HCA Healthcare Inc (HCA) — Q1 2022 Earnings Call Transcript

Good morning, and 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 Sam, let me remind everyone 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 might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded, and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Good morning, and thank you for joining our call. The COVID-19 pandemic continued to influence our results in the first quarter with the Omicron surge, which slowed in the middle of the quarter. More significantly, the challenging labor market pressured margins as the cost of labor increased more than we expected compared to the first quarter of the prior year. In the face of these challenges, however, we had a number of positive volume and revenue indicators that were encouraging. Compared to the first quarter of the prior year, same-facility admissions increased 2%. During the quarter, we provided care to approximately 49,000 COVID-19 inpatients, which represented approximately 10% of total admissions, consistent with the prior year. Non-COVID admissions grew 2.2%. This growth occurred in February and March. Inpatient surgeries grew approximately 1%. And across our inpatient business, acuity levels and payer mix continued to be strong. Outpatient volumes also rebounded strongly in the quarter. Same-facility emergency room visits grew 15%. Same-facility outpatient surgeries grew nearly 7%. And outpatient cardiac-related procedures grew by approximately 7%. We continue to believe that overall demand for health care remains strong in our markets across most categories, with favorable population trends and other contributing factors that developed during the pandemic driving it. Total revenues grew 6.9% compared to the first quarter of 2021. Same-facility inpatient revenues grew 5.4%. And same-facility outpatient revenues grew 10.6%. Bill will provide more color on our revenues in his comments. I realize that our bottom line financial results were not what we expected, but these top-line metrics were positive. Diluted earnings per share, excluding gains on sales of facilities, were $4.12, which was down $0.02 from the prior year. In the quarter, we experienced higher levels of contract labor expenses than planned. As compared to the fourth quarter, we saw modest improvements in certain contract labor metrics. We expect further improvements in the remainder of the year as we align the workforce appropriately by reducing both the utilization of contract labor and the associated hourly rates for these contracts. In some situations, the challenges in the labor market also constrained our capacity, preventing us from delivering hospital services to certain patients. By the end of the quarter, we were able to overcome some of these capacity constraints. And for the most part, our transfer centers were able to operate normally and move more patients to the proper setting in our networks. It is important to understand we are doing what we absolutely have to do to take care of our patients, and we will always do that. This past quarter, our teams continued to show up and deliver on our promise to provide high-quality care to patients who need our services. I want to thank them for their commitment and hard work during these challenging times. We do, however, have numerous initiatives underway around retention, recruitment, capacity management, and new care models that we believe will help offset some of these labor pressures. However, we now believe improvement in our labor cost will be slower than originally anticipated. This factor primarily influenced our revised outlook for 2022. We will continue to invest in our people, in our relationships, and in our networks. We believe these investments are appropriate and should help us address the long-term opportunities for growth that exist in our markets. At the end of the quarter, we had approximately 2,500 facilities or sites of care in HCA Healthcare networks. This represents a 15% increase over last year. Recently, we published our Annual Impact Report for 2021, which highlights the tremendous impact our colleagues had on the patients and communities we serve. You can find the details on our website. Before I turn the call over to Bill, let me end my comments with this. Over the past few years, we have demonstrated an ability to adjust effectively to whatever our realities are, and I'm confident we will do it again. With that, I'll turn the call over to Bill. Thank you.

