HCA Healthcare Inc (HCA) — Q3 2017 Earnings Call Transcript

All right, John. Thank you and good morning, everyone. As usual Mark Kimbrough, our Chief Investor Relations Officer and I'd like to welcome everyone to the call today, also welcome all of you that are listening to the webcast. Here this morning with us is our Chairman and CEO, Milton Johnson; Sam Hazen, our President and Chief Operating Officer; and Bill Rutherford, Chief Financial Officer. Before I turn the call over to Milt, let me remind everyone that should today's call contain any forward-looking statements, they're based on management's current expectations. Numerous risks, uncertainties, and other factors may cause actual results to differ materially from those that might be expressed today. Many of these factors are listed in today's press release and in our various SEC filings. Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the significant uncertainties inherent in any forward-looking statements, you should not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc. excluding losses, gains on sales of facilities, losses on retirement of debt, and legal claims costs, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. to adjusted EBITDA is included in the company's third quarter earnings release. As you heard the call this morning is being recorded and a replay will be available later today. With that, I'll turn the call over to Milton.

Thank you, Vic and good morning to everyone joining us on the call or the webcast today. Before we go into details about the quarter, let me take a few moments to say a few words about the unprecedented sequence of events that began with Hurricane Harvey, which hit Corpus Christi and Houston, followed by Hurricane Irma in Florida and then the tragic shooting in Las Vegas. As you know we have significant presence in all these markets. In Texas, Hurricane Harvey first made landfall near our Corpus Christi market where we have a hospital with three campuses and two freestanding emergency rooms. From there it moved to Houston where it dumped record amounts of rain causing significant flooding for days. In the Houston market we have 15 hospital campuses, six freestanding emergency rooms, five surgery centers, and one freestanding cancer center. All of these facilities were affected either directly or indirectly. Certain hospitals were evacuated and several resumed evacuating patients from our hospitals and in some cases from non-HCA hospitals. Several of our hospitals in Dallas, Austin and San Antonio also took evacuated patients. Now, we work on facilities affected by Harvey, where we have approximately 14,000 employees in Houston and Corpus Christi, many of them are still recovering from personal loss. Just days after Harvey, Hurricane Irma struck South Florida sending a path of destruction from south to north across virtually the entire state. Florida of course is one of our biggest states with 50 hospital campuses, 32 surgery centers, 17 freestanding emergency rooms, 10 diagnostic imaging centers and more than 63,000 employees. Once again, we evacuated certain facilities and felt the impact of Irma throughout all of Florida and to a lesser extent even into Georgia and South Carolina. Then as we were recovering from these natural disasters came the horrific shooting in Las Vegas. As the closest trauma center to the concert site, HCA's Sunrise Hospital & Medical Center received approximately 200 victims in one hour. For the entirety of the event, 127 patients with gunshots were in intensive care. All 30 operating rooms were immediately activated and operated throughout the nine following days. In all, more than 80 operations were performed. As a relative trauma center, Sunrise dealt with many of the most severely injured patients. Meanwhile Southern Hills and Mountain View hospitals took those less critical and made sure Sunrise had all the necessary staff, supplies and equipment to manage the situation. While we have very robust disaster preparedness and mass casualty plans in place, nothing could have completely prepared us for this unprecedented sequence of events. I now will speak for the entire management team in saying that I've never been in a time when I was more proud of the incredible team and professionals that lay throughout the organization. Our colleagues at every level of the company, but especially in those communities performed beyond any expectations we can have and demonstrated the best of the HCA culture. Now moving to spend a few moments on my thoughts around the third quarter, the hurricanes along with Texas Medicare waiver reduction in the quarter add complexity to the evaluation of the third quarter results. However, if you look at the broad trends normalized with the destruction in the hurricane affected markets, we believe many of the trends are comparable with the first half of 2017. Sam and Bill will provide detail on some of these trends in a moment. Third-quarter revenues increased 4.2% to $10.7 billion compared to the prior year. Hospitals acquired during 2017 contributed approximately $155 million to the increase in revenues in the quarter. Adjusted EBITDA totaled $1.776 billion, down $181 million from the prior year. As mentioned in our earnings release, the estimates from hurricanes unfavorably impacted our third-quarter performance by approximately $140 million or $0.24 per diluted share and increased $0.06 in losses of revenue in our Corpus Christi, Florida, Georgia, and South Carolina markets. Also results for the third quarter were negatively impacted by $50 million or $0.08 per diluted share associated with Texas Medicare waiver settlement amounts. As mentioned earlier, volumes remained somewhat consistent with the first half of 2017, with same facility admissions increasing 60 basis points and improvement admissions increasing 30 basis points in the prior year. We estimate that the hurricanes had an unfavorable impact of 80 basis points on same facility admissions growth and 80 basis points in same facility equivalent admissions growth. This represents the fourteenth consecutive quarter of equivalent admissions growth for the company. Our same facility Medicare admissions comprised 45.5% of the company's overall admissions while our same facility managed care and exchange admissions were 27.2% of total admissions compared to 44.7% and 27.8% respectively in the prior year's third quarter. As we noted in the October '18 third quarter preview, we have updated our guidance for 2017. We currently estimate adjusted EBITDA will range from $8.28 to $8.15 billion for 2017. This does include the estimated impact of hurricanes and the Texas Medicaid Waiver program settlement amounts. Earnings per diluted share is now estimated to range from $6.45 to $6.70 per diluted share. Cash flow from operations totaled $1.008 billion compared to $1.206 billion in the third quarter of '16. The decline is primarily attributed to the $215 million declines in net income. Our days in AR increased slightly to 51 compared to 50 days at year-end and 49 days at the end of the second quarter. We remain active with share repurchase in the quarter. We repurchased 6.3 million shares of common stock at a cost of $509 million and for the nine months ended September 30, 2017, we have repurchased 17.8 million shares at a cost of $1.475 billion. As you may have seen this morning, the company announced that the board has approved a new $2 billion share repurchase authorization and at October 31, 2017, including this newly announced program and the remaining authorization on the company's November 2016 program, the company has approximately $2.150 billion authorized for share repurchase. Finally, an update on M&A activity, during the third quarter we closed the acquisition of 5 hospitals in Texas for approximately $880 million. Also on October 1, 2017, we closed on a previously announced Rutherford Texas acquisition. That brings total M&A activity for the year to seven hospitals with two more pending which we believe should close sometime in the fourth quarter. The previously announced divestiture of OU Medical Center is now estimated to close on December 31 of this year. And so, with that, I'll turn the call over to Bill.

