HCA Healthcare Inc (HCA) — Q4 2019 Earnings Call Transcript

Kevin, thank you so much. Good morning, and welcome to everybody on the call today and our webcast. With me this morning is our CEO, Sam Hazen; and Bill Rutherford, our CFO, who will provide comments on the company's results for the fourth quarter. Before I turn the call over to Sam, let me remind everybody that should today's call contain 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 may 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 and net income attributable to HCA Healthcare, Inc., excluding gains and losses on facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. to adjusted EBITDA is included in today's fourth quarter earnings release. This morning's call is being recorded, and a replay of the call will be available later today. I will now turn the call over to Sam.

All right. Thank you, Mark. Good morning, and thank you for joining us today. We finished the year with strong fourth quarter results that were above our expectations. Solid volume increases, strong revenue growth, and good expense management drove this quarter's results. Revenue increased on a year-over-year basis by 10% to $13.5 billion. This increase was driven again this quarter by a combination of strong same-facilities volume growth and our recent acquisitions. On a same-facilities basis, revenue increased by 6%, driven by 4.7% growth in inpatient admissions and 5% growth in equivalent admissions. We saw growth across most service categories and broadly across most markets in the company. To highlight a few additional service categories, emergency room visits grew 6.7%, and total surgeries grew around 2% with roughly equal growth in both inpatient and outpatient settings. We have now grown inpatient admissions in 23 consecutive quarters. This remarkable consistency reflects positive market forces across our diversified portfolio, a robust growth agenda, significant capital spending, and strong execution by our people. The growth in revenue translated into strong earnings for the quarter with diluted earnings per share of $3.09. Adjusted EBITDA grew 9.2% to over $2.7 billion, with an adjusted EBITDA margin at 20.3%. 2019 was another successful year for HCA Healthcare. The company's results, which improved across most key performance metrics, reflected both the steadfast commitment we have to our mission and our disciplined operational culture. Across our networks, we took care of more than 35 million patients in 2019, a record level of patient volumes. We spent $4.1 billion in capital expenditures; about half were for routine needs, and the balance were investments needed to support our growth agenda. The strategic investments we made in our business to expand our network and improve our clinical capabilities made it easier for patients to receive high-quality, convenient patient care in an HCA Healthcare facility. As we look to the future, we believe the fundamentals in our markets remain strong with growing demand for healthcare services. This, coupled with the continued improvement and competitive positioning of our local health care systems, gives us confidence as we move into 2020. Inpatient market share in 2019 grew by 38 basis points compared to 2018 to over 26%, reflecting the 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 increased the quarterly cash dividend by 7.5% to $0.43 per share. In closing, I want to thank our employees and our physicians for the great work they do every day to take care of our patients. We are proud of their accomplishments. Together with our employees and physicians, we connect our local networks with the unique enterprise capabilities and scale of HCA Healthcare to make a difference in the communities we serve. We believe this approach allows us to improve more lives in more ways and advance the delivery of healthcare services. With that, let me turn the call over to Bill for more details on the quarter's results and our guidance for 2020.