Okay. Thank you, Sam, and good morning, everyone. I will provide some additional comments for the quarter and then address our 2022 updated guidance. First, let me provide a little more commentary on our revenues in the quarter. We are encouraged with certain trends we saw in our non-COVID activity during the quarter. Same-facility non-COVID admissions grew 2.2% versus the prior year, and our non-COVID revenue per admission grew 2.4% as a result of maintaining our acuity levels and a slightly favorable payer mix as compared to the prior year. Within our COVID activity, our same-facility COVID emissions were slightly above last year and represented approximately 10% of our total admissions, but we did see lower acuity and intensity with the Omicron variant this year. Our COVID inpatient revenue per admission was down approximately 15% from the first quarter of last year, which resulted in approximately $150 million less COVID revenue this year as compared to the first quarter of last year. Let me transition to discuss some cash flow and balance sheet metrics. Our cash flow from operations was $1.345 billion as compared to $2 billion in the first quarter of 2021. We did pay $344 million of deferred payroll taxes from 2020 during this quarter, representing 50% of the total amount deferred. Capital spending was $860 million as compared to $650 million in the prior year period, and we completed just over $2.1 billion of share repurchases during the quarter. Our debt to adjusted EBITDA ratio at the end of the quarter was slightly below the low end of our target range, and we had just under $7.9 billion of available liquidity at the end of the quarter. We plan to use approximately $2.6 billion of this amount to redeem our 2023 bonds in the second quarter. Finally, I will mention, as noted in our release this morning, during March of this year, CMS approved the direct payment portion of the Texas Waiver Program. As a result, we recognized $385 million of revenue and $160 million of additional provider tax assessments related to this portion of the program from the period September 1, '21 through March 31, 2022. Of these amounts, approximately $244 million of the revenue and $90 million of the provider tax assessments related to the September through December of '21 period. As noted in our release this morning, we are adjusting our full year 2022 guidance as follows: We expect revenues to range between $59.5 billion and $61.5 billion. We expect net income attributable to HCA Healthcare to range between $4.95 billion and $5.34 billion. We expect full year adjusted EBITDA to range between $11.8 billion and $12.4 billion. We expect full year diluted earnings per share to range between $16.40 and $17.60. And we expect capital spending to remain at $4.2 billion for the year. So let me provide some additional commentary on our adjusted guidance and three primary areas that we have considered. First, our cost of labor was higher than anticipated in the first quarter, primarily due to the utilization and cost of contract labor. We now believe the disruption of the labor market and the pressure this places on labor cost inflation will be slower to moderate than we originally anticipated. Second, as I previously discussed, we saw reduced acuity and revenue from Omicron COVID patients in the quarter, and this lower acuity has been factored into our guidance as well. And lastly, we made assumptions regarding increased inflationary pressures and expect that to have a greater impact on us going forward, including for professional fees, energy procurement, cost of utilities, and other purchase services. So let me close with a brief discussion on some of the initiatives we have underway to respond to these current market dynamics. We've spoken in the past of our resiliency efforts, which now include three main focus areas. First is around staffing and capacity, as Sam mentioned in his comments. We have teams working on and focusing on multiple workstreams in this category. These workstreams are centered around investing in and enhancing employee recruitment and retention efforts and enhancing capacity management through new case management models and technology solutions. In addition, we are exploring new delivery models through our care transformation initiatives. All of these are focused on supporting our care teams and easing some of the current labor pressures. Second, we have our original resiliency programs that are continuing. Many of these are advancing efficiencies through our next generation of shared services. Examples of these include a consolidation and alignment of laboratory operations, facility management, environmental and food and nutrition support areas. And then the third major effort underway is an initiative around advancing our capability to benchmark key performance metrics across the organization. This is intended to identify variation and opportunity to see our best practices across several areas, such as supply utilization, provider support costs, discretionary spending, and other similar cost areas. Many of these were factored into our original planning assumptions, and we remain focused on these efforts to help offset some of the contract labor and inflationary cost pressures we are experiencing. So with that, I'll turn the call over to Frank to open it up for Q&A.

Thank you, Bill. Emma, you may now give instructions to those who would like to ask a question.

Could you provide more details on the adjustment of your EBITDA outlook, which has changed by approximately $650 million at the high end and $750 million at the low end? Considering the various factors at play in the first quarter, especially regarding Texas supplemental payments, how much of this adjustment reflects what you observed in the first quarter, and how much is it a result of your revised outlook for the remainder of the year? Additionally, could you elaborate on your thoughts regarding labor, specifically in terms of contract labor rates compared to your previous expectations?