Good morning, everyone. I will add to Milton's comments and provide more detail on our performance and results for the third quarter. As we reported in the third quarter, our same-facility admissions increased 0.6% over the prior year, and equivalent admissions increased 0.3%. Year-to-date same-facility equivalent admissions are up 1.2% over the prior year. As Milton noted, we estimate the hurricanes negatively impacted same-facility admissions growth by 30 basis points and equivalent admission growth by 80 basis points. In addition, the loss of a business day compared to the third quarter of '16 also impacted some volume statistics. Sam will provide more commentary in a moment and I'll give you trends by payer class. During the third quarter, same-facility Medicare admissions and equivalent admissions increased 2.4% and 3% respectively, compared to the prior year period. This includes both traditional and managed Medicare admissions. Managed Medicare admissions increased 4.9% on a same-facility basis compared to the prior-year period and represent 34.1% of our total Medicare admissions. On a year-to-date basis, Medicare equivalent admissions are up 3.4%. Same-facility Medicaid admissions and equivalent admissions declined 1.8% and 2.2% respectively in the quarter, compared to the prior-year period. Same-facility self-pay and charity admissions increased 6.4% in the quarter. These represent 8.4% of our total admissions compared to 8% in the third quarter of last year. Year-to-date our same-facility uninsured admissions were up 5.7% from the same period last year. Managed care and other, including exchange admissions, declined 1.7%, and equivalent admissions declined 1.9% on a same-facility basis in the third quarter compared to the prior year. Same-facility emergency room visits increased 0.3% in the quarter compared to the prior year, and as we stated in the release, we estimate the hurricanes had a 30 basis point impact on our emergency room growth in the quarter. Same-facility self-pay and charity ER visits represented 20.3% of our total ER visits in the quarter, compared to 19.9% last year. And on a year-to-date basis, same-facility emergency room visits have increased 0.7%. Intensity of service or acuity increased in the quarter with our same-facility case mix increasing 3.3% compared to the prior year period. Same-facility inpatient surgeries declined 0.7% and outpatient surgeries declined 4.2% from the prior year, reflecting the impact from hurricanes in our South Texas, Florida, Georgia, and South Carolina facilities. When adjusted for the hurricane impact and one less business day, we estimate outpatient surgeries declined approximately 0.7% in the quarter. During the third quarter, same-facility revenue per equivalent admission increased 2% from the prior year. Our hospital same-facility managed care, other, and exchange revenue per equivalent admission increased 3.1% in the quarter and 4.6% on a year-to-date basis compared to the prior year. The growth rate in the third quarter was impacted by the comparison to a strong 6.5% growth recorded in Q3 of 2016 and some hurricane impact due to the lower surgery volume. Same-facility charity care and uninsured discounts increased $369 million in the quarter compared to the prior year. Same-facility charity care totaled $1.19 billion in the quarter, an increase of $155 million from the prior year period. Our same-facility uninsured discounts totaled $3.447 billion, an increase of $214 million over the prior year. Our uncompensated levels have trended in line with our uninsured and revenue trends. Now, we turn to expenses. There is a lot of noise in the quarter from hurricanes that affected our expenses making it more difficult to compare expense trends on a quarterly basis. Same-facility operating expense per equivalent admission increased 4.5% compared to last year's third quarter. Our consolidated adjusted EBITDA margin was 16.6% for the quarter as compared to 19.1% in the third quarter of last year. Same-facility salaries per equivalent admission increased 4.9% compared to the last year's third quarter. Salaries and benefits as a percent of revenue increased 140 basis points compared to the third quarter of '16, primarily reflecting hurricane-related costs. We are pleased that we have seen a reduction in our nursing turnover from 20.2% last year to 18.3% this year. This aligns with a sequential improvement in contract labor on a same-facility basis and total contract labor has grown 2.2% over the prior year in the quarter. Same-facility supply expense per equivalent admission increased 2.2% for the third quarter in the prior year period and supply cost as a percent of revenue increased 10 basis points. We continue to see sequential improvement in supply expense as a percentage of revenue during 2017. Other operating expenses as a percent of revenue increased 90 basis points from last year's third quarter to 19.4% of revenues, primarily reflecting increases in year-over-year contract services and professional fees that we discussed on our last two calls. This metric was also impacted by hurricane-related costs. Let me touch briefly on cash flow. Cash flows from operations totaled $1.008 billion. Year-to-date cash flows from operations were $3.692 billion and free cash flow, which is cash flow from operations, minus capital expenditures and distributions to non-controlling interests was $1.296 billion. At the end of the quarter, we had approximately $2.037 billion available under our revolving credit facilities. Debt to adjusted EBITDA was 4.08 times at December 31st, 2017, compared to 3.82 times at December 31st of 2016. Let me speak briefly on our health reform activity. In the third quarter, we saw approximately 12,200 same-facility exchange admissions as compared to approximately 12,900 we saw in the third quarter of last year for a decline of 5.8% year-over-year and a 4.9% decline sequentially from the second quarter. We saw about 46,700 same-facility exchange ER visits in the third quarter compared to 49,300 in the third quarter of 2016 and 52,400 in the second quarter of '17 for a 10.9% decline sequentially. These health reform results are pretty consistent with what we have been seeing in the year and generally speaking track with the Roman activity we see in our markets. So, that concludes my remarks and I'll turn the call over to Sam for some additional comments.

