HCA Healthcare Inc (HCA) — Q2 2025 Earnings Call Transcript

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and our CFO, Mike Marks. Sam and Mike 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, they're based on management's current expectations. Numerous risks, uncertainties, and other factors may cause actual results to differ materially from those that might be expressed today. 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.

All right. Thank you, Frank, and good morning to everybody, and thank you for joining the call. The company's financial results for the second quarter were strong with a 24% increase in diluted earnings per share as adjusted to $6.84. The results reflected solid revenue growth of 6.4%, which was driven by greater demand for our services, improved payer mix, and consistent patient acuity levels. In the quarter, we also experienced a stable operating environment, which allowed us to produce better margins. Because of the team's great start to the year, we increased our guidance for 2025 as reflected in our earnings release this morning. This updated outlook also reflects the positive demand environment we expect in our markets, the effectiveness of our strategic initiatives, and the momentum we see in our business. During the quarter, we also improved quality outcomes, throughput measures in our emergency rooms, and patient satisfaction. We believe the HCA way of combining our high-quality local health networks with the capabilities of a national system will continue to reinforce our competitive position, help us respond effectively to evolving market dynamics, and meet the needs of our patients. As a team, we remain relentless in our pursuit to innovate using technology, find new ways to increase efficiencies, and hold ourselves accountable for delivering results for our stakeholders. I want to thank our colleagues again for their outstanding work and their ongoing pursuits to deliver on our mission. Now let me transition to the federal policy environment and the recent passage of the One Big Beautiful Bill Act. With respect to the Medicaid component in this act, we believe the adverse impacts over the next few years are manageable. This belief is based on the grandfathering provisions for supplemental programs, which include a number of previously submitted applications for state-directed payments and the timelines for phasing in work requirements and supplemental payment program changes. I will also note that the bifurcation of the policy between expansion and non-expansion states lessens the expected impact to HCA Healthcare. Approximately 60% of our Medicaid volumes and revenue are in non-expansion states. With respect to the exchange provisions in the Act, we do anticipate that some people will lose insurance coverage over the next few years, but we believe our financial resiliency program should offset these effects. We are also mindful of the scheduled expiration of the enhanced premium tax credits at the end of this year. We continue to advocate strongly for their extension. But at this point, we do not know what the outcome will be. Recent polling indicates that many Americans want them extended, many believe they need them for their families, and many say their voting patterns could hinge on their ultimate fate. We are working to develop and execute resiliency programs to offset as much as possible any adverse impact should they expire. Let me close with this. Regardless of the outcome with these federal policies, we are optimistic about the future of HCA Healthcare. Our balance sheet is strong. We have an experienced, capable and disciplined team. And where appropriate, we will adjust as we can and continue delivering on our mission. With that, I'll turn the call to Mike for more details.