Great. Thank you, Sam, and good morning, everyone. I will cover some additional information relating to the fourth quarter results and then briefly discuss our 2020 guidance. As Sam mentioned, all of our stats for the quarter were solid. We were pleased with the quarter and full year results, so let me provide you with some additional information. During the fourth quarter, same-facility Medicare admissions increased 4.3%, and equivalent admissions increased 5%. This includes both traditional and Managed Medicare. Same-facility Medicaid admissions increased 5.1%, and equivalent admissions increased 4.6% in the fourth quarter compared to the prior year. Our same-facility managed care admissions increased 4.7%, and equivalent admissions increased 4.8% in the fourth quarter compared to the prior year. Our same-facility self-pay and charity admissions increased 6.8%, and equivalent admissions increased 6.5% in the fourth quarter compared to the prior year. Same-facility emergency room visits increased 6.7% in the quarter. Our level 1 through 3 visits increased 8%, while our higher-acuity level 4 and 5 visits increased 5.3% over the prior year. In addition, admissions through the emergency room increased 4.7% over the prior year. Same-facility net revenue per equivalent admission grew 1.1% over the prior year in the quarter. Our net revenue per equivalent admission growth in the fourth quarter of 2018 of 4.4% was one of the strongest we have seen since 2014. Also, our acuity growth was lower than trend due to our medical admission growth of 5.9%, which outpaced our surgical admission growth of about 2%. For full year 2019, our same-facility net revenue per equivalent admission grew 2.3%, which is in line with our guidance range for the year. Our same-facility inpatient net revenue grew 6.5% in the quarter, and our same-facility outpatient net revenue grew 5.8% in the quarter. So let me move on to operating expenses. Even with a more moderate revenue per equivalent admission growth, our costs were managed very well. Our same-facility operating expenses per equivalent admission grew just 0.8% in the quarter compared to the prior year, and our same-facility adjusted EBITDA margins increased 20 basis points in the quarter. Our same-facility labor cost per equivalent admission increased 1.3% in the quarter. Our same-facility average hourly rate grew 2.7%, and we continue to see labor productivity improvements. Same-facility supply cost per equivalent admission grew 1.8% over the prior year period. Same-facility other operating expenses per equivalent admission declined 0.4% compared to the prior year. So let me take a moment to talk about cash flow and earnings per share. Cash flow from operations was very strong in the quarter, increasing to $2.5 billion versus $2.175 billion in the fourth quarter of last year. For the full year 2019, cash flow from operations was $7.6 billion, an increase of $841 million from $6.76 billion last year. Capital spending for the fourth quarter was $1.274 billion and for the year increased to $4.158 billion. During the fourth quarter, we paid $272 million to repurchase 2.069 million shares. During the year, we repurchased 7.949 million shares at a cost of $1.03 billion and had $1.24 billion of the 2019 repurchase authorization remaining as of December 31, 2019. At the end of the quarter, we had $3.2 billion available under our revolving credit facilities, and our debt-to-adjusted-EBITDA ratio was 3.42x. Earnings per share, excluding gains on sale of facilities, was $3.09 in the fourth quarter of this year versus $2.99 in the fourth quarter last year. In the fourth quarter of 2018, we recorded a $67 million or $0.19 per diluted share favorable tax benefit, as noted in our release this morning. So that, I will move on to a discussion about our 2020 guidance. We highlighted our 2020 guidance in our earnings release this morning. We estimate our 2020 consolidated revenues should range between $53.5 billion to $55.5 billion. We expect adjusted EBITDA to range between $10.25 billion and $10.65 billion. Within our revenue estimates, we assume same-facility equivalent admissions will grow between 2% and 3% for the year and same-facility revenue per equivalent admission to also grow between 2% and 3% for 2020. We anticipate same-facility operating expense per equivalent admission growth of approximately 2% to 3%. Our diluted shares are projected to be approximately 342 million shares for the year, and earnings per diluted share guidance for 2020 is projected to be between $11.30 and $12.10. Relative to other aspects of our guidance, we anticipate cash flow from operations to be between $7.6 billion and $8 billion. We anticipate capital spending between $4 billion and $4.2 billion. We estimate depreciation and amortization to be approximately $2.8 billion, and interest expense to be slightly below $1.8 billion. Our effective tax rate is expected to be approximately 23%. Sam mentioned in his comments we also announced an increase of our quarterly dividend from $0.40 to $0.43 per share and authorized an additional $2 billion share repurchase program. Both of these are a reflection of management's belief in the long-term performance of the company, the confidence we have in the strength of our cash flow and our commitment to a balanced allocation of capital. So that concludes my remarks. Let me turn it back over to Mark to open it up for questions and answers.

Thank you, Bill. Kevin, you can now provide instructions for those on the call who wish to ask questions.

A question for you on CapEx. CapEx as a percent of revenue guidance looks to be about 7.5% in 2020 versus 8.1% in 2019. As you think about CapEx over the next two, three years, do you think CapEx continues to drift down? And are you able to facilitate the same level of EBITDA growth? Or asked differently, what is the balance between CapEx spend versus EBITDA growth?

Thanks, Pito. So yes. When we look at capital, keeping a relatively flat guidance for 2020, we look at it as a percentage of our cash flow from operations. And with the strength of the cash flow, I think this current level of $4 billion to $4.2 billion is a good planning estimate for us. We continue to see opportunities to deploy capital to facilitate our growth, either through capacity expansion or network development or deeper program capability. So I think as long as we continue to see the growth of our cash flow, good capital opportunities, and nice growth of our returns on invested capital, we think it's an important component of our ability to generate future growth.

Yes. Let me add to that, Bill. It's Sam, Pito. I think in 2019, we had some early-stage capital investments that we knew we were going to have to make with our Mission acquisition and our Savannah acquisition, and that tended to be earlier in our model. And so there was some acceleration in those items, and that lifted up our CapEx a little bit as a percent of revenue, and that's why it's dialed back. As Bill said, we believe we have opportunities in our existing markets organically to deploy capital and deal with growth opportunity, competitive positioning, and even capacity constraints. In the face of all of these new beds that we have added over the years, our occupancy levels continue to go up. And so that's really encouraging that our planning and execution underneath it is occurring at the levels that we had hoped. And so that's where we are at this particular point with our capital.