All right. Thank you, Bill, and good morning to everyone. I'm going to provide some additional detail on our volume trends for the quarter as compared to the third quarter of last year. On a same-facility basis for our domestic operations, 8 of 14 divisions had growth in admissions. Growth was especially strong in our North Florida, Tennessee, Capitol and South Atlantic divisions and conversely our East Florida, Far West, Mid America, Central West Texas, and Gulf Coast divisions were weak. East Florida and Gulf Coast were obviously impacted somewhat by the storms, but we believe both markets have recovered well with no indications of permanent issues. All other divisions were slightly up or slightly down for the quarter. Eight of 14 divisions had growth in adjusted admissions; 8 of 14 divisions had growth in emergency room visits. Freestanding emergency room visits grew 18%, while hospital based emergency room visits declined 1.5%. Once again most of this decline was seen in lower acuity visits. Admissions through the emergency room grew by 1.6%. Trauma and EMS volumes grew by 7% and 1% respectively. Inpatient surgeries were essentially flat. Surgical admissions were 28% of total admissions in the quarter. Surgical volumes were strong in cardiovascular and orthopedic service lines. Seven of 14 divisions had growth in inpatient surgeries. Outpatient surgeries were down 4% and volumes were down in both our hospital-based and freestanding ambulatory surgery centers. We have one less business day in the quarter as compared to last year in the storms that had an effect. Behavioral health admissions grew 4.1%. Rehab admissions grew 4%. Cardiology volumes grew 5%. Births were down 2.5% and neonatal admissions were essentially flat. In summary, after adjusting for the estimated impact of the hurricanes, our volume trends were generally consistent with the first half of the year. As I stated in my comments last quarter, we believe the growth in inpatient demand in general has moderated across most of our markets over the last year, which we believe explains most of our softer volumes. For the 12 months ended March 2017, which is the most current data available, inpatient market share for HCA increased by 10 basis points as compared to the previous period. Now, let me transition to our operations in London. Adjusted EBITDA in the quarter for this market was down 12% and both local currency and dollars were approximately $6 million. This decline is less than the last quarter and represents a better overall performance for this division. We anticipate continued improvements in our results over the next few quarters. Overall we continue to refine and enhance our efforts to improve and grow our business. We believe these refinements and enhancements will deliver value for our patients and physicians, allow us to compete more effectively in a dynamic marketplace, and ultimately sustain growth for the company. With that, let me turn the call back to Vic.

