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Operator: Welcome to the HCA Healthcare First Quarter 2024 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir.

Frank Morgan: 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 will 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 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.

Sam Hazen: All right. Frank, thank you. Good morning to everybody and thank you for joining the call. The positive fundamentals we saw in our business this past year continued into the first quarter of 2024. This momentum generated strong financial results that were driven by broad-based volume growth, improved payer mix, and solid operating margins. As we look to the rest of the year, we remain encouraged by our performance, the overall backdrop of growing demand for our services, and our enhanced ability across our networks to serve our communities. The people of HCA Healthcare continue to deliver for our patients with improvements in key non-financial metrics, including improved quality outcomes, more efficient process measures in emergency room services, which have accelerated time to discharge and increase satisfaction, and finally, better inpatient capacity management with reduced length of stay and increased acceptance of patients who needed to be transferred to our hospitals.

As compared to the prior year, diluted earnings per share as adjusted increased almost 9% in the first quarter to $5.36. Same facility’s volumes were favorable across the company. Inpatient admissions grew 6% year-over-year, inpatient surgeries were up almost 2%, equivalent admissions grew 5% and emergency room visits increased 7%. Most of our other volume categories, including cardiac procedures and rehab admissions, also had solid growth metrics in the quarter. While outpatient surgery revenue increased year-over-year due primarily to favorable payer mix, total cases declined 2%. We attribute most of this decrease to the effect of the calendar and the redetermination process, which drove a considerable decline in Medicaid volume. All domestic divisions had growth in inpatient admissions and equivalent admissions.

And finally, payer mix and acuity levels improved as compared to the prior year. Commercial volumes represented approximately 36% of equivalent admissions. Last year, they were 34% of the total. The case mix for our inpatient business increased slightly, continuing the upward trend we have seen over the past few years. Same facility’s revenue grew almost 9% as a result of these volume metrics, coupled with 3.5% higher reimbursement per equivalent admission. We continue to make progress on our cost agenda. Operating costs across most categories were in line with our expectations. As part of our capital spending plan, the number of facilities or sites for care increased by almost 5% to around 2,600, and we added approximately 2% to our inpatient bed capacity.

As we move through the remainder of the year, we will maintain a disciplined approach to our operations, while continuing to invest appropriately in our strategic agenda, which we believe should position the company favorably to meet our long-term objectives. With that, I’ll turn the call to Bill for his last earnings call. I want to congratulate him again on his tremendous career with the company. It’s been my privilege to work with him over these years. I want to thank him for a job well done.

Bill Rutherford: Great. Good morning, everyone. Thank you, Sam. I appreciate that. We believe our first quarter performance represents a strong start to the year, and we continue to combine solid operational performance with a disciplined and balanced allocation of capital to generate value over time. We had strong top-line growth with revenues growing 11.2% over the prior year and the quarter. Sam highlighted the same-facility volume acuity and mix metrics that drove our almost 9% same-facility revenue growth in the quarter. So let me highlight a few points on our operating costs. Overall, operating costs were managed well. Adjusted EBITDA margin was 19.3% in the quarter. Labor results were solid with as-reported labor cost as a percent of revenue improving 100 basis points from the prior year.

We continue to see good trends on contract labor, which improved 21.7% from the prior year and represented 5.1% of total labor cost. Supply costs as a percent of revenues improved 10 basis points from the prior year. While other operating costs as a percent of revenue has grown compared to the prior year, it has remained relatively consistent for the past three quarters. The sequential growth of professional fee expense contributed — continued to moderate and performed in line with our expectations. In addition, the Valesco operations performed better than our expectations in the quarter. Adjusted EBITDA was $3.35 billion in the quarter, which represented a 5.7% increase over prior year. I will mention, as a reminder, we recorded a $145 million favorable settlement in the first quarter of last year.