I have a question about the guidance. Regarding the high end of that range, which is clearly higher than in the past, are there specific factors that you believe will primarily drive growth to that level? Additionally, what considerations are you taking into account for reentering the network in Las Vegas? Also, what is your outlook concerning the DSH cuts that have been postponed until May of 2020? How are you incorporating that into your guidance for the year?

Yes, Frank. This is Bill. Let me take that and talk about our guidance overall. As you know, if you look at the midpoint of our guidance, it's about a 6% growth rate. At the high point, it's at 8%. And that's before reflecting any adjustment for the payer settlement we had in 2019, which adds roughly about 1% to those growth rates. I think that's consistent with our commentary that we had in the third quarter that we continue to see momentum in the marketplace, and that is allowing us to perform from core operations at the top end of our long-term guidance, and we think acquisitions will continue to contribute growth for us. We estimate about 1%, a little bit north of 1% for acquisitions. So when we look at in totality, the range accounts for a number of those variables. We continue to see volume opportunities as we see demand and market share capabilities. And I think that 6% to 8% on an as-reported basis, probably 7% to 9% when you adjust for the payer settlement is a good planning range for us.

And then, Frank, this is Sam. Regarding the Las Vegas situation with Sierra, we consider that particular contract to be a significant change in our strategic dynamics in that market, but its overall impact on the company is not substantial. Las Vegas is part of a diversified portfolio within HCA and is a key market for us, performing remarkably well even without the Sierra contract. We are making considerable investments in the area to address the population growth and improve access to care. We’re very enthusiastic about this and believe it reflects the strategic partnerships we have with our payers as we look for ways to provide value to them. We are optimistic about our prospects in the Sierra relationship in Las Vegas.

And then, Frank, on your DSH cuts, we look at that in the context of our overall Medicare rate increase. As we've talked about before, we think we're in a favorable Medicare rate update, 2.5% to 3%. We are not forecasting any material Medicaid DSH cuts at this point in time, so we'll just have to wait to see how that dialogue continues going forward.

I wanted to follow up on the pricing commentary from earlier. It sounded like you were saying that most of it, in your view, was just kind of from a mix perspective. Could you talk a little bit about what you're seeing on the commercial side? Obviously, that numbers are moving around a lot. So how did that impact pricing, what pricing you're getting in commercial? And then, two, did flu have any impact either on the volume or the pricing in the quarter?

Kevin, this is Sam. I think we're in a really good position with our contracting strategies with the commercial payer marketplace. And as we just mentioned, we've gained access to Sierra in Las Vegas, which opens up more commercial lives for us as a system. But in general, we're roughly 85% contracted for 2020 and almost two-thirds contracted for 2021 and about one-third contracted for 2022 in generally consistent terms across our portfolio. As it relates to the revenue per unit in the quarter, our commercial revenue per unit was reflective of sort of the overall trend. It was underneath maybe our composite. And that was due, we think, to the lower medical book that Bill alluded to and also some outpatient growth in certain areas, which starts to mess with the number a little bit. But nonetheless, our commercial book is doing about what we thought, and we saw great growth in high-end services with neonatal services, with trauma services, orthopedic services, cardiovascular. So our approach to delivering high-quality, complex services is yielding value. It was offset a little bit. That's why we had a little bit more volume in the quarter because of the medical growth that we saw in the fourth quarter, and that creates a net effect of the numbers we report. That also affects our cost, as Bill alluded to. And that's why we were able to create, on a per-unit basis, margin expansion, in addition to sort of the overall growth.

Let me focus on your debt to EBITDA, which is at 3.4. That's around the low end of your target range of 3.5 to 4.5. In terms of capital deployment, you're increasing the dividend and have resumed the buyback, but it has remained consistent in the $1 billion to $1.5 billion annual range. You've also been involved in some smaller acquisitions as well as a few larger ones, alongside steady capital deployment. I'm curious about your thoughts on recent developments in Vegas or if those open new opportunities. Could you discuss each of these areas and outline your priorities? Has there been any change regarding smaller acquisitions versus larger ones? Please provide us with an update on that.

