HCA Healthcare Inc (HCA) — Q4 2020 Earnings Call Transcript

Welcome to the HCA Healthcare Fourth Quarter 2020 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks and inductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead, sir. All right. Good morning, and thank you, Nora. Welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we’ll take questions. Before I turn the call over to Bill and Sam, let me remind everyone that should today’s call contain any forward-looking statements, they are based on management’s current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today’s press release and in our various SEC filings. On this morning’s call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. is included in today’s release. This morning’s call is being recorded and a replay of the call will be made available later today. With that, I’ll now turn the call over to Sam.

Good morning. In the face of the highest surge yet of the COVID-19 pandemic, we finished the year with strong financial results in the fourth quarter. These results were driven once again by highly acute inpatient volumes, coupled with solid cost management. In the quarter, our hospitals provided care to 56,000 COVID-19 inpatients, a 40% increase over the third quarter. Since March, we have delivered care to 122,000 inpatients with the virus, representing 8% of total admissions. Currently, our hospitals continue to treat many patients with COVID-19. Census levels fortunately have begun to decline over the past few weeks. Revenues in the fourth quarter grew by $770 million or 5.7% over the prior year. This increase was driven by growth in inpatient revenues, which were up 12%. Revenue per admission grew 16%, while admits were down 3.4%. As mentioned, the acuity within our inpatient business was higher as reflected in both case mix index, which increased almost 7%, and length of stay, which grew by 6%. Outpatient revenue continued to lag as volume declined across most categories. We attribute many of these declines to the swell in COVID activity we serve, causing many patients to defer care. Outpatient revenues were down 4%. On the cost side, our teams continue to perform well. Adjusted EBITDA margin for the company grew on a year-over-year basis. In the quarter, we experienced some upward pressure on labor costs due to challenges related to nurse staffing, which were caused mostly by demands related to the COVID-19 surge that occurred across most hospitals in the country. With respect to supply costs, we incurred increased drug costs related to the growing utilization of remdesivir and personal protective equipment costs. Diluted earnings per share increased 33.7% in the quarter to $4.13. For the year, diluted earnings per share, excluding losses and gains on sales, as well as losses on debt retirement, grew 10.6% over 2019 to $11.61. Before I provide our outlook on 2021, I want to reflect on 2020. Just like many others, this past year was clearly a remarkable year for HCA Healthcare on multiple fronts. For us, however, I believe it will be seen also as a pivotal year. Across many dimensions, we improved our enterprise capabilities, which should allow us to support our local health systems better and enhance their abilities to provide higher quality care with greater efficiency. More importantly, we demonstrated an organizational ability to respond quickly and effectively to possibly the greatest challenge the company has ever experienced. And now, I believe we are emerging on the backside of this event stronger and better positioned to grow and drive value for our stakeholders. We did this while staying true to our mission throughout the process, and we could not have made these improvements without the unwavering commitment and excellent execution shown by the 285,000 colleagues and 50,000 physicians who make up HCA Healthcare. I want to thank them for their tremendous work, compassion, and service to our patients and others in their communities. Currently, our teams are working diligently to vaccinate as many people connected to our health system as possible. To date, we have vaccinated approximately 200,000 colleagues, physicians, first responders, and other individuals critical to the delivery of health care services. As we push forward into 2021, our overall outlook for the year remains generally consistent with the early perspectives we provided last quarter. While many aspects of our business, including the impact of the pandemic, remain difficult to predict, we believe the guidance that we are providing today is reasonable. We also believe that, together, our growth plan and capital deployment plan, which was announced in today's earnings release, should enhance long-term shareholder value. Because of the decisive actions we took at the onset of the pandemic and the solid results we produced in 2020, our company is now in a stronger financial position. This strength allows us to deploy sufficient capital resources to both plans while still maintaining ample balance sheet capacity to use for other strategic opportunities that may develop, including acquisitions. As part of our growth plan, we continue to find ways to strengthen our position locally and nationally. Some highlights are as follows. This past year, we acquired a 40% interest in a telemedicine company, which we believe has capabilities that can accelerate our program. We have committed significant capital to develop new and expanded inpatient rehab bed capacity in Florida, which recently eliminated certificate of need requirements in this service. And finally we have partnered, in many instances, with marquee physicians across the company to grow programs horizontally and vertically in key services. Our objective is still to be the provider system of choice in the communities we serve. Our strategic approach to accomplishing this goal has two overarching components. First, develop comprehensive health systems locally that deliver high quality, convenient care to our patients and second, support these networks with our unique enterprise capabilities and economies of scale. This blended model supported with strong execution has served us well over the past few years, as market share has reached an all-time high, using the most recently available data. But we are pushing for more. We have constructed a set of strategic initiatives that are underway and designed to deliver a better experience for our patients and improve the company's future performance. These efforts include seeking ways to utilize our network and expand into upstream or downstream business opportunities, including identifying different approaches to optimizing our portfolio of assets. We are investing more in technology to enhance quality outcomes for our patients, advance our operational effectiveness, and drive efficiencies. And finally, we are finding ways to capitalize on the diverse footprint that we have by partnering with other companies to accelerate these initiatives. One example of our efforts to partner is the recent announcement we made to invest in a domestic PPE production company, which will be based in Asheville, North Carolina. This entity will supplement other supply chain sources we have for procuring sufficient PPE for our colleagues. In 2021, we plan to increase our capital spending by approximately $850 million. This step-up is expected to mostly support our growth plans. Additionally, we have approximately $3.3 billion of other growth projects under construction that we expect to be operational this year or next. This pipeline includes capacity expansion projects at various hospitals, two new hospitals, and additional outpatient facilities, mainly ambulatory surgery centers, freestanding emergency rooms, and physician clinics. To round out our capital plan, our Board of Directors approved reinstating the quarterly dividend at $0.48 per share, while also increasing the authorization for a share buyback program. Bill will provide more details on these items and others in his comments. We are incredibly proud of our colleagues in the company's accomplishments in 2020, which included returning or repaying early over $6 billion of CARES Act funds to the federal government. Our performance this past year gives us greater confidence to believe that we will be able to navigate successfully through future challenges as well. As we continue to honor our mission, we will remain focused on delivering high quality care to our patients, supporting our colleagues and physicians, responding to the vital role we play in the communities we serve, and creating value for our shareholders. And now we'll turn the call over to Bill.

