HCA Healthcare Inc (HCA) — Q4 2018 Earnings Call Transcript

Thank you, April. Good morning and welcome to all of you on today's call or webcast. With me this morning is our CEO, Sam Hazen and Bill Rutherford, our CFO which will provide comments on the company's results and 2019 guidance provided in today's earnings release. Before I turn the call over to Sam, let me remind everyone that today's call contains forward-looking statements. They are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these factors are listed in today's press release and in our various SEC filings. Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the significant uncertainties inherent in any forward-looking statements, you should not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future results. On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc., excluding losses, gains on sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. is included in today's fourth quarter earnings release. This morning's call is being recorded and a replay of the call will be available later today. I'll now turn the call over to Sam.

Good morning. Thank you for joining us today. We finished the year with a strong quarter and ahead of our expectations. Solid volume increases and strong revenue growth drove this quarter's results, which were consistent with all of 2018. Inpatient admissions and equivalent admissions on a same facility basis grew almost 2%, respectively, in a quarter. Volume growth was broad-based across most service categories and balanced across our diversified portfolio market. Revenues on a same facility basis grew by 6.4%, totaling almost $700 million. Our strategy to deliver services that are more complex supported this growth along with a good payer mix and stable commercial pricing. Revenue per equivalent admission grew by 4.4%. The growth in revenue translated into strong earnings for the quarter with diluted earnings per share of $3.01. Adjusted EBITDA grew by 6.2% to slightly over $2.5 billion with an adjusted EBITDA margin of 20.4%. Cash flows were also very strong and ahead of our expectations. Bill will provide more details on these metrics and 2019 guidance in his comments. 2018 was another strong year for HCA Healthcare. We have now grown our same facilities inpatient admissions in 19 consecutive quarters. The strategic investments in our business to expand our network and improve our clinical capabilities are making it easier for patients to get high quality, convenient patient care in an HCA facility. We have over $3.5 billion of capital spending in the pipeline that should come online over the next two years. These investments will create additional inpatient and outpatient capacity within our local healthcare systems. As I stated in last quarter's call, we believe that fundamentals in our markets are strong with growing demand for healthcare services. The continual improvement in the competitive positioning of our local healthcare systems gives us confidence as we move into 2019. Inpatient market share in 2018 grew by 45 basis points compared to 2017, reflecting this improvement. As indicated in our earnings release, our Board of Directors has authorized an additional share repurchase program for up to $2 billion of the company's outstanding shares. Additionally, the Board declared a quarterly cash dividend of $0.40 per share, which is an increase of 14%. Finally, we are excited about the expected closing at the end of January on the acquisition of Mission Health, which is a large, successful health system in Asheville, North Carolina. This system will add to the already strong portfolio of markets that we have inside of HCA Healthcare. With that, let me turn the call over to Bill for more details.