Yes, A.J., this is Bill. Let me start, and Sam can add on. So you're right. Our leverage ratio at 3.42% is the lowest we've run since before the LBO. We're fortunate we did finish the year stronger than originally anticipated. We continue to look at that long-term range and give a lot of thought to it. I think ultimately it gives the company an incredible amount of flexibility, and we continue to assess all three areas that you talk about. First, we continue to evaluate strategic acquisitions. We do expect a couple of smaller acquisitions that are in the pipeline to be completed. We did complete the acquisition of Galen School of Nursing in January. And as you mentioned and we've mentioned before, we are usually evaluating a couple of larger acquisition opportunities at any particular time. It's hard to call exactly when and if they might be completed, but we have the balance sheet capacity to execute on these, if they come to fruition. And also, as you mentioned, second, we continue to evaluate capital investment opportunities that will provide growth. We've talked about that earlier, either through expanding capacity, expanding our network, or improving our competitive positioning. Interestingly, in 2019, we brought on over 1,000 new inpatient beds. And as Sam mentioned, we're running one of the highest occupancies we've run in quite some time. So we continue to see capital investment opportunities in the market. And then, third, as we mentioned in the release, we do have a new $2 billion share repurchase authorization. That's on top of the $1.2 billion remaining on our 2019 authorization. And although the program has no specific time limit, there are a lot of factors that influence our timing and pacing on this and the quarterly dividend. So I think when I step back, we've got a pretty long track record of a balanced and I think disciplined capital approach. As we continue to see acquisition opportunities, we have the capability to do that. As we see capital investment opportunities and then manage the balance sheet through the share repurchase program is all part of our capital strategy.

My question is just on, obviously, I know you don't give quarterly guidance. But just thinking about the seasonality of EBITDA margins in 2020 and just anything maybe that you'd want to call out, if necessary, as it relates to sort of workday mix and then just also with sort of the progression of the margin realization on some of the acquisitions last year or for 2019. Just in general, how we should think about sort of year-over-year comps for margins on a quarterly basis over the course of the year.

Thanks, Scott. This is Bill. You're correct that we don’t provide quarterly guidance, but I want to highlight that our first quarter of 2019 was incredibly strong, both in terms of operational performance and the payer settlement we recorded. That's the key point I want to emphasize. Other than that, our quarterly spread is likely in line with our recent trends. We are satisfied with the acquisitions and their ongoing development, which we experienced throughout 2019. Regarding margins, as we previously mentioned, they were in the high single digits for the full year, but we noticed improvements as the year progressed. In the fourth quarter, they were just above 10%. We anticipate that these margins will continue to evolve in 2020. Additionally, I would say that our typical progression should align with our previous trends.

Just a clarification. I think you said high teens. I think you meant high single digits.

The volume stack obviously popped out. Can you give us a little more in terms of what you attribute the strength to, both sort of on, I guess, a macro level and then specific to your initiatives in markets? And I want to go back to sort of your prepared remarks and commentary around better competitive positioning, hoping you could flesh that out a little bit. Is that just related to sort of your access strategies? Or is that more a reflection of the competitiveness in your market where some of your peers maybe are struggling a little more? Just some help on that.

Thank you, Ralph. Sam, you want to start?

Yes. First, I want to emphasize that we are convinced of the increasing demand for healthcare services in HCA's markets. We continue to carefully select markets that exhibit macro trends favorable to our growth strategy. Secondly, our competitive model is responsive to market demands and adapts to growth opportunities while catering to our key stakeholders: patients, physicians, employees, and the community. A crucial aspect of our strategy is to expand our clinical capabilities and enhance network accessibility for patients, ensuring they have various options for care within the HCA system. Over the past year, we’ve expanded our offerings through acquisitions including an urgent care center and several ambulatory surgery centers, alongside developing outpatient facilities such as freestanding emergency rooms and physician clinics. Now, we operate over 2,000 care sites linked to our 185 hospitals, though we still aim to improve the integration of these systems for greater patient and payer value. Additionally, HCA Healthcare is dedicated to being a physician-friendly organization. We prioritize providing our physicians with the necessary tools for delivering high-quality care, ensuring their voices are heard and creating an efficient work environment. This has contributed to a growth of our physician base by about 1.5% to 2% annually, with a 1.5% increase noted in 2019 alone, and our physician engagement has reached record levels. I want to take a moment to express gratitude to our physicians for their dedication to our patients and commitment to HCA. Lastly, HCA possesses unique enterprise capabilities that give us an edge over local competitors. Our scale in administrative functions leads to lower per-patient administrative costs. We also invest strategically in our growth, clinical improvements, and the development of our personnel. Our approach allows us to adopt best practices and implement successful solutions across the organization, enhancing patient care and efficiency. Initiatives such as our graduate medical education programs and the Sarah Cannon Research Institute exemplify this. We believe these factors contribute to our strengthened competitive position and market share gains. Looking ahead, we are optimistic about our ability to navigate the healthcare industry dynamics effectively.