Great, Thank you Sam and good morning, everyone. I'm going to walk through our 2021 guidance, and then touch on our capital allocation plan, including our announcement this morning to reinstate our dividend and share repurchase program. The 2021 guidance outlined in our release this morning is consistent with our broader commentary we provide on our third quarter call. We anticipate our inpatient admissions to grow approximately 2% to 4% over 2020, as reported results. And this would equate to about a 1% to 3% below 2019 levels. We expect our outpatient volumes to grow from 2020 levels but to track below 2019 as well. We expect our revenue per equivalent admission to be flat to down slightly with our 2020 level. This is mainly driven by expected declines in COVID activity throughout the year and loss of supplemental COVID funding. We expect adjusted EBITDA margin to be consistent with our as-reported 2020 full year level and range between 19% and 20%. Our adjusted EBITDA guidance is between $10.3 billion and $10.9 billion for 2021. Earnings per share is expected to range between $12.10 and $13.10 for 2021. Also, we expect interest expense of approximately $1.6 billion and an effective tax rate of approximately 23%. I would like to share a couple of other thoughts regarding our 2021 guidance as we think about our 2020 performance and results. The COVID pandemic and the various surges we have seen had a significant effect on our operating results throughout the year. As we have mentioned previously, we expect to continue to serve COVID patients throughout 2021. And while it is difficult to predict how the future cycles of this pandemic will occur, at this point, we anticipate our COVID volume to be heavier in the first half of the year and then hopefully will decline in the second half of the year as broader segments of the population receive a vaccination. We do expect some recovery of demand and deferred volume as the COVID activity lessens. It is difficult to predict the progression of the pandemic during 2021, but we believe our baseline assumptions are reasonable at this point. Let me speak briefly to some cash flow and balance sheet metrics, along with our capital allocation decisions. First, as a result of numerous measures we took in 2020, the cash flow, liquidity, and balance sheet position of the company are in a very strong position. We finished 2020 with cash flow from operations of $9.2 billion. After our capital spend of $2.8 billion, the first quarter dividend of $150 million and non-controlling interest distributions of $625 million, our free cash flow was $5.6 billion for the year. Our debt balance declined $2.7 billion from our year-end 2019 levels, and we have approximately $1.8 billion of cash on the balance sheet. Our debt to adjusted EBITDA ratio was 3.0 times at the end of the year after netting out available cash. All of this is after returning or repaying early over $6 billion of provider relief funds and accelerated Medicare payments that we discussed on our third quarter call. Our 2020 cash flow metrics were benefited by deferred payroll taxes of approximately $700 million, which will begin to be repaid in later 2021, as well as great working capital management by our teams. For 2021, we anticipate cash flow from operations to range between $7.5 billion and $8 billion. As we evaluated our 2021 finance plan and considered our capital allocation strategies, we recognized our current position and outlook for 2021 presents an opportunity to find the optimum balance of investing capital to drive growth, position the balance sheet to execute on strategic M&A opportunities as they may present and returning value to our shareholders through reinstated dividend and share repurchase programs. We entered 2021 positioned to execute on all of these objectives. So as mentioned in our release this morning, our 2021 finance plan calls for the following. We anticipate capital spending to approximate $3.7 billion in 2021. This represents an approximately $850 million increase over 2020. Our Board of Directors declared a $0.48 dividend to be paid in the first quarter. This represents over an 11% increase from the quarterly dividend level that we suspended in the second quarter of 2020 due to the COVID pandemic. Our Board of Directors also authorized a new $6 billion share repurchase program. We had approximately $2.8 billion remaining on our prior authorization. As a result, the company currently has $8.8 billion in total authorization. Consistent with our past programs, we have no defined time period to execute on the share repurchase authorization, but we anticipate executing over the next 12 to 18 months, with the majority expected to be completed in 2021, subject to market conditions. In addition to these actions, we are making an adjustment to our historical leverage target. Since 2013, we've had a stated leverage target to operate at a leverage ratio between 3.5 times and 4.5 times. Given our current leverage position is below that range and with our outlook going forward, we are lowering our expected leverage target to be between 3 times and 4 times, and we expect to run at the mid to low end of this range in the foreseeable future. We believe all of these actions represent a balanced capital philosophy that allows the company to continue to invest in our existing facilities to drive growth, position us well to explore strategic acquisitions as they may become available and provides the opportunity to drive long-term value. So with that, I'll turn the call over to Mark and open it up for Q&A.

