpatient facilities that you've added over the last few years and that you expect to continue adding. Is that the right way to think about it?

Well, let me pull up and give you the way I think about our capital spend of the company. But we'll hit just right at $5 billion this year, we believe. Usually about 40% of it is maintenance capital. So it's -- these are boilers, chillers, air handlers, renovation projects, medical equipment and the like. And it's -- I mean hospitals are a fairly capital-intensive business. So that's important to make sure that you maintain really competitive hospitals.

And then on the growth project, I would break it up. I mean inpatient projects tend to be more expensive, right? So you -- to get that 600 beds a year, a bit more expensive. We're always also looking at things like the number of operating rooms and do we have sufficient capacity, cath labs, emergency rooms on the main campus and the like. So this inpatient acute care frame is a chunk of that -- of the growth capital for sure because they're more expensive projects.

And then the balance would be outpatient and not only for our capital investments, but also for our mergers and acquisitions. I mean we have been pretty active in acquiring outpatient facilities in our markets. And so the good thing with outpatient is they're a little less expensive on a per project basis, right? If you just think about adding a surgery center, adding a physician clinic, an urgent care clinic and the like. So it's a pretty efficient use of capital, and you get more units with less spend.

So broadly, that's how I think about it. It's a mix of both inpatient and outpatient. Our goal is to get to 20 outpatient facilities for every hospital here by the end of the decade. And I think it will be the mix that you're seeing between urgent care, freestanding emergency rooms, surgery centers and the like. And it's important. I mean we run a network model. We're a hospital-centric health care system, but we believe in our markets, we need to be relevant.

And so by putting outpatient facilities around the marketplace where people live in the suburbs and even the outer rings, it gives patients access to our system in an outpatient setting and then we try to give them a really good experience. And then if they need acute care, we use our networks to try to get them into our acute care hospitals across the market. So outpatient and inpatient work together is our network model to really increase our competitive positioning in our markets and continue to try to grow market share.

Got it. And if you had -- if we had to think about a typical year of that 60%, how much do you think is inpatient versus outpatient? Is it kind of split evenly? Or it sounded like it was more inpatient?

The dollars will be a little bit more inpatient. It's not exactly the same every year based on the timing of these projects. I mean I think you have a sense of it. But when you go in and you're doing a significant project at a hospital campus, it can take 24 to 36 months. So it's -- these are bigger projects on the inpatient side.

Any new hospital facilities we should be thinking about? Have you got anything in the planning stages or in that in-flight capital number, any new facilities or retros?

There's a couple. We have one in Florida in the Gainesville area that will open. And then there's always 1 or 2 in planning. What we try to do is there's a time and a place to build a new hospital. They're harder. They're more expensive. It takes longer to ramp up a new hospital than people realize. You got to hire a nursing staff, you got to build out a physician staff. So we try to be measured with our new hospital additions. But when you look at the speed of some of our markets and how fast they're growing, from time to time, you have to do it.

I want to touch on resiliency, right? It's a word that I think kind of you introduced or at least felt to me like at the Investor Day and it gets used more and more. And I know you've had a lot of tailwinds to the business over the last few years, especially payer mix, et cetera, that are at least going to probably stabilize, if not moderate. And so resiliency, I'm sure, will be a bigger part of the plan going forward.

Can you put a little bit more color around resiliency in terms of, I guess, first, can you give us some examples? And then two, can you talk about how much kind of, let's say, the ability of the company to kind of gear it up or gear it down depending on what's going on in a given year.

Yes. So the company has had a resiliency plan for a while. And it's an area that I worked on a lot even before I became CFO. So I mean this is an important program for the company. If I think about the last few years, let's just use the Investor Day forward, we've been using our resiliency program to make and pay for a lot of our tech and innovation funding. And so that's been one of the ways that we use our resiliency program.

The second way that we think about our resiliency programs is to help us deal with challenges when they occur. So for example, if EPTCs were to expire, our resiliency program would certainly help us deal with those challenges. And then the third way I think about it over time is to improve our margins. And so that's the broad strategy around resiliency or those kind of 3 uses, if you will.