Yes, A.J., this is Bill. Let me give that a shot. So as we're looking forward and we're trying to take what we saw in the first quarter to make some assumptions and a revision of our assumptions going forward, let's talk about the three areas. And first, as I mentioned, the pressure on the labor cost that what we're seeing is it's higher than we originally planned. It's primarily related to the use of contract labor. But we're also adjusting our base wage just to be responsive to the market as well. As I would think about it, our original plans were to kind of manage our overall cost per FTE somewhere between that 3% and 3.5% level. What we saw in the first quarter is our cost per FTE was about 1.5% higher than we expected. So as we forecast this going forward for the balance of the year, it could have a $400 million to $500 million impact. So we factored that into our guidance. The second area is regarding the Omicron variant, the less acuity in revenue, not only that we saw in the first quarter, but to the extent that we continue to see some COVID at a reduced level than what we saw in the first quarter, we factored that in. And then lastly, as I mentioned, just some inflationary increases above what we originally anticipated. So I think the way I would characterize it, approximately two-thirds of our revision, I would apply to kind of our wage and inflationary cost pressures and one-third of that due to the revenue acuity primarily to the COVID patients.

Embedded on the guidance reduction, can you walk us through the contract labor percent of nursing hours in fourth quarter, in the first quarter and how you assume that rolls off throughout the year? And then the same question on the rates for contract labor. And just because stocks had a big move today, any chance you guys can give us sort of a range for how we should be modeling 2Q EBITDA?

Yes. Peter, let me give a shot at that. I think we talked about on our fourth quarter call, our contract labor as a percent of nursing hours was around 11%. In the first quarter, it's about that level, too. We were 11.4% specifically in the fourth quarter, about 11.6% in the second quarter. We are experiencing elevated costs per hour of that contract labor, principally, we believe, related to the COVID surges. Our plans going forward are to continue to reduce the utilization of that contract labor and eventually moderate the average hourly rate that we're having to spend for that contract labor. But we think that moderation will be slower than we originally anticipated. So that's what's based in our assumptions, and it's basically influenced with what we saw in the fourth quarter.

Yes. And let me add to that, Pito, this is Sam. I think as we have gone through two years of up and down periods with surges, short-cycle normal periods, surges, another short-cycle normal period, we saw in the surges an acceleration in both turnover and the use of contract labor. As I mentioned on my prepared comments, we do what we've got to do to take care of our patients. What we're anticipating is no more significant surges as we move through the rest of this year. And that gives us some opportunity and some level of confidence that we can moderate the use of contract labor. And some of our other initiatives should provide support in recruitment, some of our retention efforts and so forth, giving us an opportunity to wean ourselves off the high levels of contract labor. And we saw that in the short cycles to a certain degree, but we never were able to sustain it simply because it was just that, a short cycle. So as we go through the rest of this year, we think the cycle will be longer with respect to those surges, and that will give us an opportunity to gain some traction with some of these initiatives. Our teams are working diligently across the facilities to make this happen. And again, I'm confident, just as we've done in the past, that we can make these adjustments over time and get us to where we need to be.

First, just a quick follow-up on Pito's question. Can you give us a number as to where you expect to end the year on contract labor as a percentage? And just to confirm, does that sit in operating expense or other operating? Because that was the line item that looks like it was a bit off. And then my actual question is, Sam, just as you take a step back, right, there was a huge improvement in margins during COVID. It looks like they take a step back here. I'm just curious, do you think this is a sustainable margin or a sustainable EBITDA level to kind of think about jumping off for next year? Or do you think some of those improvements could help you close the gap versus where you were when you guided the year originally?

Justin, this is Bill. Let me start with the first part of that. Without giving any specific numbers, you've heard us talk about, we expect to decrease the utilization. If I look before COVID, we will be hovering around 9% to 10% of ours. I don't know exactly, there are so many uncertainties, but we expect it to sequentially improve going forward. That does come through the SWB line, not the other operating. You did mention the other operating. It was primarily influenced by the provider tax assessments that I mentioned in my prepared remarks.

Yes, this is Sam. Regarding the margins in the first quarter, they were under significant pressure due to unprecedented labor costs. These costs were largely a result of the surge we were responding to, which affected margins considerably. I believe that over time, we can regain some of that lost margin as we align our workforce more effectively, focusing on a more permanent and efficient workforce rather than relying heavily on contract labor. We do not have a specific target for contract labor at this moment. In 2019, our usage was about half of what it is today, and while I’m not sure if we can return to those levels in the short term, I am optimistic for the intermediate future. With various initiatives and our Galen College of Nursing expansion program, we aim to return to those levels. However, the first quarter was particularly challenging from a margin perspective due to the high costs associated with contract labor.