Great, thanks Sam, and good morning, everyone. I will cover some additional information related to the fourth quarter results and review our 2019 financial guidance. Then we'll open the call for questions. As Sam mentioned, we are pleased with the fourth quarter results, as well as for the full year. Volume, intensity, and great expense management led to a solid quarter and a strong finish to the year. For the quarter, adjusted EBITDA increased 6.2% to $2.508 billion, up from $2.362 billion last year. We believe this was a solid result considering the strength of the fourth quarter in 2017. As noted in our release, we did have some hurricane activity that impacted our results in the quarter. First, we estimate the impact of Hurricane Michael, which unfavorably impacted our Florida Panhandle facilities, mostly Gulf Coast Medical Center and Panama City Beach, to be about $31 million in the quarter. Also, we recorded a $49 million benefit to adjusted EBITDA from settling our insurance coverage related to Hurricane Harvey business interruption that affected our Houston market in the third quarter of 2017. Regarding volume stats, in the fourth quarter, our same facility admissions increased 1.9% over the prior year, and same facility equivalent admissions increased 1.9% as well. We estimate that the impact of Hurricane Michael and the decline in flu activity from last year had a 50 basis point unfavorable impact on same-facility admissions in the quarter. For the year, both same-facility admission and equivalent admission grew 2.5% over the prior year. During the fourth quarter, same-facility Medicare admissions and equivalent admissions increased 2% and 2.5%, respectively. This included both traditional and managed Medicare. Same-facility Medicaid admissions increased 0.8%, while equivalent admissions declined 0.7% in the quarter. Our commercial admissions increased 1.1% and equivalent admissions increased 1.6% on a same-facility basis in the fourth quarter compared to the prior year. Same-facility self-pay and charity admissions increased 7.4% in the fourth quarter compared to the prior year. Same-facility emergency room visits decreased 2.1% in the fourth quarter compared to the prior year. We attribute about 60 basis points to last year's flu season. Additionally, when we look at the changes by equity level, all of the fourth quarter declines are in level one through three visits. Our higher level (four and five) visits grew 1.1% over the prior year. Moreover, admissions in the emergency room grew 1.9% over the prior year. Same-facility revenue for equivalent admission increased 4.4% in the quarter and was up 3.9% for the year. We are pleased with the overall rate trends we experienced in 2018 as we saw continued growth in equity, good payer mix, as well as the incremental Medicare update in the fourth quarter. We also believe we are well positioned in our commercial contracting segment as we look forward to 2019. We don't expect any major changes in this environment. We have good visibility into our 2019 commercial contracts where we are 80% contracted in rates consistent with our recent trends. Now turning to expenses, we are pleased with the overall management of expenses. Adjusted EBITDA margins in the fourth quarter were 20.4% as reported, and our same-facility margins increased 10 basis points over the prior year. For the full year 2018, our same-facility adjusted EBITDA margins increased 70 basis points with labor improving 30 basis points, supply cost improving 30 basis points, and our other operating costs improving 10 basis points. Let me take a moment to talk about earnings per share and cash flow. As reported, diluted earnings per share in the fourth quarter, excluding gains and losses on sale facilities and losses on retirement of debt, was $2.99 compared to $1.30 in the fourth quarter of last year. Year-to-date, as reported diluted earnings per share, excluding the impact on gains and losses on sale facilities and losses on retirement of debt, was $9.77 compared to $6 in 2017. In addition to the solid operating performance of the company, the decrease in our income tax provision contributed to the diluted earnings per share increases both for the fourth quarter and the year. As Sam mentioned, cash flow was very strong for the company. In the fourth quarter, cash flow from operations was $2.18 billion compared to $1.73 billion in the fourth quarter of last year. For the full year 2018, cash flow from operations was $6.76 billion, an increase of $1.33 billion from $5.43 billion last year. Capital spending for the year was $3.57 billion in line with our expectations. Cash flow from operations of $6.671 billion, less capital spending of $3.573 billion, distributions to non-controlling interest of $441 million, and our dividend payments of $487 million, resulted in free cash flow of $2.260 billion in 2018. Also during the year, we completed approximately $1.5 billion of share repurchases and had $272 million remaining on our previous authorization as of December 31st, 2018. At the end of the quarter, we had $2.7 billion available on our revolving credit facilities and our debt-to-adjusted EBITDA ratio was 3.7x. These cash flow and balance sheet metrics continue to be an important strength of the company. With that, I'll move into the discussion of our 2019 guidance. We highlight our 2019 guidance in our earnings release this morning and noted our guidance does include the anticipated impact of the Mission Health acquisition, which we expect to close on January 31st, 2019. We estimate our 2019 consolidated revenue should range from $50.5 billion to $51.5 billion. We expect adjusted EBITDA to be between $9.35 billion and $9.75 billion. With our revenue estimate, we anticipate same facility equivalent admission growth to range between 2% and 3% for the year. Same-facility revenue for equivalent admission growth is also expected to range between 2% and 3% for 2019 as well. We anticipate same-facility operating expense per adjusted admission growth of approximately 2.5% to 3%. Our average diluted shares are projected to be approximately 352 million shares for the year, and earnings per diluted share guidance for 2019 is projected to be between $9.60 and $10.20. There are several items affecting our year-over-year diluted EPS comparisons including the third quarter impact of professional liability reserve adjustment of $0.15, Hurricane Harvey settlement of $0.11, and adjustment to our deferred tax balances of $0.19, as well as the expected differences in the benefit of excess equity reward settlement of $0.35 in 2018 versus $0.23 estimated in 2019. Adjusted for these items, our diluted earnings per share guidance reflects an approximate 8% growth at the midpoint. Relative to other aspects of our guidance, we anticipate cash flow from operations between $6.5 billion and $7 billion. We anticipate capital spending of $3.7 billion in 2019, which includes anticipated capital spending from Mission. We estimate depreciation and amortization to be approximately $2.5 billion and interest expense to be approximately $1.9 billion. Our effective tax rate is expected to be approximately 23%. Sam mentioned in his comments that we also announced an increase of our quarterly dividend to $0.40 per share and authorized a new $2 billion share repurchase program. Both of these reflect management's belief in the long-term performance of the company, our confidence in the strength of our cash flow, and our commitment to a balanced allocation of capital. That concludes my remarks, and I'll turn the call over to Mark to open it up for questions.