Thank you, Sam, and good morning, everyone. We are pleased with our second quarter earnings. Equivalent admissions increased 1.7% for the quarter and 2.3% for the year. Year-to-date managed care equivalent admissions, including the exchanges, grew 4%, which is in line with our expectations. Medicare grew 3%, which is slightly below our expectation. Medicaid was down slightly and self-pay was up slightly. Both were below our expectations and represent our lowest reimbursing payers. However, given the payer mix and acuity of our patients, we had revenue growth of 6.4%, slightly above the top end of our long-term 4% to 6% guidance. Adjusted EBITDA margin improved 30 basis points compared to the prior year quarter. Salary and benefits, along with other operating expenses, both improved as a percentage of revenue when compared to the prior year. Same-facility contract labor improved 1% from the prior year quarter and represented 4.3% of total labor costs in the second quarter of 2025 versus 4.6% in second quarter of 2024. Supply expense increased slightly as a percentage of revenue due primarily to increased spending on cardiac-related devices. Adjusted EBITDA in the second quarter grew 8.4% over the prior year quarter, and we were pleased that a substantial portion came from core operations. Regarding Medicaid supplemental payment programs, as we've said in the past, these programs are complex, variable in timing and do not fully cover our cost to treat Medicaid patients. Considering Medicaid state supplemental payments and related provider taxes in isolation, we saw an approximate $100 million increase in net benefit in the second quarter of 2025 compared to the prior year quarter due to prior period reconciliation payments and program accrual timing. The new Tennessee directed payment program was approved in late June. As this is a newly approved program, we did not accrue any benefit from this program in the second quarter of 2025 and will record as we receive cash. Moving to capital allocation. We continue to deploy a balanced strategy of allocating capital for long-term value creation. Cash flow from operations was $4.2 billion in the quarter. Capital allocation in the second quarter of 2025 was $1.2 billion in capital expenditures, $2.5 billion in share repurchases, and $171 million in dividends. We were able to defer approximately $850 million in tax payments to the fourth quarter due to the IRS providing relief to Tennessee taxpayers in the aftermath of severe weather in early April. Our debt to adjusted EBITDA leverage remains in the lower half of our stated guidance range, and we believe our balance sheet is strong and well positioned for the future. Sam discussed the health policy implications of the One Big Beautiful Bill Act. I will provide a few more detailed notes. As it relates to tax policy, this act was positive for HCA, making 100% bonus depreciation permanent and effective back to inauguration day, which is helpful given our capital investment program. The act did not include policies that would have materially increased our tax liabilities. We continue our work to develop and execute resiliency plans to offset as much of any adverse impact as possible from the act, the potential expiration of the EPTCs and other administrative actions such as tariffs. We will provide more information on our resiliency efforts during our fourth quarter 2025 earnings call when we issue our 2026 guidance. So with that, let me speak to our 2025 guidance. As noted in our release this morning, we are updating the full year 2025 guidance as follows: we expect revenues to range between $74 billion and $76 billion. We expect net income attributable to HCA Healthcare to range between $6.11 billion and $6.48 billion. We expect adjusted EBITDA to range between $14.7 billion and $15.3 billion. We expect diluted earnings per share to range between $25.50 and $27. We expect capital spending to be approximately $5 billion. We are updating our guidance to project growth in equivalent admissions to be between 2% and 3% for the full year 2025. With the approval of the Tennessee program and with updated information from across our programs, we now anticipate our supplemental payment full year net benefit to be between flat and $100 million favorable year-over-year. This projection does not include any potential impact in 2025 from the grandfathering of applications under the act. We believe one of the underlying strengths of HCA is our diversified portfolio of markets. The recovery in our facilities impacted by Hurricanes Helene and Milton in the third and fourth quarter of 2024 is going better than anticipated. However, we have a couple of markets below our expectations that are offsetting some of the better performance in the hurricane-affected markets. We understand the challenges in these markets and have confidence in the plans in place to address them. Ultimately, the increase in our earnings guidance is equally weighted between the updated net benefit from the state supplemental payment programs and the improvement in our overall portfolio operational performance, including the hurricane-impacted markets. With that, I will turn the call over to Frank for questions.

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

I wanted to ask about the updated guidance. You've raised your EBITDA guidance by about $300 million at the midpoint, which seems to reflect the outperformance you've experienced in the first half of the year. Regarding this updated outlook, should we consider the Tennessee DPP program as part of it? Additionally, I noticed you're making a slight adjustment to the admissions number downwards. Other companies in your sector have done the same. Can you share any insights on the current demand trends in terms of volume?