Okay. Thank you, Sam and Bill. Nora, would you give directions on getting into the Q&A and remind everyone, please, to ask one question?

I would like to gain more insight into your perspective on how margins will look as volumes stabilize, especially since last year you saw a benefit from a higher acuity payer mix. As volumes return, do you anticipate a lower acuity or less favorable payer mix? How do you see these factors impacting incremental margins, regardless of volume?

Yeah Kevin, this is Bill. Let me address that first. We acknowledge that our margins have been high in the latter half of the year. As you mentioned and as we've noted before, this increase is primarily due to the acuity we’ve experienced, heightened COVID activity, and a favorable mix of payers moving forward. In my earlier comments, I mentioned that we expect our margins to be between 19% and 20%, with a midpoint of 19.5%, which aligns with where we ended 2020. We anticipate that as COVID cases decline over the year and we see a return to our historical patient volumes, our performance will stabilize. This is also reflected in my commentary on revenue per adjusted admission. The timing of these changes is important. This year, we've benefited from acuity and payer mix, with our commercial volumes decreasing at a slower rate than our Medicare volumes. Eventually, we expect this to stabilize and revert to our historical averages.

Let me add to that comment. This is Sam, Kevin. I think one thing, as I mentioned, we're pushing for more with respect to growth. We're also pushing ourselves with respect to resiliency and finding ways again to leverage economies of scale inside of HCA, giving us opportunities possibly to sustain this. That's our management challenge. We're obviously not there yet, but we have opportunities, we believe, inside of our financial resiliency program to advance that initiative. The second thing I would tell you is our investments and our advancing of technology is another opportunity for us to find more profitability within our existing revenue base. We have a lot of variation. We have a lot of opportunities to create more timely decisions and ultimately drive more efficiencies and better patient outcomes. And so technology and economies of scale continue to present opportunities for us to improve profitability across the organization. I don't know exactly where that lands, to Bill's point, but we do see certain initiatives yielding certain value for us over time.

I'm sorry. Can you hear me now?

Yes. Yes, you're good.

Okay. I'm sorry. I'm going to ask two questions in case I strike out on the first one. The one I wanted to get after, if, Bill, if you had any comments on just EBITDA progression for the year, whether that looks like sort of what we're used to normal kind of first quarter and fourth quarter being highest. Obviously, I listened to your comments about margin and how COVID might normalize. If I don't get anything on that, I just wanted to ask about on the labor front, if you had any views on how the Biden administration plan to raise the minimum wage, how that might impact you and if any of that was incorporated in the guidance or could be accommodated in the guidance.