Thank you, Don, if you come back on and let's pull for questions. I would ask that each questioner limit themselves to one question, so we can give everybody an opportunity. Don? Don, are you with us?

Thanks. Good morning. So, Sam, on the call you mentioned that you think inpatient demand is down across your markets. I wanted to get the company's broader view of how we should think about the typical algorithm to what I think you described as 4% to 6% EBITDA growth in terms of market growth, plus market share growth, etc., plus leveraging the fixed cost to get to that 4% to 6%. If market growth stays where it is today, what do you think a reasonable EBITDA growth rate for the company would be in the near to intermediate term? Thanks.

Let me start on the demand point of your question. Justin, I'll let Bill jump in here on some of the other components. Inpatient demands for HCA's markets are still growing. In the first quarter of 2017, which is the most recent data available, our markets, 42 markets grew up 0.8% that's a little bit below our expected level of growth as we think about the overall factors that drive demand for healthcare services in our markets. If you normalize that a little bit for leap year, it probably grew about 1%; 2016 grew at about 1.4% to 1.5% for inpatient demand and we use that as a general proxy for overall demand with some aspects of outpatient growing faster than that. So, we still are confident that the prospect for growth in HCA's markets is still good. We have indicated in the past and we continue to believe that over the long run inpatient demand in healthcare services in HCA's markets is going to grow somewhere around 2%. It could be a little bit more, a little bit south of that depending on a number of factors. Our belief around population growth, utilization increases for aging baby boomers, chronic conditions, and the growth in diabetes, and cancer, and other obesity, those kinds of things are driving demand. And then when you look at the market economies, we still believe there's going to be solid job growth across HCA's markets. So, the company is investing inside of this belief around demand. We're relieving capacity constraints. We're adding outpatient facilities to our network and we're putting ourselves in a position to really compete at a high level. And so, our approach is built around volume growth. We have to have volume growth I think to be successful. We've had modest volume growth this year in a difficult period with modest market share gains. For us to get to our volume objectives, we have to pick up 20 to 25 basis points of market share, not 10, so we're a little bit short of where we want to be. Again some of that is market-specific. Some of it is competitor-specific, but over the long haul we think we are in a position to achieve that objective and that is obviously a starting point for our ability to achieve our EBITDA targets that we've laid out. I'll let Bill or Milton carry on with the follow-through on that question.

Yeah, Sam I've been - just I'm not sure what add to that, but I'll just echo Sam, we still believe in our 4% to 6% long-term EBITDA expectations for the organization. As Sam mentioned, we believe that because of our attractive markets. The population growth, the aging of the population we're seeing in our markets. Good economic conditions in our markets. We've got, as you know, roughly 25% market share on a composite basis in these markets. We're making substantial capital investments in the markets, including adding some acquisitions. I mentioned seven new hospitals this year, all of those not contributing to earnings growth. In 2017 we expect those acquisitions to contribute to growth in the out years. Our team's execution, their track record of execution, all of those things combined gives us confidence in our guidance for long-term EBITDA growth of 4% to 6%. Obviously this year has been a challenging year where we're not going to meet that expectation, but if you look back over recent years, we've had years in the last five years where we've exceeded that expectation with a five-year CAGR of just under 6%. So, again all that goes into our thinking about the long-term growth expectations for HCA.