Maybe I'll just follow up, Sam, on your comments there about your physician strategy. Is there anything changing with your hospital coverage or your outsourcing strategy? I mean you talk a lot about the evolving physician strategy, but has anything changed as you kind of marry your physician needs with your capital strategy this year as I sort of hear you talk about high-cost complex service development, trauma, et cetera? Does that just maybe influence how you think about anesthesiology or anything along those lines?

Whit, this is Sam again. On hospital-based physicians, we have a multifaceted approach to hospital-based physicians. In critical care medicine, as an example, in our intensive care units, and this has been a part of our efficiencies that we've talked about in the past, we have, I think, the largest intensive critical care medicine group in the country. They are deployed across a number of our facilities. We're able to leverage their learnings, some of our data to support better critical care management. We're trying to figure out how to use that platform for advancing telemedicine and critical care to support rural hospitals and to support some of our other facilities. That's one example. The second thing would be on pathology. We have a very large pathology group that provides pathology services across HCA, not in every facility but a number of facilities and growing. With respect to emergency room and anesthesia and hospitals, we have a mixed solution there. We contract largely with outside organizations, national organizations, in many instances, in some local organizations. We do have some employment models there as well. We'll continue to evaluate whether or not it makes sense for us to contract or to employ. We have the wherewithal to do both. And we work with our contracted providers very effectively to deliver high-quality, efficient care and respond to the marketplace. So that model is evolving a little bit, as you know. And as it evolves, we will adjust appropriately. But hospital-based physicians are a key part of our physician strategy. They're very important to patient care. They're very important to patient satisfaction. They're very important to the efficiencies that we have. And so we have strategic relationships, again, locally, at a national level and then through our employee model. And we will continue to sort that out as the years progress.

I guess I had two quick ones. One was on the recently acquired hospitals. The last, around the Medicare cost reports, I think, put the EBITDA margins on a 4-wall basis around 6-or-so percent. Sounds like you're saying high singles, maybe not too different. So first, just wondering where you think that could go over time. And then more about the quarter. I was hoping to just get a little bit of clarity around the flu, the impact that you guys would estimate on admissions, revenue per adjusted admission, and EBITDA, and maybe tying those comments into revenue per adjusted admission with a comment on the acuity index where that shook out for the quarter and maybe even same-store revenue per adjusted admission for the commercial book. I know you've provided that in the past, just to help us think about that number there.

All right. Steve, thanks. Let me try to cover some of those. First on the acquisitions. As I mentioned earlier, at least I attempted to, the acquisitions for the full year were running at the high single-digit margin level. We saw those improve throughout the year and hover just over 10% in the fourth quarter. We think, over time, we can get those to a reasonable margin level. This would basically be in the mid-teens range. I think all of the acquisitions we've talked about before will take up as a multiyear prong for us. So over time, we think we can continue to see margin improvement there. On the flu. The flu was mostly an outpatient impact for us during the quarter. With our emergency room business, we think probably 150, 170 basis points growth in that emergency room visit volume that we reported, the 6.7%. Very little effect on our inpatient admissions for the quarter. Our best estimate in the quarter is a relatively nominal impact of the flu on our inpatient admissions. And I don't think it has much impact at all if we look at the other kind of financial statistics, both either on a revenue, revenue per unit, or an earnings standpoint. More of a volume standpoint as we saw activity in our emergency rooms.

This is Andrew Mok on for Steve. During January, you've finalized your acquisition of the Galan College of Nursing. Can you speak to the strategic benefit from a partnership like that in terms of building a pipeline of nursing labor to feed into your hospitals? Is that an area where we should continue to expect additional investments? And secondly, can you give us an update on the labor and wage trends you're seeing in your end markets, including what's embedded in your 2020 outlook?

Galen School of Nursing here.