Let's discuss the guidance first. Regarding the $300 million increase in guidance at the midpoint, as I mentioned earlier, roughly half of that comes from state supplemental payment programs, which includes approval of the new Tennessee program. We anticipate starting to receive funds from this in the latter half of the year, likely seeing a significant amount in the third quarter. Additionally, we have better visibility at this midyear point concerning our other programs, contributing to about half of the increase. As for the remaining half of our guidance increase, this is related to our portfolio. Specifically, around $150 million of this increase pertains to our portfolio, with about $100 million improvement in hurricane-related markets. Initially, we expected those markets to remain flat compared to the previous year, making this $100 million notable. However, we do have a couple of underperforming markets, which impact the overall performance by approximately $50 million. These two markets are offsetting some of the gains from hurricane markets. The rest of our portfolio is exceeding expectations, which contributes to the other half of the increase. It’s worth noting that I expect the earnings growth for the third quarter to be somewhat lower, while the fourth quarter's growth rate may be higher compared to our midpoint guidance. This is mainly due to the timing of supplemental payment program payments, and in the fourth quarter, we recall having received one-time payments last year that will not recur. We believe the recovery in our hurricane markets will primarily materialize in the fourth quarter, if not entirely. Now, on to volume, as of June, we have experienced a 2.3% equivalent admission growth, compared to our initial guidance of 3% to 4%. There are a few factors affecting this. Firstly, Medicaid for June year-to-date is down 1.2% compared to the previous year. We initially anticipated that Medicaid would stabilize this year or show slight growth following the Medicaid redetermination program. Furthermore, our self-pay charity volumes are only up 1.5% year-to-date as of June, whereas we had expected them to grow at least in line with overall volume growth. For context, our self-pay volumes rose nearly 7% in 2024 compared to 2023. The combination of Medicaid and self-pay volumes not meeting our expectations accounts for about half of the difference between our current year-to-date volume growth and our original 3% to 4% guidance. The other half of the shortfall stems from Medicare. Although we expected Medicare growth to be slightly faster, a 3% growth in Medicare through June is still quite strong. These are the primary areas where our volume has not met our original expectations of 3% to 4%. Sam, would you like to add anything?

Let me just add a couple of comments to your Mike, because I think context is always important. You look at the headlines on volume metrics, as Mike just suggested, there's one metric everybody looks at and we get it. But when you start reading through the full story and not just focus on the headlines, you start to see the productive aspects and the qualitative value of the underlying business. For example, we had 14 out of 15 divisions that grew their admissions, 14 out of 15 domestic divisions grew their adjusted admissions. Our cardiac procedure volume was up 5%. Our obstetrics volumes were up 3%. Neonatal volumes up 13%. So the details in many respects reflect the power of a diversified portfolio of markets and services. I think another point for us, and this is how we look at it, we've had 16 consecutive quarters of volume growth. And so that consistency tells us that the network model that we're investing in very heavily, and we're focused around execution on it allows us to compete effectively. It's allowed us to sustain market share gains, and we think it adds value for our patients. It adds value for our physicians, and we think it adds value for our shareholders. So yes, the number is 1.7%. But when you look underneath it, the productive and qualitative aspects of it are more impactful than maybe first understood.

Can you just provide more details on your resiliency programs? I think the Street really at this point doesn't believe that the subsidies will be extended. How much of the headwind do you think you can offset in 2026? Is any of this benefit embedded in your 2025 guidance? Or will it all be incremental to 2026? And any other incremental details about what type of cost savings you'll be doing, that would be great.

Let me summarize our thoughts on the One Big Beautiful Bill Act, the EPTCs, and our resiliency program. We will provide more details on this in our fourth quarter 2025 earnings call when we discuss guidance for 2026. First, regarding the act, I believe our finance resiliency program should offset the exchange provisions in the short term. In the long term, given the delayed start and gradual implementation of the provider tax and state-directed payment reimbursement reforms, along with the potential approval of submitted supplemental payment applications, we expect HCA will manage these impacts through our resiliency efforts without significantly affecting our long-term guidance. As for the EPTCs, we are currently uncertain about the outcome. We are developing our resiliency programs to mitigate any adverse effects if they expire, and the potential approval of grandfathered applications would certainly help. We will share more details when we outline our guidance for 2026. In summary, our resiliency efforts, which we have been diligently working on over the past year, include benchmarking our corporate departments and shared service organizations against best practices and identifying operational improvement opportunities. We are actively pursuing our field-based resiliency efforts, which include improvements in length of stay and case management operations, as well as advancements in automation and our digital transformation agenda. Our labor and supply-related resiliency plans are also well developed. We will provide more updates on this during the fourth quarter call.