Alright. Justin, thank you.

Great. Thanks. Maybe I just want to follow up on that question. Would you please think about why the volume number this year is likely to be less than your long-term target? What is it about 2017 and obviously leap year and hurricanes, but even if you exclude those things, you are still coming in below what you would expect to do long-term on volumes? So, what is it about the backdrop today that makes it a challenging backdrop and why would it get better next year? There doesn't seem to be a lot of obvious areas of market improvement heading into next year versus this year.

I don't know. This is Sam again. I don't know that I have every answer to 2017. I mean some of this is a judgment about what we see in the market and if you look back over the last three or four years, it was never the same metric in each of those three or four years. So, one year may grow 3%. One year may grow 1.8%. And so, if you're looking at it over a bit of a longer run, you get to an average that seems to be a reasonable proxy for going forward forecasts around volume growth in our markets. I mean there has been some level of competition as we've indicated in the past in certain outpatient arenas that can have some downstream implications for us, but that has moderated as I said on the last call and we've seen some saturation if you will of development in certain outpatient elements that have slowed that issue down. So, I think when you look at where we are trending when you normalize for some of these factors, this is just one of those years I believe where the market has been a bit overheated in the past and maybe it just moderated. But from my standpoint and from the studies that were done, we see no reason that it won't move to the norm over some reasonable period of time. We don't have all of our 2018 budgets finalized yet, so we're not in a position to really provide guidance on that particular year. But if you think about it in the context of the next two to three years, we think growth over that cycle is going to be somewhere consistent with this 2% number.

Thank you, Kevin.

Good morning. I appreciate the color on the third quarter volumes relative to the first half of the year. But I'm curious could you give us any general commentary about what you're seeing so far in the fourth quarter related to any kind of volume recovery, the normal seasonal volume recovery you would see and then is there any difference in the recovery that you're seeing between hurricane affected and non-hurricane affected markets? Thanks.

Sam. Well, I can't really give a company view on the volumes coming out of the gate in the fourth quarter, but I will say this. Houston and Miami, which I said in my comments, the indications coming out of the gate in the fourth quarter given the significance of the aversion to the market does not suggest any permanent issues, as that would be able to resolve the hurricanes. So, in Houston we are actually tracking slightly above last year, and in Miami market was slightly below, but we did not estimate why that is. And it's not related to any kind of permanent market damage, in either of those two markets.

Right thank you, as you know our practice is we don't talk about third quarter, but that obviously will command over the Columbus hurricane market, so you understand where they stand. Alright, next question.

Thanks, good morning, sort of going back to the first couple of questions I guess. Despite the pressures you've seen you've been still able to put up 3% same facility revenue growth, obviously this quarter is impacted by the hurricane, which we add that back. You haven't been able to deliver EBITDA, so, are there things you can do amidst cost side that will make you think you could hold the line on margins in 3% top line trend, so as sustained in the next year, or do you really think you need that 4% level plus the whole market?

Yeah, we'll take that. I think that we historically shared that the 4% low level, that's one element from the Miami margin maintenance. Clearly this quarter margin was impacted by the sloppy revenue due to hurricanes, the waiver programs as well as the cost trends in the hurricanes. I also mentioned the acquisitions that we came and didn't cover our margin contribution awareness, so all that will come into play. But, I still believe that the 4% level, we still anticipate keeping a margin minus level. I think we've got a track record of continuing to maintain the cost structure; we got a lot of initiatives on the way, will it be our supply cost initiative, continued opportunities on which in the land Berg agenda as we have some success in various initiatives through additional nursing turnover. So, I still believe that the 4% level, we still anticipate a margin minus level.

Thank you very much.