Okay. Let me say this, I would have to disagree with your first point because, as Bill mentioned, we are trying to assess the pandemic and its effects, which have been inconsistent as you observed in 2020, and we anticipate more fluctuations ahead. We believe that towards the end of the year, there will hopefully be a recovery in regular care, and the delays in care that we know occurred over the past year will begin to become more apparent. Regarding minimum wage, HCA has implemented a living wage policy about two years ago, establishing different minimum wage levels based on the local cost of living. For instance, in San Jose, California, where the cost of living is significantly higher, our minimum wage would be well over $15 per hour. In contrast, in El Paso, Texas, where the cost of living is much lower, the minimum wage is set at $12.50 per hour, adjusted to local market conditions. We already have several markets with wages above $15 per hour and others nearing that threshold, but everyone is guaranteed at least $12.50. Additionally, we need to remain competitive in the market concerning service workers, so our wage and compensation programs reflect that, often being above the minimum. Regarding a federal minimum wage increase to $15 per hour, it would have a minimal impact on our company due to our existing wage program.

Thank you.

Good morning. I'll move away from guidance. Maybe two more detailed questions. Where do you stand today on deferred procedures in light of the surge? And hopefully, that's rolled over now. And are you starting to see any kind of change in the Medicare or any of the government mix now that the surge is starting to roll over nationally, or are you seeing this rollout in the vaccine increasing? Thanks.

Let me give you some general progression on COVID in the fourth quarter. Obviously, the first two months in the quarter we were ramping up COVID activities. October was the low point. November was higher, and then December was almost 50% of our COVID activity in the quarter. That continued into January, which is even higher census levels for COVID in December. We have proven that we can manage through COVID surges, and I'm immensely proud of our teams and how they've responded to the pressure points from one facility to the other, from one community to the other. And so we continue to manage through that. As part of our management process in responding to the communities in an appropriate way, we have to manage the intake process with respect to transfers into our facilities at times and elective care at times. Those are dialed up, dialed down as needed. And we've told our teams that we expect you to manage that activity conservatively so that we can respond to people in need whenever they need our services. And that's been our approach. So during December and also January, we had to manage down the intake into our facility so that we could deal with the COVID surge that we were experiencing. We have relaxed that over the course of the first part of this year as our census levels, as I mentioned in my comments have declined over the past few weeks. And it's too early, Frank, to know exactly what the recovery is going to be within Medicare population or other services and so forth. And we will just have to wait and see exactly how that plays out. But to Bill's point, we expect the first part of the year to be still more COVID activity than the last half. And the last part of the year to be, hopefully, a recovery in the certain levels of deferred care that, again, we know has taken place.

Any way to measure that deferred volume?

No. No.

Hi, everybody. I want to follow up on some of the comments that Sam and Bill made during their prepared remarks. Sam, I think you're interested in exploring upstream and downstream opportunities. We mentioned the Florida Rehab opportunity, and I would like to understand more about what you mean by that. There have been discussions about behavioral aspects on the downstream that might be of interest upstream. I'm curious if you're considering taking on some risk or what that might entail. Bill talked about strategic deals, and typically when that comes up, it suggests something larger than just a single hospital. So, when I think of capital deployment, I'm interested in what you mean by those upstream, downstream, and strategic deal opportunities, and if you could elaborate further on that.

A.J., this is Sam. I want to share how we're approaching our provider system. This isn't a new idea, but it's one we've developed this year. Our provider system model, which we refer to as the HCA flywheel, has been consistent in our planning, resource allocation, and accountability over the past decade. It has served us incredibly well, as I mentioned earlier. We are exploring other possibilities that this flywheel has created for us. For instance, in markets without a certificate of need, we have successfully integrated services. When patients require rehabilitation, we've managed to internalize their care within our system, delivering value both to them and to us as we expand that service line. We also see opportunities in post-acute care and behavioral health, where we've already added value. While behavioral health is not strictly post-acute, many of our patients have related needs that we can address, and we see potential to expand our programs and capacity in certain areas to tackle mental health challenges nationwide. Regarding upstream opportunities, we see significant potential with telemedicine. It has opened a new access point for patients interacting with telemedicine and physician offices. Additionally, we identify various value chains within that telemedicine platform. We have become interested in a well-run organization that has previously collaborated with HCA, and we see chances to leverage our reach and their expertise to enhance our telemedicine solutions. We believe this can improve in-hospital medicine delivery through better and more efficient physician coverage, ultimately benefiting patient outcomes. Furthermore, we see chances for our physicians to connect with this telemedicine platform and provide services to non-HCA facilities. In terms of strategic opportunities, many people may not realize the various components within HCA Healthcare. We have a diverse portfolio of services, markets, and facility types. When we examine our offerings, we recognize the potential to create more strategic value outside traditional hospital settings. We aim to establish new strategic partnerships that could help both us and our partners progress. We learned valuable lessons during COVID about the importance of such collaborations. Lastly, we believe there are financial opportunities in certain transactions where assets might be more valuable outside HCA than inside it. If we can secure strategic partnerships that facilitate our initiatives, we might explore co-venture options or other arrangements with those assets. We have numerous initiatives and analyses in progress, and while I can't predict exactly where they will lead, that's the direction we're considering.