I appreciate all the color about trends in the various payer classes. I was wondering if you could comment a little bit on commercial volume you're seeing. One of your peers talked about waning consumer confidence driving some weakness in their book. But wanted to see what you're seeing and kind of that weighed against any expectation for a pickup in activity, assuming people are trying to get procedures done toward the end of the year in anticipation of losing the enhanced premium subsidies. Any thoughts there on what we can expect through 4Q in commercial?

So I'll give you, Ben, June year-to-date, our managed care and HIC equivalent admissions are up 4% over prior year. If you think about how that compares to our expectations coming into the year, it's right there. I mean that's about what we expected for as part of our original 3% to 4% guide. I would say that health care exchanges, which are up 15.8% through June year-to-date are a little better than our original expectation. And our commercial managed care book, excluding the exchanges, which is up just short of 1 point to prior year, maybe a little below our original guidance, but that's how we read it. We're pleased with the payer mix through the second quarter. Sam, I don't know if you have any comments about consumer.

No, I don't think we can make any comments yet about consumer confidence. I think, again, the demand for health care largely over time appears to have been inelastic. I don't know that anything is necessarily changing that. And so it's difficult for us to point to consumer confidence, at least across our portfolio as a driver of activity. Again, we had good commercial growth in a lot of categories. We had declines in areas, as Mike mentioned, that were government or no payer-sponsored business. We saw declines in pediatrics. We can point to a respiratory environment last year that we didn't have this year. That influenced our overall statistic. Behavioral health admissions were down in our company. Some of that was because we shrunk supply in certain facilities. Again, that doesn't have as good a payer mix as the rest of our business. So I think from that standpoint, we're still pretty confident, as we mentioned, in the demand for health care across our markets, and we don't see that being disrupted too much in the short run here.

Ben, I want to point out that we are facing a challenging comparison to last year, which had strong volume growth. It's important to note that the first half of this year still felt the effects of the leap year, contributing roughly 50 basis points to our volume. Last year's Medicaid redeterminations significantly boosted our exchange growth, with over 40% volume increase noted. Interestingly, our exchange equivalent admissions rose 14% from the first quarter to the second quarter of '24, while this year saw a 3% increase during the same period. Despite this slower growth, we did experience a sequential increase. Additionally, it's worth mentioning that the Medicare Advantage bid night rule affected admissions in '24, but that effect has ended for '25, which adds another layer to our prior year comparison.

Could you provide some insights on the local market's market share? I'm interested in how the high utilization rates mentioned by payers are affecting the volume trends you are reporting. Are there any local dynamics you can share with us?

Yes, Brian, thank you. As I mentioned, we've had sustained market share gains, and we think we've continued to accomplish that with the most recent data that we've seen in our market share, if you really sort of exclude behavioral health, given that we put some pressure ourselves, we're above 28%, and we're showing signs of broad-based market share growth across service lines as well as across many of our markets. We do have a few markets as we always do. We have 43 U.S. markets that we focus our share on and some are doing better than others. But we're fairly agile in responding to those dynamics. I mean there's a lot of investments that we're making in our business. We still have about $5.5 billion worth of capital that is in flight that will add to our networks, both with outpatient facilities as well as inpatient capacity where appropriate. We think that will continue to produce the necessary overall capacity to meet the demand as well as the share gains that we anticipate with our initiatives. So we continue to find ways to improve what we call the integrity of our network and keep patients inside the system where appropriate for them. And that's an area of focus for us also. So I'm pretty pleased with how our teams are executing on the ground, so to speak, to deliver value for our patients, grow their business and so forth. We recently finished our midyear reviews with all of our divisions, and we're optimistic that their assessments of the markets are continually favorable and will allow us to achieve our objectives as we push forward.

One quick clarification and then a real question. clarification. On supplemental payments, I believe you raised the annual guidance by about $170 million at the midpoint. I believe the first quarter was $80 million ahead. Second quarter was $100 million ahead. So just confirming that you're not changing supplemental payment guidance in the back half of the year. And then the real question is, do you have any color on how your HICS patients have access to employer-sponsored health care but have chosen HIC due to lower cost? I'm just struggling as to look at the millions of jobs created in your states and yet the employer-sponsored growth is tracking below job growth.