We don't make calls though, we do write research, thank you very much gentlemen. So, first let it be said, very fitting tribute to the hard work that was done and the commitment and compassion of all the people who cared for everyone else during this quarter in very difficult times - pace to remember the year in hospital business and we can't forget that. But with that we still need to understand and I think the over questions run 2018 probably aren't going to help us. So, maybe I'll stay back and ask a different question about the company's forward-looking strategy. The first time in a long time you are doing acquisitions, you're still committed to a grow market share build the depth most integrated, strongest best quality hospital systems in market. You've invested a time and big data which we haven't about on these calls, I presumably you've done to add to the value creation on a day-to-day basis and forward. So, Will can you frame what the strategy in terms of, it sounds like you are adding to the usual day-to-day, what we've come to expect from HCA outstanding execution and brilliant market. But, it sounds like you are adding another like to the store and that there are more things that could come to play, next year or the year after from the perspective of strategy, the company is pursuing, so please enlighten us?

Sure, so we have been more inquisitive this year, we've had more opportunities in you need know our company and that we are not very comfortable should they have a certain number of hospitals. We look to acquire hospitals and markets where we see long term positive population demand growth opportunities. And, we theatrically want to have the relative amount of market share going into our new market. You know in Savannah, gives us that, as I've said in my comments, we hope to close in Savannah about the end of the year, and we are excited about the opportunity to go into a new market. There are lots of hospitals for children, hospitals are more supplementary to our existing markets like Houston, Dallas, Fort Worth, San Antonio, or Jacksonville. We will continue to look for those opportunities. We today are final on ramp positions is really good, as I said, it may be considered the best pipeline we had in maybe in 15 years or 20 years. And so, we marked up more flabby opportunities, so we continue to look for those in adding that to our strategy going forward. With respect to big data, there we've invested quite a bit, and it's already contributing. Where you see the contribution, we see it in a number of ways, but primarily and most importantly we see it in quality inside the care way it provides. I was using our clinical data to improve care in our hospitals, is something that we are making right start in, I know we are just getting started, like the interface is getting started there. But we are making a difference anyway saving the lives of the treatment of Sepsis, blood utilization and another and number of other areas. So, we all continue to invest in that area, continued to be benefited from that for our patients. And of course, that attracts great positions which of course contributes to our growth strategy as well overall. So, all that is part of our strategy Sheryl, I think that we will continue to look for growth opportunities, freelance positions and also growth opportunities through using proprietary information like our big data and how we can use that to continue to leverage our position in the markets.

That's great Jon, perhaps you're chief medical directive, you want to add anything to that.

Thank you for the question. We are consistently working to improve our operations using data from the 28 million patient encounters we have each year. This data enhances the security of individual patients and creates opportunities for precision medicine. Additionally, it provides insights into our business plan. We are currently focused on improving emergency room processes and increasing the efficiency of patient matching and care. We are also working with unstructured data to streamline our processes. For example, our cancer navigators, who previously spent 70% of their time locating patients, can now dedicate that time to patient care. This improvement helps us deliver better service and meet patient needs more effectively. Overall, we aim to create a virtuous cycle of learning and enhancement. Thank you for your inquiry.

Thank you. Our next question is from Brian Tanquilut with Jefferies.

Hey good morning guys, first question on capital deployment, I think in back 2015 we talked about an annual CapEx program that answers itself? So, how are you thinking about sustaining that or pushing that to 2018, especially given the growth outgrow that you guys played out. Is it something that you expect to contain and just stay that level, or we're re-shifting the capital focus to exact positions to plug the growth from what seems to be a slowing organic outlook?

I want to say the thing what I add on bill. Well our CapEx expenditure program, we have been setting it up at approximately $3 billion this year. I would expect for the year-end for 2018, it will continue at the low volume and move on, obviously some of the acquisitions that we made will have some capital investment there, on top of our base of hospitals and markets that we have. So, and after may look beyond 2018, we do have more flexible floating in our capital budget as far as commitments so, we are judged that as we go through the coming months in quarters, as in the proper amount of investment, but we will continue to make investments. As you know, our growth story is largely banked on organic growth story and again as I mentioned we are in great markets with population growth and we expect demand, so I think you'll continue to see us invest, but beyond next year, we'll wait and see, but we do that more flexibly with respect to capital.

Yeah, good morning just wanted to know what your outlook was for 2018 commercial managed care rate increases compared to 2017 and then kind of related to that what are you seeing as far as neuro network strategies and you are taking risk in those kind of commercial managed cares were to patients.