Hi, thanks. Good morning. Thanks for taking the question. So maybe explain a little bit on that last question around risk, but are you starting to see any impact of physician alignment with payers and sort of other large MSOs? And thinking about markets like South Florida, maybe Texas for you. Is this just more of a Medicare Advantage phenomenon? Are you seeing some impact in the commercial segment? Are you being presented of opportunities to take risk?

Well, let me speak to physician alignment in general. I think that is our wheelhouse. We are a very physician-friendly, customer-oriented organization with respect to physicians. We have almost 50,000 physicians who are affiliated with HCA in some form or fashion. Some of those relationships are through MSO relationships. Some of those relationships are, as it relates to institutional providers when the physicians are taking risk. Our fundamental approach to physicians are to give them voice inside of HCA, to make sure we have the clinical capabilities, nursing, technology, subspecialty support that they need, number two; number three, to be efficient in taking care of their patients; and then number four is to prove to them that we can help them grow their practice. That's been our model. That will continue to be our model in the future. And we believe that's a winning formula when executed at a detailed level. As it relates to certain opportunities with risk, we do have some of our physicians taking risk in certain specialties or certain categories. That's not large scale across our organization, but it does happen. As we think about the future and managed care relationships, I will tell you, we have advanced our payer relationships. We're roughly 90% contracted for 2021, over 50% contracted for 2022, again, continuing at similar trends to the past few years. We have structurally advanced our relationships with HICS payers this past year. We're in a much better position with HICS access. And as the Biden administration continues to push on the Affordable Care Act as the solution for uninsured, which we believe is the right solution, we should be in a strong position as a result of the improvements in contracting. So managed care is not a one-size-fits-all for 43 different markets. Healthcare is still local at some level. We think we're advantaged because of national capabilities within our local systems and we will adjust to each market condition appropriately to deal with risk relationships, other type of relationships needed in order to drive value for our organization. Most of the risk, to your question, is in Medicare Advantage. It hasn't spilled over in any significant way to commercial. Thank you.

Good morning guys. Thanks for taking my question. On capital deployment, I understand the 3 to 4 range that you're guiding for and that you're running at the midpoint to low end of that range. So a multipart question. Is it safe to assume that all free cash flows will be going to share repos, and if EBITDA grows that you'll lever up to maintain those ratios? Will you get investment-grade credit if you're on at the low 3s on leverage? And how much share repo is assumed in the 2021 guidance?

Pito, thank you. Pito, this is Bill. Thank you. Yes. At a current level, you could probably assume most, if not all, of our free cash flow will be dedicated to share repurchase. But as we've said, we have ample capital capacity ending the year, both in terms of cash on the balance sheet, as well as access to our short-term revolvers and bank commitments on there. So we've got capacity to execute, as I said, on the majority of the share repurchase, and then we'll evaluate the market conditions as they present to fine-tune the cadence of that. As we said, we believe lowering the leverage ratio is the right thing to do given where we are today and what our outlook is. And we do anticipate running at the mid to low end of that as we execute on all of our capital philosophies. And I think that leaves us in a very strong position to pursue any acquisitions that may present themselves, as Sam talked about. So I think all of those are part of our comprehensive plan.

So just a soft follow-up, how much share repo do you assume in your 2021 EPS guidance? And do you think you guys can get to investment-grade credit at this current leverage ratio?

Yes. Thanks. So our range in our EPS guidance provides accommodation that we can accomplish and will accomplish the majority of our share repurchase program. In terms of investment-grade rating, we're just going to have to continue our positive discussions with the rating agencies. As you know, our secured credit facilities are already at the investment grade. In terms of getting the whole company upgraded, we'll just have to wait to see. I think they're expecting us to state a range and commit to that area, and we'll have to see how they evaluate it relative to investment grade going forward. What I can tell you is we have ample access to the market and we believe at reasonable rates. And so we're generally comfortable with our position today.