Thanks, Peter. Let me start with guidance. As I mentioned earlier, about half of our increased guidance at the midpoint is coming from state supplemental payments. Specifically, a $150 million increase in our guidance stems from these state supplemental payments. This accounts for the improvements in the Tennessee program, which has been approved, and we expect to begin receiving cash in the latter half of the year. As you consider the second half of the year compared to the first half, we have had a $180 million net benefit from supplemental payments contributing to year-over-year earnings in the first half. In contrast, we expect a $130 million decline in net benefit in the second half compared to the second half of 2024, mostly in the fourth quarter. Therefore, when you examine the implied guidance rate in our revised outlook, we believe that the growth rate for the second half of the year will be roughly comparable to the first half, taking into account the improvement in the hurricane market for the fourth quarter and the anticipated decline in state supplemental payments. Currently, we do not have enough insights into what percentage of individuals who might leave the exchanges if the EPTCs expire might return to employer-sponsored insurance, but we expect that some of those who lose EPTCs will transition back to employer-sponsored plans. Especially in our key states, particularly non-expansion states like Florida and Texas, we think this will be part of the narrative, although it's too early to draw conclusions until we see the outcome related to the EPTCs.

Just wondering if there are any changes that you guys are seeing in MA behavior or denials, anything to call out that's maybe changed versus last year? And any investments maybe that you've made around documentation or revenue cycle that's also changed?

On Medicare Advantage, it now accounts for 58% of our total Medicare admissions. Regarding the 2-midnight rule, it appears to be fully implemented in 2024, and we are not observing any notable shift from observation to inpatient status. Concerning payers, we haven't experienced any significant impact on our results from denial activities, which reflects the extensive efforts we have invested in improving our revenue cycle over the past few years to enhance our management of denials. Over the past year, we have also started several partnership initiatives with our key managed care payer partners. These initiatives concentrate on areas like digital integration, administrative simplification, and improved dispute management. There is a lot of productive collaboration underway with our payer partners, and we are optimistic about continuing to navigate these challenges effectively. We rely on each other, and our relationship is strong enough to address these issues together.

Maybe just one quick info request and then a question. Can you give us the latest quote on ACA revenue and admissions? And maybe just a question on the hurricane performance. I appreciate all the color there. But I think the headwind, at least to start the year was $250 million versus last year. Now you're attributing $100 million of the guidance raised by hurricanes. So does that mean there's still $150 million of continuing headwinds embedded in the guidance for the back half? And can you give us a sense for how occupancy, payer mix and profitability stand in that Mission, North Carolina market versus pre-hurricane?

Let me start with the exchanges, which account for about 8% of admissions and just over 10% of net revenues as a percentage of the total. Regarding the hurricane markets, if you recall the third and fourth quarters of last year, a portion of the $250 million was lost revenues, and part of it was additional expenses, roughly split 60-40 between expenses and lost revenue. You can't recover the lost revenue, and you can account for the additional expenses year-over-year. When we first set our guidance for the hurricane markets, we were confident that the Largo hospital would see year-over-year earnings growth because it reopened on December 1. Much of the impact there was due to repair and maintenance costs. In our North Carolina division, we were worried about the ongoing effects of the hurricane in that area, even though we never stopped operations, due to the widespread impact on the local population. At the time of our original guidance, we estimated that the hurricane markets would be flat year-over-year in '25 compared to '24. However, after the first two quarters, we have observed a slightly better recovery than we initially expected. In the first quarter, the year-over-year performance of those two markets was relatively flat, while the second quarter saw a slight decline in earnings compared to last year. Although this decline was not significant at the company level, it did affect our results. We believe the third quarter may also see a slight dip, but we anticipate a year-over-year recovery in the fourth quarter. Overall, we expect the hurricane-related markets to exceed our original projections by about $100 million year-over-year, which contrasts with our earlier expectation of flat performance. Hopefully, that clarifies the situation.