At this particular point in time the company is about 80% contracted for 2018, 75% to 80%. And almost identical term is to 2017 so all round 4% on our pricing trends with our commercial book of business and where about 35% to 40% into 2019 and about the same number. It was starting to pay say a little bit differently because we think there are certain reasons to the above business we are. So we can expect about 2019 and 2020 with respect to the need for some pricing adjustments possibly. But as it relates to neuro networks in risk taking, I would say I general not a lot has changed. We are not seeing significant neuro network development outside of the exchanges where we have been operating inside of that model. Ourselves as, as some of our competitors. Clearly there are evolving models in certain markets at different levels around accountable care organizations and other models such as that we have a number of those within our portfolio of offerings with pairs in such so there is not broad-based movement though on those fronts on the commercial book of business. I would say on the Medicare advantage side equation, there tends to be more deeper penetration of those type of things in the areas on the commercial side. So we are not seeing any significant movement though across the company that would suggest a major structural change in the near term possibly in the intermediate term in some markets but again not across 42 different markets.

Great thanks.

Hi, thanks. Bill, back to the comment on years nurses turnover, I am just maybe curious entering 2018 what is with these neuro initiatives resources or strategies you have around your programs I think a couple of years ago you were pretty successful onboarding physicians early into the organization I think like you kind of perhaps maybe you are offering something larger, a larger focus on something for the company so just maybe any comments just on the nurse programs.

So Whit it is the same, let me take this. We are really pleased with where we are with our initiatives around nursing in general and specifically around nursing turnover as Bill indicated, we have improved our nursing turnover in about 15 months, 18 months by 200 basis points. Our nursing contract labor for the quarter, the spend on nursing contract labor not our components of contract labor in the company was actually day on in the third quarter on a year-over-year basis. So we are very encouraged by that trend. We think we still have headroom in a number of retention initiatives that will drive that metric down even further. I will tell you, we just checked off a second innovation of our nursing strategy, Milton provided an idea for the whole company. We have a very robust nursing agenda that we believe is going to ultimately differentiate HCA further from a nursing standpoint. At our core, the company is a nursing company. We provide nursing care in ERs, in the ORs, on the floors in our cardiac CAT lab, whatever the case may be. And we are seeing and finding ways to leverage what are called the HCA way to weight improve nursing. Part of that is creating organizational capacity for improvement, part of that is standardizing technology on the floors so that our nurses can spend more time at the bedside with our patients. An example of this we acquired the company a few years ago that had some unique technology that allows us to communicate within our nursing environment more effectively with our patients more effectively with physicians and so forth. We have got one-third of the way through rolling that particular technology up. And then I will tell you the last thing is really working with our nurse managers and our nurses to deal with pain points that prevent them from being as successful as they want to be. We think this is all connected to onboarding, nurse residency programs and evolved in the company in ongoing clinical education which we believe will produce a more competent workforce, more capable workforce and more efficient workforce generating better patient outcomes and clearly greater position in components as Milton indicated a moment ago we ultimately think driving more volume. So our nursing initiative is being resourced very comprehensively and we think there is a lot of opportunities for our improvements in what we are doing inside of our facilities.

Well, thank you.

Yeah, those - hoping maybe we just talk I know your pointing to a number of the long-term growth drivers can we think about the demographic shift, how do you think about the positive impact clearly from that aging trend which is very strong versus the offset of the mix shift from, I am sorry to lower Medicare reimbursement?

Alright, anybody to take a swing at that?

We have observed some changes in the mix between government and commercial sectors due to demographic changes and increased utilization. However, we do not anticipate significant differences in the year-over-year trends we have seen. We have strategies in place for managed care and the commercial side to navigate this, along with efforts to increase our commercial market share. This helps balance the expected shift from commercial to governmental sectors.

No, I just kind of asking you said - you are still in that positive when you factor that all in - in terms of the one hand the '18 trend on the other hand that Medicare pace left?

We clearly as utilization grows as people age through those continuing such going to generate more of the imports. So we can continue to - as we continue to see that trend, I think we will be in positive. The one thing that I think is important is it is when you look at our markets, our forecast for commercial demand, not just overall demand, the overall demand is being stocked if you will by the aging baby rumors and a few other components but the commercial demand side equation at least in our markets we believe, it's still going to grow also and it won't grow with that composite number, but we believe it will grow somewhere around 3.5 points and so if we can maintain market share or grow market share inside of that overall demand picture then that obviously compensates for some of the margin dilution if you will that comes from a Medicare patient which is obviously less profitable than a commercial patient. So that's how we think about it, we have to ultimately grow or maintain our market share on the commercial side to make them all work.