Thank you, Bill. April, you may now give instructions to those who want to ask questions.

Thanks. Good morning. So given the solid quarter and all the detail, the question I had here was just on 2019. And two things: one, year-over-year your EBITDA growth that you talked about in the third quarter expected the growth to be about similar to 2018. The guidance is very much in line with kind of what you talked about in the third quarter, but it doesn't appear to fully reflect the upside that you saw in Q4 from really strong results. So I just wanted to see if you could kind of give us any thoughts there in terms of, did that carry forward or should it in the guidance? And then can you tell us anything about the revenue and EBITDA impact you expect from Mission in 2019? Thanks.

Justin, this is Bill. I'll take that call. So as we look at our 2019 guidance, we believe it's consistent with what we talked about on our third quarter call. Obviously reflecting our continued strong performance and the core operation of the company along with the expected improvements in the performance of our acquisitions. So let me just give you a few more details. First, if you look at the midpoint of our adjusted EBITDA guidance of roughly $9.55 billion, that equates to almost a 7% increase on an as-reported basis that we finished 2018. And then in 2018, if you adjust for the $70 million positive malpractice adjustment and the $49 million insurance settlement that we don't think we will repeat, if you adjust for these items we were 8.2% at the midpoint for our 2018 guidance. About 3% of this growth is from our acquisitions, with 2% from our 2017 and 2018 acquisition and Mission contributing about 1% of that growth. So that leads to a little above 5% of the balance in the expected same facility growth as we continue to anticipate volume to demand capital investments, strategy execution and so forth. So we think all of that is reflected in our 2019 guidance.

Good morning, guys. Thanks and great quarter. I just want to follow up on the adjustments you mentioned. Can you just help us think about sort of what you guys need from same-store revenue perspective to maintain your margins, where you've got to grow, and how should we be thinking about access to the maintenance growth in terms of converting to margin leverage for 2019?

Pito, thanks. Let me make a stab at that. We are all pleased with the margin growth; as I said, the same facility margin growth for the year is up 70 basis points. I think that's a continued reflection of our operating leverage. We said for some time within the 46% kind of same facility revenue range we are on the high end of that. We do anticipate some margin leverage, and we are seeing that. We saw that in the fourth quarter with a 10 basis point increase on the same-facility basis. So we feel generally comfortable with that as we roll up our consolidated or our acquisitions that might put a little pressure on the as-reported margin. So we do anticipate some margin expansion if we can achieve at the top end of that revenue range. Again, we are very pleased with our performance through 2018. We will see what 2019 holds.

Yes. This is Sam. The only thing I would add to that is as we look into 2019, we are not seeing any unusual pressures on any category of expenses. If we are able to achieve the volume expectations that we've guided toward, that can yield the operating leverage that Bill was alluding to. So that's the good news on the expense side; there are no excessive pressures in any category of our overall spending.

Thanks. Hi, everybody. Maybe just drill down on the capital spending that's been part of the story for the last couple of years. Can you just comment on a couple of aspects? Any evolving areas of spending that are different from what we've seen in the last two years? Your commercial business really seemed to pick up this year; is that more company-specific because of this capital spending or is that an underlying market improvement?