Yes. And Mike, let me add one thing. What we've seen in North Carolina is greater demand than we anticipated. Unfortunately, we've seen the labor market get more tight, and that's required us to use more contract labor in North Carolina to service that demand. And so those are really the two big items there. Again, this is still a very short period after the storm. We don't know the long-term effects on Asheville, North Carolina, in particular, and what it means to economic development and tourism and so forth. But we're really pleased with how our teams have dealt with the operational requirements, the patient requirements with the situation there, and they continue to push on in a very effective way. And we remain very bullish about our system in North Carolina, and we continue to add where we can underneath the rules in that state. We continue to improve the quality, and we continue to engage with our stakeholders in a very effective way. So we're excited about the position of Mission Hospital in particular, and where it stands, and we'll continue to execute on the plan that's in front of us.

I'm going to approach the topic of resiliency in a different way. As the world looks ahead, it's clear there will be a significant loss of revenue. When considering exchanges and provider taxes, these generate high margins. As those revenues decrease, it could lead to a substantial impact. I assume you’re already aware of this. My main question is how you’ve consistently maintained a margin of around 19% to 20% in various operating conditions. Is it reasonable to believe that even with revenue loss, your resiliency efforts will help you maintain this margin target in the coming years?

Justin, this is Sam. I don't know if I'm going to put a frame of reference on any of that at this particular juncture. We need to get through the last half of the year to understand exactly where the premium tax credits land. We will score that. We are actively developing our cost plan in order to respond to that. I will tell you this, we have a pattern of owning our realities, whatever they happen to be, and finding pathways forward to accomplish our financial objectives, our growth objectives, our return on capital objectives, our quality objectives. And I'm confident that we will do that in an appropriate fashion as we push forward. And so we're not ready to give you a margin range. We're not ready to give you a revenue implication just yet because it would be inappropriate for us to do that until we have greater clarity on exactly how this lands where some of these people go if they do, in fact, lose coverage. And we understand everybody's concern and desire to want to try to score it. But you gotta give us some sense of time here and an ability to sort of process it. But when I pull up and I think about who this organization is, the people we have on our team, the position we have in the markets that we serve, I'm pretty confident that we'll get to where we need to be.

Going back to the guidance discussion, there was a comment about a handful of markets that were underperforming. Can you give us some sense for the drivers of that underperformance and then the actions that are underway to improve results?

Yes, this is Sam. We have 16 geographic divisions in HCA when you include the U.K. We have 15, obviously, in the U.S. Every year, we have one or two of them that aren't accomplishing what we hope they accomplish for a variety of reasons. Certain volumes don't materialize as we anticipate, competitors do something that we didn't expect. Physicians have dynamics that create flow of business. It's so variable. So we have two divisions. I'm not going to call them out on this call other than to say we're confident in our overall positioning in both of them and what they're doing in order to respond. These are seasoned leaders in these hospitals and in these divisions. There's been some competitive dynamics in one division that's dislocated some of our business, but we're responding to that appropriately. In the other division, there was a bit of service mix change, nothing structural, but it hit us pretty hard in the second quarter, and we're reacting to that appropriately with our costs, but we expect fully that, that will recover in the second half of the year. And so this is sort of the normal give and take with what's uniquely, I think, our diversified portfolio. And again, having geography differences across the company allows us to absorb two divisions that didn't have the performance that we anticipated. And that's what happened last year. We had a couple of divisions that did not accomplish their objectives in '24, and we overcame it last year, and we're doing it again this year.

Could you provide just a little bit more color on maybe surgery volumes, both on the inpatient and outpatient side? And maybe any changes in trends you're seeing around site of care?

So outpatient surgery is a continuation of kind of our past stories here, Josh. I mean I would note that on the pure case count standpoint, we were down 0.6% for the quarter, which is better than our most recent trends and still almost entirely driven by Medicaid and self-pay and a bit of a drop in lower acuity cases. I would note, as we've noted before, that we are seeing good revenue growth in our outpatient surgery book of business, call it, 7.5%, 8% growth here that we're seeing on the revenue side. So that's good. And really, if I pull up outside of just outpatient surgery and look at outpatient in total, we had a good quarter. I mean our total outpatient revenue grew almost 8%. So all four categories of our outpatient book that we track performed well. The inpatient surgery is a very similar story on payer mix. And the biggest impact was a drop in Medicaid cases on the inpatient side. So inpatient surgeries on a same-facility basis were relatively flat in the quarter, and it's pretty much payer mix on Medicaid driven.