Okay. Well, first of all, we're very excited about the acquisition of the Galen School of Nursing. They have tremendous leadership in Mark Vogt, number one. Number two, their culture aligns with HCA's culture in a very significant way. So that was part of the appeal. The second thing that we learned when we studied that organization is they have a scalable model. And when you connect that scalable model with the unique platform of HCA, we think we can create a nursing school education program that starts to scale up across most of our major markets. So we're in the final stages of building a multiyear plan to expand the Galen School of Nursing and integrate that component of education with a robust agenda we have for clinical education and nursing support for our existing nurses, hopefully creating both a pipeline and a continuous education cycle inside of HCA so that our nurses are more capable of delivering high-quality care but also have more opportunities for growth. And we think that's a winning formula for us. So the investment requirements to do that are modest. They're not significant. It's really about getting the right faculty, the right administrative leadership, and so forth, and the team is working on that as we speak. But we're very excited about what the education opportunities for the Galen School of Nursing can do for HCA. And again, that parallels what we're doing with graduate medical education today for physicians inside of HCA. Both of these components, we think, provide a tremendous community benefit for our communities in that we're creating a supply of caregivers to deal with some challenges that exist on a macro level in many markets. As it relates to labor costs, in general, we're anticipating 2020 to be consistent with what we've seen over the past few years. I think HCA has been able to respond to market dynamics very effectively with our wage and compensation programs. We've recently enhanced our living wage policy program as an organization to respond to certain dynamics on that front. And then with respect to nursing, we've been able to respond to market dynamics effectively and keep our wage trends within a level that we think are consistent with where we have guided number one but responsive to what's going on in the market. So we fully anticipate a continuation of past trends in our model for 2020.

I wanted to follow up on the leverage and probe a bit more. You are currently below your long-term targets at approximately 3.4. If I consider your existing share buybacks, the good dividend you mentioned, and your CapEx guidance, it seems you could be closer to 3 than 3.5 by year-end. Is there a point where you feel pressured to invest more capital? Additionally, have you considered an accelerated buyback or a special dividend for 2020?

Josh, thanks. Yes, this is Bill. Let me try to talk about that. I think we're very fortunate to have the ratio where it is. Ultimately, it gives the company, I think, a lot of flexibility into the future. I think that acquisitions, if they materialize, could affect that. We think the increase in the share repurchase program we're anticipating for 2020, we will continue to evaluate that. I don't think it puts any pressure towards your question to us. It just gives us opportunities, I think, to continue the growth trajectory of HCA, either through acquisitions or capital and share repurchase program. I think it will likely be a combination of all three of those as it has been in the past going forward.

I just want to get your latest view on the price transparency regulation finalized by CMS, how it might influence payer negotiations and also market share. And are there like interesting practical technology challenges for being ready for 2021 there? Or do you think the core challenges are just going to likely delay this?

This is Sam. The pricing transparency, as we've said in the past, is a policy that we're supportive of as it relates to protecting the patient. And so we believe that any transparency policy that supports the patient getting information when they can in advance of their care on their co-pay, deductibles, and so forth is something that we can support. As it relates to our commercial pricing contract, we're not supportive of that. We don't think it necessarily will accomplish what others are saying it will accomplish, number one. Then number two, we think it is very complicated for a patient to discern and would not necessarily accomplish the patient objectives that we think are really the intentions of many people's desire here. And then finally, it will be administratively difficult and complicated, and a lot of systems won't have the capability to put those pricing arrangements forward. So that is a factor. We don't know exactly how this is going to shake out. There are a couple of approaches that the federal government has pursued, and we'll just have to wait and see how it develops. I don't anticipate it creating any significant issue for us. With respect to contracting, we think it just creates, like I said, confusion with the patient more than anything else. HCA is positioned, we believe, well with our networks. We are positioned well, we believe, from a pricing standpoint across most of our markets, and we don't anticipate that being a major issue for us. It's just that it does create a lot of confusion.

A couple of follow-ups for me. First, I just wanted to see if I can get a little more color on the seasonality of 2020. I know you pointed, Bill, to the tough comp in Q1, which I calculated, I think, like 13% core EBITDA growth. So obviously, a great quarter, and then clearly, a much easier comp in Q2 where the core was closer to flat. So I was hoping you might give us some additional color here on the growth for the two quarters, basically asking whether you see the growth in Q1 and Q2 being only slightly different than the full year directionally. Or should we think as much as maybe flat year-over-year in Q1 might be a reasonable target, just given how strong that comp was, and maybe it gets made up in Q2?

Yes, Justin, this is Bill. I won’t provide specific quarterly guidance, but our historical trends are the best indicator. We do experience fluctuations from quarter to quarter. Looking back to 2019, our results at the end of the second quarter aligned with our expectations for growth. It’s difficult to predict one quarter based on another. However, we believe the fundamental aspects will remain strong over a couple of quarters. Last year presents some challenging comparisons in both the first and second quarters. Therefore, I would suggest focusing more on a year-to-date perspective rather than analyzing each quarter individually. If you can filter out the noise, our historical trend will be the most reliable guide moving forward.