Just want to maybe follow up on that question there. I think last quarter, you were talking about something like a 20% to 21% margin as kind of ultimately being sustainable. Is that the right way to think about it? Or have some of these things changed your view? And it sounds like, for the most part, you talked about recapturing margin, you're talking about cost savings. Is there anything on the rate side that is part of that equation? And if so, does that take a couple of years to play out? Or is that something that we can think about more normalized margins as soon as next year?

Well, Kevin, if you look at our guidance, I think it would imply close to those 20% margin levels. Obviously, we've had to adjust some of our thinking, given the inflationary cost pressures that we're seeing. So we're doing everything we can to operate the company as efficiently as possible. There's a lot of variables that we know go into margin. Volume, acuity, payer mix, continuing to manage our cost structures appropriately. So I would use that 19% to 20% level in the short run. And over time, we're going to continue to find ways to continue to operate efficiently.

On the payer contract, we are having more discussions. Obviously, the payers understand the inflationary pressures that providers have. And there's early discussions. It doesn't change our revenue mix in the 2022 period because we're largely contracted for 2022. But as we move into 2023 and 2024, Kevin, we have opportunities to utilize our payer contracts to get some relief from the inflationary pressures. And as we further our discussions with those commercial payers, I'm optimistic that we can gain some escalators that are more in line with the inflationary pressures of today versus the inflationary pressures of the past.

Bill, what are you assuming in your algorithm this year for the guidance around COVID and non-COVID? I think you were assuming non-COVID was going to be, I don't know, 2% to 3% of the total. How has that shifted? And is there anything that you can share on how non-COVID, either inpatient, outpatient or anything, is tracking through April that might just give us a sense of the run rate.

I can't say April, Whit, at this point. But we said in our prepared remarks, non-COVID was up 2.2%. And that was really in February and March. In February and March, we were seeing 4.5% to 5%, potentially in those levels. So again, that's why I said we're encouraged by those trends. I don't think really what we saw in the fourth quarter really in broad terms affect our volume outlook. We still see good volume demand in the marketplaces. So originally, we said 2% to 3% volume growth, COVID still being between that, maybe 3% to 5% of our total admissions. And I think right now, I think that's mostly in line with our current expectations.

I want to quickly follow up on your earlier comment, Sam, about improving the efficiency of contract labor. We've typically viewed the labor environment as having contract work as a temporary element, while wage inflation seems more permanent. Should we interpret your comment on improving efficiency as an indication that higher utilization rates for contract labor might become a more permanent feature of the labor market moving forward?

Well, I think it's harder than it was in 2019. I don't think it will be harder than it was in the fourth quarter or the first quarter. I think rates will naturally come down as the surges subside and as the workforce is aligned with more permanent staff and so forth. And so we're dealing in the first quarter and the fourth quarter and a little bit in the third quarter as well very high cost per hour for contract labor. And we do not believe that is sustainable. And so we're anticipating improvements in that. Additionally, I think we will see reductions in the number of contract labor personnel that we use. Again, as our initiatives gain traction, we've invested heavily in our recruiting function and really improved the candidate experience inside of that. We have some improved retention efforts and compensation programs that we think are going to support that component of our set of initiatives. So all of that leads us to believe that we can get the cost per FTE down from where it was in the fourth quarter and the first quarter. And so that's our thinking.

Can you tell us when I look at inpatient admissions and adjusted admissions compared to 2019, they are still down about 3%. Can you explain what is included in the guidance for 2022 in relation to the 2019 baseline trends, please?

Ann, this is Bill. So as I mentioned before, we still believe we'll end up seeing 2% to 3% admissions for the full year '22. You're right, we are down a little on '19. I'd have to take a moment to see what that represents in ‘19, it's about 1% is what I think that would be our '21 number versus the baseline '19, would be down about 1%.