So we are pleased with the operational performance for the company during the first quarter. Next, let me speak to capital allocation as we continue to employ a balanced allocation of capital. Cash flow from operations was just under $2.5 billion in the quarter. Capital expenditures totaled $1.1 billion, and we repurchased just under $1.2 billion of our outstanding shares during the quarter. Our debt to adjusted EBITDA leverage remains near the low end of our stated guidance ranges, and we believe we are well-positioned from a balance sheet perspective. Finally, in our release this morning, we are reaffirming our full year 2024 guidance ranges. So with that, I’ll turn the call over to Frank and open it up for Q&A, and we look forward to your questions.

Frank Morgan: Thank you, Bill. As a reminder, please limit yourself for one question, so we might give as many possible in the queue an opportunity to ask questions. Operator, you may now give instructions for those who’d like to ask a question.

Operator: Thank you. [Operator Instructions]. And your first question comes from the line of A.J. Rice from Credit Suisse. Please go ahead.

A.J. Rice: Hi, thanks, everyone. Obviously, the inpatient side of the business was quite strong. I wondered if there were service areas that were particularly strong, or was there anything else that you can highlight? I know at one point, as you talked about laying out the year, you thought maybe the first half comparisons would be stronger than the back half. I don’t know if that’s still your view. Any comment along those lines would be interesting as well.

Sam Hazen: A.J., it’s Sam. As I mentioned, we had broad-based volume growth across the company. Every division had growth in inpatient admissions. Actually, we had the best portfolio performance, I think, I’ve seen in my experience in the company with 56 of our hospitals growing greater than 10%, so almost a third of our portfolio grew by greater than 10%. We had another 1/4 of our portfolio grow greater than 5%. So really strong volume across the company broadly when you look not only at the divisions in the aggregate, but when you disaggregate the divisions, within our hospital portfolio, you see similar performance metrics. As far as services, the service line volume growth on the inpatient side was strong across the board.

Even in obstetrics, we saw births grow on a year-over-year basis, and that’s been down a little bit, so very broad-based from a service line standpoint as well. And then on the outpatient side, with the exception of outpatient surgery, and it’s known to everybody that the calendar effects were not necessarily favorable, that influenced the outcomes on the outpatient surgery. But underneath our volumes on the outpatient surgery, as I mentioned, it was mostly Medicaid volume which we lost. And we think, again, that’s due to the redetermination process. A working theory that we have is that some of those patients have migrated to the exchange or to an employer. And with co-pays and deductibles, maybe those cases are actually deferred because of that for some period of time.

We just don’t know at this point. But our overall profitability and revenue within our outpatient surgery business was up. So at the end of the day, the metric may look challenged but the result was positive. So I would say that as far as volumes, as we look toward the rest of the year, we do anticipate that the volume comparisons will be slightly more difficult. But we expect, as I mentioned in my comments, that the demand for healthcare over the course of the year will continue to be strong, and we will be able to sustain growth. It may not be at this particular level, but we’re pretty encouraged by where we are from an overall competitive positioning standpoint as well as what we see as the backdrop of demand.

Operator: Your next question comes from the line of Ann Hynes from Mizuho. Your line is open.

Ann Hynes: Great. Thank you so much. So I know — I think in your prepared remarks, you talked about how Medicaid redeterminations was having a negative impact on volumes. Can you just quantify what you think the impact was? And then secondly, do you think you had a revenue benefit from the two-midnight rule in the quarter? Thanks.

Bill Rutherford: Yes. Ann, this is Bill. It’s hard to quantify. Regarding Medicaid redeterminations, we are doing our best to track that. We’re seeing, just as we saw towards the end of last year, a large percentage of those people maintaining coverage, which I think is positive. Perhaps 20% of those we previously saw are not. And we’re seeing a large portion of those end up in either HICS or employer-sponsored coverage. So we believe there is a small positive benefit here, and we’re going to continue to monitor that over time on Medicaid redeterminations. On the two-midnight rule, I’d say it’s still early. We are starting to see some encouraging signs. We do believe it’s providing a modest benefit. We’re seeing some of our two-midnight inpatient volume grow.

And we think that’s due to status in accordance with the new rules. But I’ll emphasize it’s still early and not all claims have completed the adjudication processes. But at this point, we still believe there’s going to be a modest benefit from the two-midnight rule.