A bit over a year ago, call it, the last 12 to 18 months, kind of seeing what was coming, we started a really diligent effort to both enhance and accelerate our resiliency program to prepare. And I've been really pleased. I mean our teams have worked really hard to identify not only new work streams, but to then even improve our execution of our existing work streams and then try to accelerate that execution so that as we head into '26 that we're ready for whatever eventualities may come.

I think about kind of 4 main areas that I like to put our resiliency efforts into. First one is revenue integrity. And this is the idea, for example, of reducing denials and underpayments, so we're doing a better job of collecting ultimately denials and underpayments. The second area is asset utilization. And we just spent a minute talking about the capital intensity of hospitals. The number of turns you get on beds in the emergency room and in the operating rooms is a super big part of our resiliency effort.

And you've seen that with our length of stay management even this year. So getting asset utilization is the second kind of pillar of our resiliency program. The third is variable cost. And as good as HCA has been over the years with variable cost with our benchmarking prowess with things like digital tool development using AI, machine learning and the like and then continuing to expand our shared service platforms, we're finding even better ways to get after our variable cost as well.

And then lastly is fixed cost. So this would be not only our corporate platforms, but even the fixed cost in the field has -- we've been working really hard, definitely over the last year to identify opportunities. Benchmarking is a key part of this. On our corporate platforms, we've -- over the last year, we've benchmarked our performance in rev cycle and supply chain and human resources and the like to the Fortune 100 through some consulting firms to really try to make sure that we go deep and find our opportunities, and that's been fruitful as well.

Length of stay is something that I noticed has been coming down a couple of percent a year and kind of made sense early on after COVID, right, you would have thought that length of stay spiked during COVID and it's going to normalize. You're actually below pre-COVID levels now. It's really impressive. How much more room do you think there is on length of stay? Like it's been about 2% a year, it feels like, of a decline for the last few years.

Yes. I mean we study this carefully. And this is part of the benchmarking work of the company. And so when you look at the bell curve distribution of our hospitals, we still have room to move here. If you think about a baseball analogy here, we may be in the middle innings, but we're not in the late innings. And we continue to find significant opportunity through investing in our people, and our case management teams through process improvement broadly and then AI. And so we have some early-stage use cases in inpatient throughput that I'm really excited about. So we've got several more years to run here on length of stay, which is really good news.

And your ability to kind of titrate it up or down, I'm talking about resiliency now, depending on what's happening. Do you feel like -- I think some of the numbers, and correct me if I'm wrong because I'm doing this off memory now, but the -- maybe it was somewhere in the neighborhood of $200 million a year, like if you kind of just averaged it out in terms of your -- what you talked about at the Investor Day. Do you have the ability to kind of look, we're doing well, maybe we net a little bit less of that. But when things are going tougher, like maybe at '26 if the subsidies go away, do you have the ability to kind of gear that up a bit? Or is it kind of more steady?

Well, the way -- we are working on a pretty robust list of resiliency efforts. And these are efforts we're going to do. So it's not like we're going to turn something off, but we're finding great opportunities. We're going to leverage them. I think the way to think about, though, is a little bit more about what you do with them. Do you accelerate your tech and innovation investments? Do you deal with challenges as they occur? Or do you take it to margin?

And so I think there will be some movement between those 3 depending on what happens here. If I think about the next 5 years of the company, digital transformation is a significant opportunity and not just the AI machine learning, but integrations and automation and RPA in that big broad bucket of work, including the replacement of our big clinical EMR, which is in flight right now, is an area that has so much opportunity for the company. And so making sure that we continue to fund that appropriately, but fund those initiatives are also really important.

Got it. I think we're at time. I want to thank Mike and the team from HCA for being here today. Thank you all as well. I hope you enjoy the rest of the day at the conference. Thanks.

Thank you.

Welcome, everyone, to our session with HCA Healthcare. We're very happy to have them participating in our conference again this year. Michael Marks, Executive Vice President and Chief Financial Officer of the company, is with us. Thanks for doing this, Mike.