Thank you.

Yeah, thanks good morning. On the 2% admissions growth normalize, how do you think about the mix of things to angulatory and moves out the hospital deals with urgent care. I heard you tonight as saying that they can get 50% lower bed utilization in their optimum care markets and they stay of a 90% of AD visit possible in urgent care and is that trends slowing down or is it accelerating or how is that factoring into 2%.

Let me give this a same - let me give you a couple of metrics for the quarter and this is pretty consistent for the year. Our lower acuity levels in our emergency rooms have declined 3%. Our upper level acuity visits - upper three levels have grown 3.8% so it actually seeing more growth from the high end then we have we obviously had declines in the low ends. Our pricing in our emergency room tends to be stepped up based upon that and so from that stand point we are growing our higher priced emergency room visits. We are seeing declines in some areas on the lower, so the revenue production coming out our emergency room is still very, very strong. To suggest at 90% if I heard it correctly emergency room visits can be put into urgent care, there is no way that can happen. It is not possible, there is too much acute activity on the emergency room side for that to occur. We have urgent care centers developing across the HCA as a platform as well as an extension of our network I think we are up to almost a 100 urgent care centers in a very complimentary to our overall networking position and we do think for certain patients and in certain situations it is the better center and a better setting for care than the emergency room obviously, but they are very complimentary and they are very important to the marketplace, they are very important to the network and they are very important to the payers in having access to a broader way of facility both in urgent care and emergency services. So that trend has stabilized I would say, there is not much difference over the last few quarters and where that has gone within our emergency room and what the trends have done. We won't just have to see how that plays up from one market to the other, there are differences in some markets. You are right there could be some differences in how that plays are, but broadly across the company those are big trends.

Thank you.

Hi, good morning. Just wanted to come back to the same facility on insured admissions increases, seems like it worsened a little bit on sequentially in the quarter. Are you guys trying to say that most of that or all of that is explained by declining ACA volumes and if not, what are the dynamics are in play at this point? Thanks.

Yeah, this is Bill. So we reported 6.4% in the quarter, I think we run in 5.7% year-to-date, so it's jumped on us a little bit but I really don't judge that to be a materially jam as we - went into 2017 if we could to keep uninsured volume in that made to high single digits that's kind of what we anticipated as we have stated before 70% of our uninsured volumes in Texas and Florida. We are correlating that to the drop in the health insurance exchange. I think that is kind of the underlying number that we are seeing at a 6% level, 6.5% I think that's within a historical range that we expect, remind you that the impact of the growing uninsured is available cost to solve that and at mid-single digit level, I think that's within the confines of overall expectations and guidance.

Thank you, Chris. One last question.

Hi, thanks for putting me in. Can you give us some context around where HCA sets now in some of these shifting markets? So how much of your current inpatient admissions or revenue is related to the procedures, the philosophy done in outpatient and think for ER, how much of the ER revenue or admissions is currently in low acuity?

On the ER question, about 45% to 48% of our ER businesses are low acuity and obviously the balance of that is in the upper 3 acuity levels, so little bit more on the upper side than the lower side. To suggest that our inpatients procedures that ought to be done as outpatients, I don't see that as a case at all. I mean there is all kinds of protocols from a governmental standpoint as well from a commercial payroll standpoint around approving procedures that are done in the inpatient setting and or the outpatient setting. So that's really not a phenomenon and that I think is out of source, I will tell there is always movement from inpatients to outpatients. That's inner trend, it's been there for a decade or so, but there are also new technologies that are driving inpatient activity. We have seen that vascular care in other aspects of different service lines. So there always it's in out that goes inside of these two components of our business, but we aren't seeing any unique trends from inpatient to orthopedic services, but they are not anything that's so substantial that's going to disrupt the revenue stream on the inpatient or overly accelerate the revenue stream of the outpatients at least in our judgment.

Alright, Sarah, thank you. I want to just thank everyone for being on the call. Have any further questions feel free to give Mark a call. Thank you so much.