This is Sam, A.J. Let me take those two questions. First, I think our capital program is fairly consistent when you look at 2018, 2017, and then what's coming online in 2019 and 2020. In general, it's consistent with adding capacity and facilities where we have constraints and where we are operating at a high level of utilization. So that could be inpatient beds, critical care beds, operating room suites, and so forth. Just to give you a metric: the company finished the year almost at 73%, well over 72% occupancy for our hospital beds, which is a very high number. That's over and above where we were at in 2017. We also had a few additional beds that came online in 2017. The second component of our spending is around building our outpatient capabilities so that we are very convenient and easy to access. We've added surgery centers, three standing emergency rooms, urgent care centers, clinics, and other diagnostic capabilities to really support a comprehensive opportunity for patients to access an HCA Healthcare system. Those are small dollar capital items; they don't consume a huge amount of our budget, so they are very efficient from that standpoint. The final component of our investments, I think that really geared toward our growth, are centered on technology, clinical technology that our physicians want. The more we can add clinical technologies that support our practices and our physicians' needs, it allows us to grow the complexity of our services and have a very capable clinical technology platform for our physicians to take care of our patients. We think the combination of all of those is helping us respond to the marketplace and drive market share growth. On the commercial side, through the first six months of 2018, commercial demand was modestly down. HCA picked up significant commercial market share, to the tune of probably more growth over the last nine months than we've seen in the recent past. Our commercial growth is more a function of market share gain globally across the company than it is necessarily overall demand. Although in a number of our markets, we've seen commercial demand lift a little bit over where it was, but as a total for the company, it was modestly down; not significantly, by any means not like it was in the previous year. But it was not growing significantly, but the company, through these programmatic efforts and our capital spending, has been able to take care of more patients and take care of them more effectively.

Hey, thanks. Just want to go back to the expense question for a minute. You've been operating and you're in an environment for some time now with what I would characterize as fairly low inflation affecting the cost structure. Can you elaborate a little bit more on trends and expectations specifically for contract labor, premium pay, and professional fees? And, Sam, is there anything that surprises you as you reflect back on 2018 regarding your ability and your team's ability to manage expenses so tightly?

Yes. Whit, this is Bill. I'll start and then Sam can add. If you look at the overall cost structure, we remain very pleased with the trends we're seeing there, in the 2.5% to 3% range. If you start with labor, we're very pleased with the labor trends. We've had some benefits from reduced contract labor, as you mentioned, as our teams continue to focus on reducing our turnover. Our nursing turnover is in the low 4s, and that has benefited us on the premium labor side. That’s flowing through as some favorable trends on the salary costs. We see generally wage rates in line with our expectations. I characterize these trends as fairly consistent right now. We see the same going into 2019. We continue to be very pleased with the team's execution on the supply cost agenda. I mentioned we were 30 basis points down on same facility on supply costs as we continue to see great efforts by HPG and the contract team and our supply team focusing and partnering with our clinical teams on supply utilization. We’re very pleased with both of those trends. As we turn the calendar into 2019, we think largely those trends should continue, and I think Sam mentioned earlier, we don’t see any singular undue pressure point right now. We are always subject to some cyclical trends. But we feel very pleased with how we are turning the calendar on the cost side.

This is Sam. On the last question there, Whit, the management teams of HCA are incredible. I am constantly amazed by what our teams out in the field do. They continue to add to our agenda to improve our patient care. They continue to build relationships with physicians. And they continue to find ways to grow and manage their metrics at the highest level. I think that's something unique about HCA. We have what I call a 'can-do' management team out in the field. They relentlessly pursue execution and performance. I think it shows in the overall consistency of the company's performance. As I mentioned in my prepared remarks, we've grown our admissions for the last 19 quarters consecutively. I don't remember the exact number, but if you go back over time, we continue to grow our volume very consistently and really navigate through different kinds of market dynamics, competitive dynamics, and cyclical changes while continuing to grow the company. I am really pleased with what our management team has done and what I know they will continue to do as we look forward.

Good morning, guys. Thanks for the question. Hoping you could give us a bit more color, maybe parse out the drivers of the acceleration at revenue per adjusted admit, especially the Medicare rate. As you know, that update was positive. Can you provide any color on why that would decelerate somewhat meaningfully, like in the outlook right 140 and 240 basis points I suppose for Q2 to the full year, with so much of the commercial book contracted? Any color there would be helpful.