Got it. Sam, if I could just ask a second question. You mentioned the benefits of reestablishing connections with Sierra in Vegas, and I was hoping you could elaborate on how quickly you believe physician referral patterns can change to increase volumes for HCA. Also, could you discuss any potential dilution, considering you have seen some higher-paying volumes shift to you over time, how much of that might change and dilute some of those benefits? Las Vegas is a very important market for HCA, and we are making significant investments in several of our facilities while continuing to seek new investment opportunities. Many of our medical staff are involved in the Sierra contract, and we are working on the potential to bring them back into our facilities. We believe that in the early part of 2020, we can start to transition some of those positions to make it more efficient for them to manage their full patient load within HCA facilities. We are currently focusing on this, and we are starting to witness early signs of progress, as we expected. However, the first quarter is a particularly busy time for many of our facilities, which presents some challenges, but we plan to work through these issues throughout 2020 and achieve the desired outcomes. We are optimistic about this situation, especially considering United and Sierra have a solid presence in Las Vegas. The market is growing, and we aim to be part of that growth with the largest payer in the area. We see significant long-term benefits for HCA as we carry out our strategy.

So the stronger ER trend, even if we take out the full impact, is still up about 100 basis points sequentially. How much of that is related to your investments in expanding the trauma program and share gain? And then as we think about the coronavirus playing out, can you just remind us if there was any impact on the model from SARS or MERS and whether that showed up more in ER or urgent care?

Sure. Thanks, Sarah. So our emergency room visit, Bill alluded to this, were up 6.7% with a modest impact coming from the flu. Our freestanding emergency group platform did grow significantly. It was actually above trend. It grew north of 20%. It represents maybe 12% to 14% of our overall ER traffic. But when I look underneath the ER business, we continue to grow our EMS volume. From ground ambulance, it was up 7%, which is consistent with where we've been. Our trauma programs produced 20% volume growth, which is about consistent where we were for the year. We continue to add comprehensive stroke capabilities to our portfolio of offerings that is yielding more traffic for us in our emergency room. But what's important, I think, along the lines of program development, is patient satisfaction. We have seen our operational processing improve throughout the year. We see roughly 9 million-plus emergency room visits a year. On average, we see a patient with a clinician within 11 minutes. Our time to discharge has dropped in 2019 compared to 2018, and that's yielding both capacity, number one. But more importantly, it's yielding better patient satisfaction. And we think the combination of all of that is driving better performance, better growth and allowing us to use the investments that we put forth in this particular service category more effectively.

What about SARS in the emergency room?

SARS?

Good morning. Historically, SARS or MERS, which are members of the coronavirus family, but far more toxic than the current novel coronavirus, did not affect our emergency department volumes.

Two-part question. The first was I don't think we got the same-store all-payer CMIs this quarter and last. Was wondering if we could get those. And the second part was we've heard some from some hospitals about a cardinal recall of some sterile gowns and surgical kits and causing a little bit of disruption in the ORs in January. Wondering if you're seeing that. And if so, do you think you can just backfill whatever that disruption is in the next few weeks or months, such that the quarterly impact is probably immaterial?

All right. I'll let Jon take that last one, and then we'll circle back on CMI.

No. We're fortunate that there are other vendors of the surgical slides you've referenced. The entire supply chain has a pipeline on those that have not disrupted our operations.

Yes. Gary, on case mix, I think, as we alluded throughout a couple of comments during the call, we did see a lower trend on our case mix growth in the quarter, principally due to that growth of medical admission outpatient and the surgical admission growth.

Congrats on a good quarter. Sam, I guess just my question would be on total joint replacement or total knees with CMS approving reimbursement at the beginning of the year. How do you think that changes your strategy on joint replacement? And should we be expecting some volume shifting from inpatient to outpatient over the next few quarters or few years?

Let me start with this. Number one, in the quarter, I think total joints for HCA went up 7%. That's pretty consistent with where they were in the first three quarters of the year. Roughly 15% of our total joints are done on an outpatient basis, some in our hospitals, some in our ambulatory surgery centers. Obviously, with the new reimbursement protocols, we anticipate a few more transitioning to that setting. Our goal is to have a comprehensive orthopedic service line. So that means we're trying to align with the physicians in a way that creates the environment that they want, the environment they need for their patients, the most efficient environment for the payers. And so we are always dealing with migration patterns as technology advances, and that's part of our run rate. We don't anticipate anything happening in 2020 that's going to materially change our trend as a result of one service category having a bit of migration from one setting to the other. We talk a lot about the diversified portfolio of markets. I think it's equally important to talk about the diversified portfolio of services in HCA. Orthopedics is a very important service line, but it's one of many. It represents less than 10% of our overall revenue. And so if there's a bit of migration and pattern changes inside of that, it doesn't really offset the larger revenue picture for the company. But we're excited about some of the technology that's advanced in orthopedics. We're excited about the research opportunities that we have with our physicians, and we're excited about further alignment of physician groups across the company as it relates to what we're trying to do with orthopedics as a whole. We've had success similarly in cardiovascular care, where we've been able to use service line capabilities and very specialized talent to support different initiatives. We're doing the same in orthopedics, and we think it's going to yield value for the company in the future as we continue to align with high-quality groups.