Yes, let me color that a little bit more, Bill, if I may, please. I think a couple of things when it comes to our same-store 2019 versus our same-store 2021. Our uninsured volumes are down 11% from 2019. So that's a very significant point. The second point I would say is we've had a fairly significant shift of orthopedic total joint surgeries go from inpatient to outpatient from 2019 to 2022. Again, that's put pressure on the admissions. Our surgeries were actually up over 2019. And then again, with our emergency room visits, if you look at the categories that are the paying categories were slightly up, but our uninsured activities were way down. So I think you've got to look at the components of the business and understand the different components. And so the mix, slightly better shift inpatient to outpatient, which we've talked about over the last couple of years, and that influences the 2022 to 2019 comparison.

I wanted to discuss the seasonality of revenue and EBITDA. Should we consider the trends from before COVID, where the first and fourth quarters typically had higher EBITDA? Or should we take into account that companies like J&J have reported record high cancellations in January, with improvements starting in March and April? Additionally, there is some expectation that labor costs might decrease slightly sequentially. Are we seeing a return to normal EBITDA seasonality, or is the situation still complex? Can you provide some clarity on this?

I think a couple of things, Gary. Thank you for that question. The seasonality, we talked about this in the fourth quarter call, was really difficult for us to discern because, again, we were weaning ourselves off the Delta variant and then ramping up on the Omicron variant. I think the seasonality again, with our volume, is a bit uncertain to us right now. My sense is this could be a more normal period on seasonality for volume in 2022 than any that we've had over the last two years, obviously. But the seasonality on our costs, as we've indicated, I think are going to be different. And they're going to be different because we're at a high watermark on labor cost per FTE in the first quarter. And typically, our costs would go up seasonally. But we think as we work through the initiatives and the alignment of our workforce, we'll have a different pattern to our cost in 2022 than what we've had in previous years. And then hopefully, 2023 gets back to normal. So that's how we're thinking about it. Obviously, there are still months to come here for us to understand if that does play out, but that's our thinking at this point.

Sam, I want to follow up on some questions about the labor rate. One thing we're being asked is, why now? You all have managed labor very well over the past year and a half. Could you share your thoughts on the turnover of your permanent nurses? Additionally, Bill, you mentioned acuity as a factor in the revenue guidance cut. As we reduce temporary staff, should we expect any impact on labor or volumes that we need to consider?

In the first half of last year, our labor costs were relatively stable. We have discussed this repeatedly during our quarterly calls. We are now moving past some previous comparisons. However, labor costs were significantly affected by the Delta variant for a couple of reasons. First, we saw an 8.5% increase in our patient count from the second to the third quarter, reaching record levels for our company. This required us to respond appropriately to those patients. During the summer of 2021, the labor market was heavily impacted, which led us to rely more on contract labor than in previous periods. This trend continued into the fourth quarter and into the first quarter of this year, largely influenced by the surges in cases. The Delta variant brought in a high-revenue patient population, which helped offset some costs in the third quarter. The fourth quarter experienced a mix of Delta and Omicron cases, still resulting in higher costs than the first quarter. Overall, our labor costs per full-time equivalent have not changed significantly in three quarters, which I view positively. However, we are still relying too much on contract labor at elevated rates. Fortunately, our contract labor costs per hour decreased by 5% in the first quarter compared to the fourth quarter, improving month over month. This gives us confidence that our assumptions for the rest of the year are reasonable. This is why the current situation may not appear as well managed as it has in the past. Our employee productivity is very efficient concerning the number of employees per patient, and as we implement our other initiatives in a hopefully COVID-free environment, we expect to alleviate some of the challenges we've faced over the past three quarters.

Yes. Brian, you got a follow-up question. As I think Sam mentioned, too, in his comments, there's always the potential where the labor pressures could affect your volume. What we've seen now is in COVID surges as we manage through transfers, again, I think as Sam alluded in his comments, at the end of the quarter, we were really back to our normal levels, but we're continuing to manage through that dynamic.