Yes. Let me attempt it. We are pleased with how we finished the year on revenue per admit. If you look at the year-to-date, we are at 3.8% on a same facility basis. We benefited from the Medicare update in the fourth quarter. As we've said before, that's a continuing benefit built into 2019. We have good visibility into the commercial contract team. We expect to see continued growth in equity and good payer mix. I think this year we are helped by the strong commercial volume that Sam talked to, continued growth in equity, and that's led us to be a little bit above our 2% to 3% kind of expectations. We will see what 2019 has, but we don't really see any major changes going in the payer environment. So, hopefully, we can continue those trends going forward. But just in terms of our planning, we would plan in that 2% to 3% range. Then hopefully, with the continued growth of equity and good payer mix, we can be on the top side if not exceed that.

Maybe I could just pick up on the thread you were just talking to and ask you about Medicare Advantage rates and pricing, which obviously are not necessarily tied directly to the Medicare fees schedule. How are you approaching that as that program is continuing to grow so rapidly?

About 38%, 37% of our Medicare book is managed. We've seen that grow pretty steadily over the past several quarters. From a contracting perspective, the rates and terms are really consistent with what the Medicare rates in terms are. We maintain those. We’ve been dealing with growing M&A in most of our markets. So we think it will continue to grow. We don't really see a pricing differential between traditional and managed Medicare. Generally, it is around utilization management where factors come into the managed care book. So it's something that we have going for us and it will continue to grow.

Most of our contracts are paid identically to what a traditional Medicare beneficiary would pay for the same service. We move in lockstep for the vast majority of our Medicare Advantage contracts in the same manner. Is that good?

Well, I thought it could. One more question, which is how do you look at the sustainability of the Medicare unit pricing relative to commercial? There’s a discussion out there in the industry regarding whether there will be a willingness of commercial payers to subsidize Medicare. Do you see that as much as some others in the industry do?

Well, I think that's been an ongoing issue that the commercial book of business tends to subsidize the uninsured, tends to subsidize the underfunding that exists with the Medicaid program, and somewhat subsidizes the underfunding that exists with Medicare. I mean that's always been a pressure point and always been an issue. I don't see anything necessarily influencing that materially in the intermediate run. We try to make sure our commercial pricing is competitive within the market and meets the needs of our payer partners just as much as it meets our needs. We're successful, as Bill alluded to, in that roughly 80% of our contracts for 2019 are already accomplished with consistent pricing terms and consistent network configuration terms. We're about 60% contracted at a similar trend for 2020 and slightly contracted for 2021. I understand the discussion, but I just don't see any significant movement at this particular point in time. What we are trying to do is show the payers how much value we can add to their organization, to their membership, through convenient offerings at different price points. That's why we build out our network to include different price points, whether it's urgent care, ambulatory surgery centers, and so forth. We're also executing on a very robust clinical agenda, which we think is driving value for our payers, eliminating infections by targeting certain difficult conditions and so forth timely, so we can react to the patient and get them out of the hospital in a timely manner. All of these things are value-add that we believe we are offering in addition to competitive pricing. So our approach is to produce a value proposition for the payers that ultimately accomplishes what their membership wants, what their membership needs, and what our payers need. We think that's a durable model.

Hi. Is there anything to take away from the fact that the EBITDA guidance range is wider than in past years? Is there higher degrees of uncertainty? Is it just the base getting bigger?

I think simply it ensures that EBITDA will be getting a lot bigger as we go forward. So we range our midpoint on either side of that which turns out to be a $400 million range that we give.

Got it. And does the guidance assume that Medicaid DSH cuts will take effect in October for not delaying it again, or is it too small to fit in the range either way since it's only one quarter?

Yes, it's a pretty small impact in one quarter. We do anticipate with a new year that we return to kind of traditional inflationary rates on Medicare. We don't really anticipate any rate increases on the Medicaid book either.

Yes. And then just lastly, can you confirm how much of the incremental Medicare DSH payments are included in the guidance? Is it in the $100 million zone?

I would characterize it as about 1% of growth for us in terms of the year-over-year.

Thank you. Can you update us on how you're thinking about the equity mix trending in 2019? And how do you think about actively managing that mix? It sounded like most of the $3.5 billion capital deployment was earmarked for footprint and capacity, but I'm wondering if part of the strategy is ramping up spending on high equity services. Are there certain service areas where HCA would really like to increase exposure over time?