Looking at your acquisitions, you mentioned that approximately 1% of your EBITDA growth is attributable to them. Do these figures include all your acquisitions: Asheville, Houston, Savannah, and New Hampshire? Were any of these not improving at a rate that surpasses your core operations? Additionally, if my calculations are correct, your core operations appear to be improving at about 6% to 8%. If we take the 7% to 9% growth estimate and subtract the 1% contribution from acquisitions, it seems your core operations are growing at a faster rate than your long-term guidance. I just want to confirm that you intend to maintain your long-term guidance of 4% to 6%.

All right. Yes, Peter, this is Bill. Let me start. The acquisitions for 2020 will be about 1%, slightly higher. This accounts for our acquisitions from 2017, 2018, and 2019 going forward. As we examine the numbers, we note that the core is around 6%, with the acquisitions contributing an additional 1% to push us slightly above our long-term range. I believe this aligns with the conversation we had at the end of the third quarter. Additionally, this forecast does not include any projections for acquisitions that are still pending. At this stage, we do not foresee any changes to our long-term guidance moving forward.

I think it's important, this is Sam, to understand that we don't stop pushing on any opportunity. If we have an opportunity in the marketplace today, I mean, we're going to push through it as aggressively as we possibly can. So I think that's part of the operating culture of this company is to optimize the situation, whatever it may be. And I mean we understand the challenge that's out there with our guidance, and we're working through a period of time where we've had better growth than maybe we've indicated. But I don't think that necessarily puts us in a position yet to change the long-term guidance. As we get through 2020, if we continue to see patterns that are favorable, we will make sure we inform you all appropriately on our thinking around those patterns.

I wanted to ask about commercial volumes more specifically. Obviously, a very strong quarter, I think one of the strongest quarters we can recall. I was curious if there was any service line or geography you'd call out for the quarter? And then how are you thinking about the commercial volume trend into 2020?

This is Sam. We believe that our portfolio of markets has several positive macro factors contributing to job growth and an increase in commercially insured products, which is reflected in demand. In the second quarter of 2019, the latest quarter for which we have market share data, commercial demand in HCA's markets increased by approximately 1.3%. We expect to gain market share in the commercial sector due to our investments in network strategies and physician programs. We are enthusiastic about prospects in Las Vegas and are pursuing additional alignments with payers. Looking ahead, we expect commercial demand to grow by about 1% to 1.25%, while overall inpatient demand may increase by around 1.5% to 2%. We believe the programs, investments, and outreach efforts we have in place will lead to market share gains, but it's crucial for us to continue executing on these fundamental strategies.

I’ll be brief. As we look ahead, one challenge we might face is a potential downturn in the economy. My question is, reflecting on how you’ve navigated past recessions, what lessons have you learned? Did you react too quickly or not quickly enough? I'm sure you have some strategies prepared. I’m just curious if this is something you're currently considering and planning for.

Thank you, Matt. This is Sam. I'll begin, and Bill can add more detail. Firstly, HCA has demonstrated over time an ability to make timely adjustments as a large company, and I take pride in how our teams respond to routine business dynamics. If the economy begins to contract, it does have implications. Historically, we tend to lag behind the economy, as the healthcare industry usually does. However, what's different about the current healthcare economy compared to past recessions is the presence of exchanges and the option for individuals who might lose their jobs to access COBRA for a time before becoming uninsured. Today, many markets offer a safety net through these exchanges, subsidies, or Medicaid in expanded states, which provides additional support. We have not yet figured out how to fully process this new dynamic, but it may offer a greater resilience in our ability to manage a recession. Generally, our teams are continually assessing trends, competitors, and making necessary adjustments, while keeping this significant factor in mind. We are actively evaluating this new dynamic, though we lack experience with it.

Great. Thank you. I want to thank everybody for joining us today on the call and on the webcast. I'm around in the office. Feel free to give me a call or email me if you have additional questions. Thank you so much.