Hey Pito, in the earnings release this morning, there is a supplemental non-GAAP disclosure on the guidance piece, which gives you the weighted average shares for the year. So you can kind of use that as your starting point, understanding that share repurchase will take place throughout the year, obviously, and that's a weighted number.

Great. Thank you so much guys.

Hi. Thanks. Good morning. Interested if within the 2021 guidance, obviously, there's a lot of impact from mix around the revenues per adjusted admission. So just would be interested if you could walk us through maybe the average underlying rate update assumptions that you're thinking about for commercial, Medicare, and Medicaid? Thanks.

Yeah. Scott, there's always a lot of variables in that. As Sam mentioned, we've got good visibility into our commercial contracting at comparable rates have been. Our Medicare rates probably is in that 1% to 2% level as we've seen going forward, maybe a little north of that, depending on how some of the specifics fall out. The rest of our acuity is going to be impacted just by the decline in COVID, as we've talked about, that's brought a higher acuity. And then we do receive some supplemental funding for COVID, the DRG add-ons and some of the versa and some of the other things that may have delayed some sequestration cuts that we don't anticipate continuing throughout the entire year. So, all of those are our factors, when we talk about our revenue per equivalent admission discussion. I'll also say that, if we hold where we are in 2020, it still represents about a 10% growth where we finished 2019. So we think our estimates are reasonable at this point.

Thanks. Good morning. I want to revisit the labor aspect. It seems like you've handled it well, but your comments indicate increasing pressure. Could you provide more details on wage growth, turnover, competition, and what you've factored into your guidance for 2021? Also, how does the acquisition or investment in Galen fit into this? Thank you.

This is Sam. Yeah. In my comments, I was referring to the fourth quarter vis-à-vis the third quarter as it related to the marketplace and some of the dynamics of the marketplace with, specifically for nursing, but secondarily, even for respiratory therapists. Obviously, when the whole country is in a respiratory distressed mode because of the COVID surge that was occurring on a broad-based level, it put pressure on nursing. There were opportunities for nurses to go from one community to the other as it related to travelers and special pay programs and all that kind of stuff. So we were seeing a bit of velocity inside of our flexible staffing categories that we hadn't seen before and that required us to respond and so we did experience cost per FTE pressure in the fourth quarter that we didn't have in the third quarter and the surges that occurred more recently then. As we think about of 2021, we have advanced our cost per FTE assumptions somewhat, and we expect the marketplace to be a little bit more advanced than it has been historically. We think that will moderate as COVID moderates because of the fact that there will be less sort of national demand for nurses across the country as COVID moderates over the course of the year. We do believe we have a robust agenda. We have to execute on that agenda. That includes better retention. That includes better recruitment and sourcing. And it also includes advancing our Galen strategy. We acquired Galen at the beginning of 2020. We have been limited in our ability to expand it because of the Department of Labor requirements where it imposed upon us a one-year moratorium on expansion. We have an expansion strategy that we will execute over the next two to three years, and we think that will create the continuum of nursing education that we want that will solidify our sourcing and training of nurses on the front end and then coupled with the clinical education programs that we've advanced over the past few years. Once a nurse is in our system, we can continue to develop their skill sets, their competency, their confidence and hopefully create an environment where nurses feel that they can be even more successful inside of an HCA facility.

Thank you.

Thanks. Good morning. Got a couple of numbers questions here. First, you guided to about 5% revenue and EBITDA growth at the midpoint year-over-year, but you mentioned 2% to 4% volume and flat pricing and margins. So I'm wondering if I'm missing something here in the components to get to 5% versus that, call it, 3%. And then you did a great job of managing costs in a tough 2020 environment. I'm just curious, how much flexibility do you think you still have here into 2021 given the uncertainty you talked about around volume and acuity and payer mix. Thanks.

Yeah. Justin, that volume was on the inpatient admissions, and we do anticipate recovery of the outpatient volume and revenue. So I would tell you that our revenue expectation is more in that 4% to 6%. And that, I think, lines up more with the mid-point of where our expectations are in terms of the EBITDA range. So I think it lines up pretty well, and we can talk further about that. In terms of room and the management costs we've talked about before of our resiliency plans. And as Sam mentioned in his commentary, we continue to search for every way we can to improve efficiencies out there. We are well into our stage two of our resiliency plans that are looking at longer term impacts, whether it be how do we use technology, automation is an example of some initiatives that we have going on that front. We have initiatives around support structures that we have throughout the organization. We have some call center discussions and optimization efforts. And we have a whole host of what I would call Stage 2 resiliency that we are going to continue to focus on and execute throughout 2021. And I think that can provide upside and protect a little bit buffers if we continue to see some upward pressure on the labor cost. So we do see continued opportunity for efficiency gains within HCA in a lot of our areas. Our supply chain teams continue to find opportunities to improve supply chain and utilization. Our revenue cycle teams as well as a host of other efforts going around the support structure of the enterprise.