We recently received the Medicare IPPS proposal for 2023, which had several components. It would be useful to understand the gross versus net projections for your rates based on that proposal. Additionally, I’d like to know your thoughts on how CMS is considering inflationary pressures and whether you believe CMS will begin to account for these more accurately in FY '24 and beyond.

Yes, Scott, this is Bill. I mean, obviously, we're still assessing it. But I think on first blush, we thought kind of the gross increase we saw would be hovering just under 2%. That's pretty consistent with what we've seen. But I think to your point, it does get netted out when we see the delay in the sequestration cuts out there. So we'll still assess that. So it may move it closer to flat net-net all-in, but we're seeing at the top line just under 2% growth on that. And so we'll see how the final rule comes out as we go through comments.

Yes. And in forward years, typically, it takes a little bit for the wage index to be adjusted to reflect what's going on in the industry. So I think as '21 and '22 start to get baked into the formula for inflation around the wage indexes of the hospital industry, it will start to influence the reimbursement in slightly different ways.

Just wanted to follow up on the revenue commentary. Can you take us through the components of the lower revenue guidance in more detail, maybe help bucket the $500 million decline between volume, acuity, and mix? And are there any other government-related items that you would call out in that revenue decline?

Yes, Andrew, this is Bill. I would tell you it's principally related to the drop in the COVID acuity that I mentioned in my comments. And we're estimating it to be approximately $150 million in the quarter. COVID, obviously, was higher at 10% of our admissions than we expect in the full year. But if you run that out, I would say the vast majority of that revenue decline would be due to the lower acuity that we're seeing with the Omicron variant and expect to see going forward. And outside of that, there's no other really major item that I would call out, just the ebb and flow of kind of normal volume patterns.

Just wanted to ask another one on the labor market. So I'm sure part of your process around this issue involves a great degree of competitive intelligence about what's going on in our markets. I was hoping you could share a little bit about what you're seeing from your local market competitors and whether there are strategies around contract labor or employed labor forward, so even maybe potentially putting certain service lines on pause or maybe exacerbating some of the pressures you're feeling. I guess, big picture, do you think they're being as disciplined as you are? And if not, how should we think about the longer-term implications of that?

So from a competitive standpoint, I mean, obviously, our wage programs have to be competitive. And that means different things in different circumstances. And we have made adjustments to our compensation programs, really starting back in the third quarter of '21, to respond to some of the market dynamics. We continue to be very fluid in that particular area of our business in responding to the different circumstances from one market to the other. I would say that we think we're in a pretty good spot. We haven't seen any unusual maneuvers broadly. We are fortunate again to have competitors that tend to be only local and in one market or two markets at the most. So we don't see sort of patterns that permeate all 43 markets for HCA Healthcare. And so that's a positive on that front. But we haven't seen anything unique yet from the competitive landscape with contract labor and so forth. But I've got to believe that they are facing many of the same challenges as we do. And I believe over time we've been able to use our operating discipline, use our systems, use the learnings that we have across the company to create advantage for us. And I believe we will continue to do that.

Quick follow-up on contract labor. How long are those typical contracts in place? And then my real question is, are you having any issues with discharges, post-acute discharges? Is that impacting length of stay, driving up costs and, obviously, the same DRG, the same payment?

Yes, Josh, it's Bill. Typically, those contracts range around 13 weeks. So it takes time to adjust. But given the size, they're always flowing through our system on there. And relative to post-acute and discharge planning, I would say, yes. I think that's part of our case management initiatives that I spoke to in my prepared comments. I think the supply and demand dynamics in post-acute, whether it be skilled nursing or other post-acute settings, from time to time can cause a backup in our discharges. And that's why we're trying to advance and utilize some technologies, advance a common organizational structure around case management so we can continue to focus on that and improve that length of stay when patients are ready to go home and there are appropriate levels of discharges. That is a dynamic out there. There's no doubt about it. But I think we're focusing a lot of effort and energy and resources to try to continue to improve in that area.