This is Sam. That's a great question. I would tell you that we have been on a journey over the past five or six years to increase the complexity of service offerings within our networks. In this journey, we've seen case-mix index growth of over 3% in each of the last three years. In 2018, for instance, our bone marrow transplant volume grew by 17%. The growth was driven by consistent clinical protocols and patient navigation protocols, which resulted in positive outcomes, with our price point being competitive. Our trauma volume also grew by 7% in 2018 through a programmatic approach to meet community healthcare needs effectively. We have opportunities to add programs, deepen capabilities in service lines, and add more sophisticated services. This journey will continue, and we believe that our overall market share opportunities will allow us to create more value for our patients and ultimately for the company's growth.

Hey, thanks. I wanted to ask about performance and expectations for the 2017 and 2018 acquisitions. Those hospitals are obviously a headwind to EBITDA this year, and will be a tailwind next year. How did they perform in the quarter, and how should we think about the cadence of those hospitals moving to breakeven? Will that be more back half weighted or have they already turned the corner?

Yes, Matt, this is Bill. Good question. We talked about throughout the year that we anticipated getting the acquisitions to breakeven or better by the end of the year, and indeed we did; the fourth quarter for that group was profitable for us. For the full year of 2018, it did create a headwind, roughly $80 million or so, and will contribute about 1% of our EBITDA coming from that growth. We're anticipating nice forward momentum for that group. It will continue to ramp, and we think many of these will take several years to reach reasonable margin levels for HCA, but we anticipate continued growth from these acquisitions in 2019.

Good morning. I noticed in your recent debt offering you upsized that deal. I'm curious, are you seeing more opportunities today in terms of bigger system acquisition opportunities? Any commentary would be appreciated. Regarding guidance, are there any special cadence considerations over the course of the year? Obviously, you're going to have 11 months of Mission, you've got the DSH coming, but any other considerations we should think about?

So, Frank, I'll start this, and maybe Sam can provide broader commentary on the acquisition market. Yes, we were very pleased with the debt offering that we completed a week or two ago. We upsized it from our original because of demand. Obviously, that was primarily intended for our Mission financing, and we did a $1.5 billion financing that was very successful. We have a lot of liquidity as well. We concluded the year with strong metrics on our balance sheet and a lot of flexibility. The markets continue to be receptive to HCA. In terms of the cyclical guidance, there's nothing specific that I would call out; yes, our acquisitions will continue to improve throughout the year. Still, you could overlay that on HCA's broad base, so I think you can go with our historical quarterly trends as a good baseline. In terms of the broader acquisition landscape, we had press on a New Hampshire smaller acquisition recently, and I think Sam can comment on the broader acquisition pipeline.

I think if you look at the last several years, HCA has made a number of acquisitions that we believe will yield long-term benefits for us. This includes adding to existing markets like in Houston and creating new ones as we did in Savannah and with Mission, both of which are market makers. My instincts say that we will see more activity, whether or not it is systems prepared to make strategic decisions like Mission has done, we'll have to see. There is a clear need to be part of something bigger and to leverage learnings across organizations. HCA brings that to many different systems, and we'll continue to showcase what we can do inside this great organization. We are hopeful that this will yield future acquisitions similar to what we think the Mission acquisition is going to do for us; it's a uniquely successful system, and we think integrating it will provide a benchmarking opportunity for others.

Hi, thanks. Can you give us an update on the trends you saw in the UK market in the fourth quarter and what you are assuming in the guidance for 2019 in terms of the ongoing turnaround there?

This is Sam. The UK had a decent quarter compared to maybe the first nine months of the year where they experienced struggles. For HCA, the UK division represents less than 1.5% of the company's overall EBITDA; it's a very small component of our organization. We like the market; we believe we have a great position and have made many investments in the past. We've made contingency plans around what the Brexit dynamic may mean to us in certain areas of our business, but we think we're starting to turn the corner. As we look at 2019, we have modest growth built into our plan, primarily driven from developing a more capable outpatient and urgent care platform and ongoing enhancement of our cancer service lines.

Thank you, good morning. Just a question, Sam, on the macro front. How are you thinking about uncompensated care for 2019? And you touched on commercial growth earlier and how that's under pressure broadly speaking. What are your views there, and how do you plan to strategize to keep gaining share, and how much opportunity do you think is left to gain in your regions?