Great to be here.

Maybe just to start off, a high-level question. We're 10 months into the year. What have been some of the surprises for you? What have been some of the challenges to the extent there's been some?

When I think broadly through the first 10 months of the year, there's a lot going well. I mean the work of the company and our quality and patient safety initiatives continue to perform really well. Our growth initiatives, if you think about the work we're doing to build out our networks, optimize our networks, the allocation of our capital investments into the field continue to produce momentum in our markets. And we're pleased generally with the demand in our markets for health care services and frankly, with our network development and capital investment programs with our competitive positioning.

And we're seeing that in market share improvement. So broadly, the work of the company to drive growth continues to perform well in our view. Operationally, if you look at our operating leverage and our ability to manage cost and drive efficiencies as a company, I'm pleased. I mean -- and I'll use length of stay as an example, but we're seeing really good improvement this year in the management of length of stay and our overall margin performance has been quite good as we've gone through the first 10 months.

In terms of our people, and that's a really important piece. I mean, we're 315,000 colleagues that took care of 44 million patients last year. So we are fundamentally in the people business. And so when I look at things like our engagement with patients, with our employees, with our physicians, our engagement work continues to perform well, and we're seeing improvements really across all 3 of those categories. And we're also seeing the results of our workforce development efforts. And so we see things like retention and the production of our education capabilities like Galen and our physician residency programs continue to gain steam.

So overall, I think we're broadly pleased. In terms of surprises, I don't know if I call them a surprise. I would say that as we came into the year, we thought that our volume would be closer to 3% to 4%. I mean 2024 was a really robust year in volume growth. So we're a little short of that. We're back in this 2% to 3% range and, call it, in the midpoint of that. Interestingly, I would say that where we are a little short of our original expectations are things like Medicaid and self-pay. And so that payer mix rotation has produced a good net revenue growth and a good economic performance.

And I'll end there is I think financially, we're -- we've had a good year through the first 3 quarters. And so we're pleased as we sit here today and are looking to prepare for '26 and beyond.

Yes. No, that's great. When you -- on the third quarter call, you guys gave some high level puts and takes for next year. One of your comments you made is you thought that volumes would continue to be in sort of that 2% to 3% range next year. Can you give us a little bit of flavor for what gives you some confidence on that?

Yes. And Stan mentioned this on the call, but I'll reiterate, part of this is what we're seeing in our markets. We have 43 markets. Our markets tend to have population growth that's above the U.S. average. They tend to have strong economies, which drive things like employee-sponsored insurance coverage. And if you think about the work of the company to expand our networks, and we've had a string of years now where we've had heavy capital investment years, including this year, where we'll spend $5 billion in capital. That work to build more resilient and expansive networks is allowing us to increase our competitive position.

We are on almost 19 quarters of year-over-year growth. And so I think the fundamentals of what we're seeing from the bottoms up from our markets is part of what gives us confidence. At the macro level, when I think about the big mover in that will be EPTCs, right? So if EPTCs get extended here at the last minute, I think you could see us being maybe at the upper end of that 2% to 3% range. If they expire, I think you would see us on the lower end of that range. So that's how I think about the 2% to 3%.

But the confidence still comes back to the fundamentals. Fundamentally, we take care of patients, and we're a hospital-centric health system. And so it comes down to the strength of our markets that give us the most confidence.

Okay. Okay. A couple of things maybe on just that comment. There had been this chatter that if we're going to have people drop off, they don't think they've got the benefits next year and the coverage next year that perhaps we'd see this pickup and a rush to get last-minute surgeries, et cetera, et cetera. I don't know how your scheduling, looks for November, December because I would assume it wouldn't have started until we get an open enrollment. Are you seeing anything? Or is there any -- I know you don't like to comment that much on intra-quarter, but have you seen any activity that suggests we've got a rush to get care done here at the end of the year?