Thanks, Bill. Can I just follow up with the…

Sure.

Can you give us a view on adjusted admissions then for 2021 that you built in the guidance that would include the outpatient?

Yeah. So that would be more in that 4% – 3% to 5% level.

Hey. Thanks. I was just looking at the ER numbers, and I don't think the trends are terribly surprising to many of us, but I'm just curious how you're thinking about the ED, maybe not this year, but next year, and maybe more specifically, how you're reorienting how you manage the ED for the lower volumes. I just have to imagine there's some fundamental changes you guys are thinking about in terms of how you approach the ER moving forward.

I think our inpatient patient population has become more acute this year, and our emergency room patients reflect that as well. We've observed fewer declines in higher acuity levels for emergency room patients compared to previous years, although we have lost some lower acuity business. Almost 70% of the total business decline has come from uninsured or Medicaid patients. Interestingly, despite all categories being down, the payer mix relative to the previous year is slightly better. As a company, we currently have enough emergency room supply beds. There are specific opportunities in certain markets, particularly with freestanding emergency rooms, where we believe we can enhance community service. We plan to add approximately 12 to 15 more of these locations in strategic areas over the next year. Emergency rooms are vital to our system, especially for high-end care areas like trauma, burns, strokes, and cardiac services. Our patient satisfaction in the emergency room has remained stable this year, although it has been challenging due to increased patient acuity. Our throughput has been reasonable despite the pressures faced. We remain optimistic about the essential role our emergency rooms play, even though we have noticed changes in the overall mix, which will affect our capital needs. This will allow us to redirect our capital resources toward other strategic opportunities and components of our programs in the coming years.

Hey, Mark, let me correct something I said with Justin's question. Our AA guidance would be more four to six. I misspoke saying three to five. So I want to correct that.

A little bit about how you're looking at drug costs and revenues going forward and I'm particularly thinking at three points. One would be, policy and transparency sort of risks or headwinds those might present. Second would be, sourcing initiatives you may have underway. And the third might be, opportunities you see, whether it's adding capabilities, etc. I appreciate it.

I missed the first part of your question, but it was about drug costs, revenue, and the opportunities we have. Our HPG teams excel at sourcing pharmaceuticals, which was evident as we dealt with the challenges of 2020. We have several ongoing initiatives related to pharmacy procurement and sourcing. We are also collaborating with our clinical teams on pharmacy optimization, having consolidated much of our pharmacy supply chain over the years. We continue to see potential to improve in that area. I don't anticipate significant changes in revenue related to pharmaceutical costs due to our Medicare reimbursement structures and aspects of our commercial side. We are hopeful for some revenue support from the increased utilization of certain COVID drugs, like Remdesivir, as previously mentioned. Overall, we view the environment as fairly stable for us. Regarding your question on pharmaceutical cost transparency, we'll have to wait and see. We are working on complying with federal price transparency regulations and publishing the necessary information. However, I don't foresee drug cost transparency having a major impact on us moving forward.

Good morning guys and congrats. Sam or – I guess I'll ask about the CapEx, right? I mean, it's up $850 million year-over-year. You're already spending an elevated amount of CapEx prior to this. So you called out ASCs and freestanding decent, among others. But how are we thinking about your long-term strategy in terms of continuing to ramp up CapEx? And then is there a goal in terms of kind of like penetration on freestanding EDs and ASCs in terms of number of units or percentage contribution that you said? And I guess last part is, from a returns perspective, how long do you normally see the investments before they yield in terms of growth or hitting your internal metrics?

All right, Brian. Let me see if we can hatch that one out for you.

Sorry about that.