Can you talk about how commercial exchange and self-pay compare historically on fee schedule and revenue collection rate? And to the degree we see some shifting in volume to self-pay in the future, is there anything that your team can do on the revenue collection strategy side to improve collection rates on self-pay?

Yes, Sara. So let me kind of double-click on patient collections a bit here. When I think about the patient portion or the patient balance that's owed under our commercial contracts, the first thing that we track is this idea of what do we typically see on an annual basis in terms of the increase in the average patient balance owed. Over many years, we've seen kind of mid-single-digit increases annually on the amount patients owe as part of their kind of overall commercial increase. And then in recent quarters, we've seen that a little higher, and that's been influenced by the health care exchanges where patients do tend to have a little bit higher patient responsibilities compared to traditional commercial. Regarding collectibility of those amounts owed, we've generally maintained our historical levels of collection on patient balances on our traditional commercial population. The health care exchange population, the rate of collection is a bit lower than on the traditional side, the traditional commercial side. But overall, we have not seen yet any significant impact on the collectability of our patient receivables in the aggregate. So that's kind of an update on what we're seeing relative to patient collections.

But are you able to give us a comparison to what that looks like versus self-pay? So for the uninsured population that self-pays, how much of a delta is there on collection rates or the fee schedule charge?

We collect very little cash from the truly uninsured populations there. Really, what you see with truly uninsured is you get a little bit of a pickup on DISH. But there is not any material collections that would fall into a material zone for the company on the uninsured population.

And most uninsured patients in our company qualify for either our charity programs or significantly reduced amounts due to our patient protection policy. So there's not a lot of revenue produced for uninsured patients.

Can you give us an update on the commercial contracting percentages over the next couple of years, I guess, in terms of what's already negotiated and what's still kind of hanging out there? And then on CapEx, we've heard from several larger nonprofits that the outlook is very uncertain. They're taking a pretty cautious approach, maybe in some cases, cutting budgets. I guess, is there a scenario where you see that in your markets and actually ramp up capital spending to try to capture some of that market share maybe longer term?

So our managed care contracting to date, we're largely done for '25. For '26, we're about 80% contracted, again, achieving the targets that we had established for each of those contracts. And we're about one-third of the way through '27, again, achieving the targets that we had assigned to those specific contracts. So we're pleased with where we are in our contracting cycle. We continue to try to work with the payers to create value for them, easy access for their beneficiaries. And then as Mike alluded to, eliminating some of the administrative friction and costs for both them and us, creating a better experience for our patients and a better experience for their members and even our physicians who participate in the process. So that's where we are on the managed care side. And I'm pleased with our position at this particular juncture. With respect to capital expenditures, the company is continuing to operate on the inpatient side at north of 70% occupancy, maybe 73%, 74% occupancy year-to-date. We have, as I mentioned, $5.5 billion worth of capital that has been approved and is in the pipeline under construction and should come online later this year, next year, and on into '27. And we continue to see opportunities for us to add to our networks, as I mentioned. I think we're today, I don't know, close to 2,700 facilities in our company. We continue to add facilities both through greenfield projects as well as acquisitions where we can, and we will look for those as well. As it relates to competitive dynamics, we do think there are opportunities for us to accelerate investments in certain situations and put ourselves in a better position to achieve our objectives, and we will sort through those in the normal course. But I don't see anything necessarily positioning a rapid acceleration in our spending to accomplish that.

Okay. Great. I just wanted to revisit the topic of the exchange subsidy expiration. There are a few factors to consider. First, can you remind us of your exchange revenue as a percentage of total revenue back in 2019, prior to the enhanced subsidies? Also, is there any reason to believe that this won't return to that level? You mentioned there’s a possibility that it might decrease, but many of those individuals could transition to commercial plans. Could you look back historically to see if there was a shift away from commercial insurance when the exchange expanded, and possibly help quantify what that change looked like?