Well, let me not comment on fourth quarter. I need to be consistent with that approach. But I will say when we look deeply at third quarter and our results for third quarter on volume and demand, we didn't really see indications that there was a pull forward of demand in third quarter. I think it's a legitimate question, right? And in past recessions, for example, you could see a little pull forward of demand as people were thinking about the coming year.

I don't know how closely connected the general citizen is to this debate around EPTCs yet. But at this point, at least through third quarter, we have not seen enough evidence that would suggest that third quarter was impacted by a pull forward of demand.

Are you giving -- I don't know how much -- maybe you have a window on this. When people are going to sign up and they're seeing these change in benefits, do you have educational programs in the local communities that you give? Or is that mainly up to the insurers and the brokers to do that?

We do. And so we've worked over the last really year preparing for this, really hard with Parallon, our revenue cycle operation to have pretty expansive output through mailers, through phone calls and through on-site financial counselors over the last several months that have helped people who are coming in with the exchange coverage, understand their options and understand their enrollment process for the coming year.

We are not brokers. So we can't sign people up personally on the exchanges, but we have put forward a pretty significant effort to try to help educate and connect the exchange population with their options and with what to look for, for 2026.

Okay. You talked about the range, the 2% to 3% range. It seems like people have -- I think the investment community sort of thought the range would be a little wider than the 2% to 3%, just 1% based on -- mainly based on the growth you've seen. You've seen really good growth in the exchange volume in the last few years. Is there any -- it's hard for you to comment on the disconnect of maybe investors and analysts thinking it would be a wider range than that. But is there anything you can add to why you're confident it's only about a 1% swing factor no matter what?

Well, I already mentioned the fundamentals on the market.

Right. So you think it's more of the...

I think that's a piece of the story. The other thing I would say is if you look at it by payer, which is, I think, really what you're speaking to. We continue to see the baby boomers age into the Medicare program. So I think the movement into Medicare will continue to be at a bit of an elevated level here in '26 and really into '27 and '28. Broadly, we're comfortable that employer-sponsored insurance seems pretty steady. And frankly, if EPTCs do expire, there will be a component of people who are on the exchanges now that we think go back to employer-sponsored insurance.

So you could see even some lift in employee-sponsored insurance as part of that rotation on payer mix. Exchanges are the big wildcard, right? And they're 8% of our volume. And so I think what some people are thinking, though, is that there's a cliff. In other words, if EPTCs expire, that there's -- there'll be this 1-year movement to the new run rate.

We actually think that it may take 2 or 3 years for that to fully settle out. I think that people who are on the exchanges that have chronic diseases and the like, I think they're going to try to stay on the exchanges, and they may drop a metal tier, they'll stay. I think, again, there'll be some folks that go back to employer-sponsored insurance. And then there will be some folks that become uninsured. The other thing I would say of that, though, is not like people who go from having health care insurance on the exchanges to being uninsured, they don't stop using health care services entirely.

I think they utilize it at a lower rate than when they had coverage, but it doesn't go 0. What changes is they pretty much just come to the emergency rooms. And so there's a little different rotation there, A.J., but if you just think about the -- all the factors that make up a volume growth, on demand, EPTCs and the exchanges are one of those factors. But we believe that the outcomes, coupled with all these other items that I've mentioned, still largely bring us into this 2% to 3% range is our best thinking at this point.

And when you comment on the payer mix shifts, so do you have any estimates to share about how many would end up uninsured? How many would end up going back to employer-sponsored coverage? How many would stay on the exchanges, but trade down metal tier? Any thoughts on that? I know you haven't given formal guidance, but I'm asking around those.

I would be disappointed if you didn't ask, A.J. We're not going to size it yet. We will give as much information as we can on the fourth quarter call about what we think the impact is going to be. I also think -- and you know a lot about this, so I think this will resonate. These are estimates. This is a pretty unique event. And so trying to figure out exactly how 24 million people will act and what choices they will make, there's a bit of a range here, including, I think, a 2- to 3-year process for that all settle out. So we're not going to size it at this point, but we will give you more information and the best information we can when we give you our 2026 full year guidance.