Let me speak generally to capital expenditures and where we are at this particular juncture, and then Bill can speak to the returns and how we analyze our capital spending from that standpoint. We are increasing our capital spending from 2020 level. We spent about $2.8 billion, $2.9 billion this past year. We're going to approximately $3.7 billion. We believe, as I mentioned in my comments, that a lot of this increase is going to some of our growth plan initiatives that we have. I think one thing that's very important to HCA Healthcare, and I hope you all appreciate and understand, is that we have a unique portfolio of markets that we serve. And when we look and score objectively the HCA markets that we serve compared to the national average with respect to certain economic indicators, roughly 2/3 of our portfolio of top markets outperforms, and in many instances, outperforms the national averages as far as forecast very significantly. So we still have growth opportunities embedded in our portfolio. That's the first thing I would tell you. Secondly, we are investing in our outpatient facility development. A reasonable point of reference is roughly every 1 of HCA's hospitals has 10 to 12 outpatient facilities attached to it. That's not exactly symmetrical from one institution, but when you look at the total outpatient facility network capabilities we have, it's roughly 2,200 to 2,500 outpatient facilities on top of 185 hospitals. So, it's roughly 10 to 12 times the number of hospitals. We will continue to build on that because we believe that our patients deserve a convenient offering of facilities in our network. That doesn't require, fortunately, as much capital as the in-patient components of our spending. On the in-patient side, we have a handful of projects out there that we felt still made sense. Most of them are in these high-growth markets; Dallas, Texas; Austin, Texas; Nashville, Tennessee; Jacksonville, Florida, places like that, that are on par with respect to demographic changes that appear to be occurring across the company. We don't want to miss those opportunities. Fortunately, a lot of our investments are long-lived assets and we're in a situation where some of the historical capacity that we put into the market will serve us well in the future. And then as we look at what's already in the pipeline, the $3.3 billion that I referred to, those are going to supplement our capacity. And then by then, hopefully, we're starting to get better visibility into what's happening with demand, and then we can adjust accordingly. So, at this particular point in time, we're not giving any additional long-term guidance on CapEx, but we believe we're in the zone of what we need in the near term to be responsive to the marketplace, competitive, provide the patient safe environment that we want, and ultimately, achieve our overall objectives. So, Bill, do you want to speak too?

Yes. I would like to briefly highlight that we have a thorough process for assessing and validating the assumptions in our growth capital projects that Sam mentioned. Furthermore, we conduct retrospective analysis after these projects are completed to evaluate our assumptions. The outcomes of these assessments indicate that we achieve a high percentage of our anticipated returns, which gives us confidence in our assumptions. When it comes to the timeframe for returns, it varies by project. For instance, outpatient facilities and freestanding emergency departments tend to yield quick returns, while new hospitals generally result in longer-term returns as they are long-lived assets. Additionally, expansion projects on hospital campuses often respond to pent-up demand, allowing us to see reasonable returns after construction and opening. While each project is unique, we have a strong process in place to evaluate our assumptions as we move forward with project approvals.

Let me add to that. We had a strong year regarding acquisitions. The portfolio of acquisitions we completed over the past few years has been solidly accretive, with margins growing into the low double digits at this time. The tax-exempt assets we acquired in Savannah and North Carolina are performing better than expected. We have also effectively integrated a number of other outpatient acquisitions. To further emphasize Bill's point, we are conducting a retrospective analysis of our organic growth capital while simultaneously evaluating the successes and challenges of our acquisition portfolio to refine our approach in a productive manner. As we consider future acquisitions, Bill mentioned that we've created capacity on our balance sheet for this purpose. We believe that, although the timing is uncertain, there will be significant opportunities for us to leverage that capacity and enhance our capabilities across the company. We intend to be very opportunistic given our balance sheet position and the confidence we've gained from our acquisition integration.

Hey, good morning, guys. Hey, good morning. Just wanted to follow up on your inpatient and outpatient guidance for the year, you talked about that being below 2019 levels. I'm curious in the back half of the year, fourth quarter you're anticipating getting back closer to flat or even growth. And then any breakdown by medical or surgical, the cadence you're expecting throughout the year in that recovery? Thanks.

Yeah. This is Bill. As we said, we do anticipate as the COVID volumes decline, that will start to see return of our historical volume and maybe capture some of that pent-up demand. So, many variables at this point. It's hard to call and give you specifics in terms of timing of the year. Obviously, we have some comparable issues as we go through the last half of 2020 versus 2021. So we'll have to see that plays. But generally speaking, our broad commentary early on says that we expect our volume to recover, but still run slightly below 2019 level.

All right. Thank you, Bill. Thank you, Jamie. Nora, I think we're finished here. Listen, we want to thank everyone for participating on today's call. As always, feel free to reach out and contact me if you have further questions. Thank you so much. Have a great day.