Our market share today is only 25%. I'd like to think we have 75% opportunity. We face formidable competitors in many different markets. The competitive landscape for HCA is very fragmented because we often do not compete against the same system from one market to another. This creates an advantage for us. Our belief is that the portfolio of markets we have is very strong, and that is going to yield growth in overall inpatient demand, as well as outpatient demand. As we continue to execute on our investment strategy, our program strategy, and the continued development of our capabilities, our nursing initiative, and our clinical agenda—all of these factors are responding to our patients in a way that is producing better patient outcomes, and we believe this will continue. Yes, there may be some pressures regarding the uninsured population here and there. Our overall uninsured volumes grew in the mid-single digits this year, but that does not put significant pressure on our business. Overall, we believe we can continue to grow organically through this model and take advantage of market share opportunities as we enhance our hospital systems.

Hi, thanks, good morning. Following up on that question and your commentary, congrats on the quarter and the consistency you are bringing to guidance and EBITDA growth. Looking at the quarter and for 2018, does that change your thinking on your normalized guidance? A year ago you mentioned 2% to 3% volume growth, no market share gain, 2% to 3% pricing growth, flat margins. Your assets and capabilities show they are building out, and I assume capacity utilization is going up. Do you see a skew toward margin expansion? Will share add to the 3%? How do you feel about the cyclicality because if we go into an economic downturn as a nation, do you believe the markets are fairly defensive—either secularly or as a combination of both?

So, yes, we've been in this 2% to 3% volume guide for some time now, and we'd like to think there could be periods where we're on the high end of that. We're pleased with the momentum we've developed and we talked about throughout the call. We know healthcare is cyclical; mostly, there are macro issues, but we think our continuing capital investments and acquisition opportunities will still provide growth for the company. So right now we're in that 2% to 3% volume guide. When we look at demand, market share capital, we think that is a pretty good number.

This is Sam. I want to add that we had one of the strongest overall portfolio performances we've seen in the company in 2018. Almost 80% of our hospitals grew their EBITDA year-over-year, 70% grew their admissions, and 65% grew their outpatient surgery year-over-year. This has been an incredible portfolio performance and reflects the clarity of our approach within the markets. I believe this kind of performance showcases what we have been able to achieve and our teams' exceptional execution.

Good morning, hi. On past calls, you've provided commercial yield or managed care revenue per adjusted admission and CMI as well. Hoping you could do that for the fourth quarter as well. Can you share with us the revenue piece of the payer mix or the revenue percentages of the payer mix as opposed to just the volumetric piece? Thanks.

For the quarter, commercial case mix was up 2.1%. Year-to-date, we’re up 3.5%. It was a really strong fourth quarter of 2017, so that was the case mix. On revenue per adjusted admission, we are about 3% on a year-to-date basis; we were about 2% in the fourth quarter. Again, that's a function of how strong the fourth quarter of 2017 was for us in commercial pricing, it being 6.8%. As I mentioned, we see that being pretty stable. We don't see major changes with that but, again, good intensity and 3.5% CMI growth in the commercial book on a year-to-date basis.

Thank you. Long-time listeners, first time caller. Could you elaborate on the acquisition and CapEx strategy? Specifically, is your approach different or more aggressive or less aggressive than Milton's? Also please include international and physician groups as part of the answer.

I wouldn't say I am any different than Milton. I've been part of our decision-making process for years alongside Milton, and it’s typically a team analysis. When the environment presents opportunities for sizeable acquisitions, we view some of these as once-in-a-lifetime opportunities and it's crucial for the company to consider them carefully. We continue to pursue outpatient acquisitions; we've recently made a large ambulatory surgery center acquisition in Austin, Texas. We have other markets where we are looking into acquiring ambulatory surgery centers and urgent care companies. I think our focus will be more domestic than international in our acquisitions. No doubt we will look at markets outside the US, but the opportunities for HCA seem compelling in the domestic space at this moment. In relation to physician practices, yes, we are continuing to acquire physician groups to expand our capabilities and meet specific service line or facility needs.

Alright, Gary. Thank you for your questions. April, I think we are going to close the queue here. I want to thank everybody for being on the call today. We look forward to talking with you if you are leaving follow-up after the call. Thank you so much.