Kevin, as mentioned during the call, we are not able to provide that level of detail right now. It's quite challenging to estimate at this time. As we proceed through the rest of this year and gain a clearer understanding of the EPTCs and how the population might respond, we will be better equipped to address these questions in more detail during our fourth quarter call. I will note that we are currently at 8% of volume and just over 10% in revenues.

Okay. And then maybe you can just clarify, did I hear you say earlier that you think that between the bill and the expiration of the subsidies, over the longer term, you still expect to grow EBITDA 4% to 6% so like a 5-year-plus time horizon. Even with the impact of all these things, you'll still grow EBITDA in that range. That's the expectation?

No, it's a good point. Let me go back through that just so that it's clear on what we said. So as it relates to the act itself, in the near term, we believe that our financial resiliency program should offset the exchange provisions in the act. In the longer term, as it relates to the Act specifically, with both the delayed start and the phased-in nature of these provider tax and state-directed payment reimbursement reforms, along with the potential of the approval of the submitted supplemental payment applications, we believe HCA will be able to generally manage these impacts with our resiliency efforts without material impacts to our long-term guidance. And then regarding the EPTCs, as you know, we do not know what the outcome will be at this point. But we are working to develop resiliency programs to offset as much as possible any adverse impact should they expire. And so we will roll all that together, Kevin, as noted, when we comment further when we issue our '26 guidance on our fourth quarter 2025 earnings call.

I just have one on trying to frame the $600 million to $800 million of targeted savings that you had over the 5 years when you did that during the Investor Day. Just trying to bogey where we're kind of at from those cost initiatives standpoint, given that we're kind of like 1.5 years into that 5-year outlook? And maybe if you've identified any additional opportunities to bolster the financial resiliency initiatives kind of given the policy unknowns that we have over the next couple of years?

As we mentioned at our Investor Day conference at the end of 2023, we have been diligently working on our resiliency program, focusing on three main areas. The first involves benchmarking, where we assess both our corporate and shared service functions against other Fortune 100 companies and help our facilities evaluate their performance based on various operational and cost metrics to uncover significant improvement opportunities. We then apply our best practices to help them identify and act on these opportunities. The second area involves our ongoing efforts in automation and digital transformation; we have previously discussed this, and our digital transformation agenda includes key initiatives across our administrative and operational platforms that we believe will yield substantial benefits moving forward. The third area is focused on maximizing our shared service platforms, as we continue to expand the functions offered in these platforms to promote scale, standardization, and best practices. Since our Investor Day meeting, particularly over the last 12 to 18 months, we have both accelerated and enhanced these initiatives in response to potential challenges. Throughout this year, we've been collaborating closely with our teams across the company to pinpoint our best opportunities for action, which we plan to continue as we progress through this year and into 2026 and beyond. That summarizes the current status of our resiliency program, and as mentioned during the call, we will provide a more comprehensive update when we share our guidance during the fourth quarter call.

Andy, I think we have time for just one more question.

Great. Could you talk a little bit about compensation ratio and labor supply and talking a little on overall, how you're managing that so well, if there are outlooks as far as how you're changing the number of employees relative to what you're seeing with wage inflation? And if there are any expectations that you could give us for contracts and wage inflation for the second half of the year?

As we mentioned in the first quarter call, the labor environment remains quite stable, and our wage inflation is aligning with our expectations. We've observed a notable improvement in the percentage of contract labor relative to our total workforce, decreasing to 4.3% recently. Prior to the pandemic, this figure was around 4.1% to 4.2%. While there is still room for improvement, we are focusing on enhancing both retention and recruitment efforts. Overall, the clinical labor side appears stable. However, one area experiencing heightened cost pressure is physician fees, which have increased about 10% compared to last year, consistent with our expectations. Despite this, our overall labor situation looks promising.

Abby, thank you for your help today, and thanks to everyone for joining us on the call. We hope you have a great weekend, and we're certainly around to answer any follow-up questions you might have.