I just want to go back to your comments around the initiatives for retention recruitment capacity management and new care models. Can you just help in terms of what is different with these initiatives today maybe compared to perhaps how you utilized these initiatives back in 3Q '21 when labor was picking up. Is it just more intensity there? Or are you leveraging incremental levers that maybe weren't considered or previously utilized back then? And then if possible, can you help quantify the offset of these programs or initiatives related to the $400 million to $500 million net pressure regarding the higher wages and costs with the revised guidance?

Yes. I'll begin, and then Sam can add. It's a combination of intensifying existing initiatives and introducing new ones. For instance, as Sam mentioned earlier, we've significantly increased our investment in recruitment, which has been a focused effort. We're also implementing standardized retention strategies across the organization. Additionally, we have approved a new effort to align our case management strategies. We're investing in new technologies to improve our predictive assessments of patient needs at discharge. So, it's about enhancing existing efforts while also starting new initiatives. This encompasses recruitment, retention, capacity management, and exploring new care models. We are looking at ways to bring in additional support staff to assist care teams, such as patient care technicians and safety attendants. We have multiple initiatives aimed at supporting our team and alleviating their pressures. In our original guidance, we had already considered some impact from these initiatives, and we will continue to focus on them to address the market pressures we are experiencing.

Question on volumes. Last year, the timing of the COVID wave was pretty similar to what it looked like this year. You had a really nice acceleration in 2Q last year in terms of volumes across the board. What are you seeing now in terms of volumes? And is last year's experience a good proxy for how we should be thinking about the acceleration into 2Q? And then just one quick follow-up. Can you guys give us what percent of your Managed Care contracts are in place for 2023?

So February and March, which were obviously months post Omicron surge, behaved similarly to the holiday surge that occurred at the end of 2020 and on into the first part of 2021. Again, we had solid non-COVID admission growth in February and March, as Bill alluded to, in the mid-single digits. So we're encouraged by that. There's nothing to suggest that the patterns will be different. But again, we're learning, obviously, as we go through these patterns and we're hopeful that we won't have any more surges and we'll be able to judge some of these patterns more effectively. With respect to our payer contracts, we're about 50% contracted for 2023 and about 30% contracted for 2024. Again, those capacities in each of those years give us opportunities to adjust some of the inflationary expectations to the realities that we have today.

You've been talking about the majority of the pressure being on temp labor, but I was hoping you could unpack that a little bit. Are you talking about two-thirds, one-third temp labor to kind of the longer-tailed items like wage inflation and bonuses or a more extreme split? And you guys are in a unique position owning a nursing school. So are you seeing any shift in what field students are selecting? And how is that influencing your strategy?

I don’t have the exact split in front of me to answer your first question, but I can address the second question. We can follow up on the first question with more details later. It's still early for us regarding the Galen College of Nursing programs and their expansions. However, from what we've observed at some of our new schools opened in Austin, Texas, Nashville, Tennessee, and parts of South Carolina, enrollment in nursing programs at Galen College of Nursing is at record levels. This strong initial enrollment gives us confidence. We see an opportunity to integrate these students into our organization to meet current needs and foster synergy as they graduate and seek employment with HCA Healthcare. We are very optimistic about the future. Although these prospects are more intermediate, we will also have some short-term benefits from nurse externs and rotations that we can effectively use to address current needs. The initial enrollment figures at several of these new schools indicate there is still a healthy supply of students interested in nursing programs. We can touch base again regarding your second question.

No, no, I don't have an answer, Sarah. We'll have to get back with you. I think our overall labor mark is a combination of the temporary labor and some of the base wage inflation. I can't split it for you exactly. We'll get back with you on that. But it's a combination of both.

The question is not related to the quarter, but I have been closely monitoring the ongoing discussions about compliance with the price transparency regulations. I understand that implementation is quite complex. Can you share your current status on this matter and your timeline for achieving full compliance, if you haven't done so already?

We believe we are compliant with the CMS rules, which are very complex and often hard to implement due to the differences between commercial contracts and markets. We have established an internal program that we believe is compliant, and which CMS has validated in certain situations. We continue to refine our presentations to satisfy CMS's changing interpretations, as well as to adjust some of our postings to meet the evolving requirements.

Thank you very much. I'll turn it back over to Emma.

All right. Thank you, everyone.