Operator: Your next question comes from the line of Pito Chickering from Deutsche Bank. Please go ahead.

Pito Chickering: Hey, good morning. Can you talk about the OpEx pressure that you’re seeing? Is there any else besides expenses sort of going in there? And how should we think about OpEx as a percent of revenues using the first quarter as a launchpad? Does that continue to see pressure in 2Q? Does it level off the back half of the year? And then any quantification of how Valesco is tracking better than expectations? Thanks.

Bill Rutherford: Yes, Pito. It’s Bill. Let me start. So I think there’s two primary factors that are influencing the year-over-year comparisons and other operating costs. I’ll emphasize it’s been very consistent over the past three quarters, though. And I think first, as you know and recall from others, that we began to see the probe fee pressures mostly in the second quarter of last year. So we’re still looking at some year-over-year effect of that. We’re pleased that we’re at least seeing the sequential growth in probe fees begin to moderate as we have for the past several quarters. And I think the second contributor is just the expected increase in provider taxes related to the supplemental payment programs that we participate in.

So those are really the two primary year-over-year contributors. And I think mostly it was in line with our expectations. As we go-forward, again, I think for the past three quarters, the OpEx percent of revenue stay are relatively consistent and hopefully, that will continue through the balance of the year.

Operator: Your next question comes from the line of Whit Mayo from Leerink Partners. Your line is open.

Whit Mayo: Yes. Hey, thanks. Good morning. It looks like there’s about almost $500 million of revenue that’s not in the same-store segment this quarter. You did modest M&A this quarter, less than $100 million you spent. I mean, is the entirety of the almost $500 million the campuses that you acquired last quarter? Anything I’m missing? I’m just trying to figure out maybe the impact on margins because if those don’t really have any earnings that could be maybe like a 60, 70 basis point drag. So if you could help me out there, Bill, that would be helpful.

Bill Rutherford: Yes. Well, I think there’s probably two. One, the Valesco operations would be in the non-same-store. And then we did acquire the Wise Health System in the last year, and that would be probably the other entity that’s the difference between same-store and consolidated.

Operator: Your next question comes from the line of Brian Tanquilut from Jefferies. Please go ahead.

Brian Tanquilut: Hey, good morning. And Bill, thanks for all the help over the years, and congrats on the retirement again. Just my question on labor, you touched on Valesco a little bit. Any quantification you can share with us or expectation for further improvement, both in Valesco and nurse staffing on temp labor? Thanks.

Bill Rutherford: Let me start with Valesco. So as we’ve said in our year-end call, we anticipate the Valesco operations to kind of generate the same amount that we had in 2023. But in 2023, we had them for three quarters. Obviously, we’ll have for four quarters in 2024. So again, I think that’s resulting in some sequential improvement. But I think that’s still good guidance for us is basically would be flagged on a full year basis. On the labor cost, we continue to be pleased with the trends in contract labor. The teams have a number of initiatives, as we’ve seen. Turnover stabilized, recruiting and hiring still up. As I mentioned, our contract labor is down still 20% year-over-year. We think there’s still more room to go as we go-forward. So again, I think we’re pleased and we’re in a good position in overall labor trends.

Operator: Your next question is from the line of Ben Hendrix from RBC Capital Markets. Please go ahead.

Ben Hendrix: Thank you very much, and congratulations, Bill. Wanted to follow-up on some of the mix commentary. You said you had some really strong commercial mix. I wanted to see kind of more detail on how exchange volume fits into that. I know you’ve talked about a redetermination in Medicaid losses being offset. Three — one pickup on exchange could offset three Medicaid losses. I’m just wondering kind of where we are on that recapture. And are we still on a lull or are we seeing enough exchange volume to kind of offset that? Thanks.

Bill Rutherford: Yes. Bill, let me start with that one. We are very pleased with the mix. We’re seeing our overall managed care increase in the 12%, 13% range, that is fueled by health insurance exchanges. Our exchange volume was up close to 50% in the first quarter. The data we see perhaps enrollment in our markets is up a little north of 30%. So our volume is a little higher than that. And I think that is probably attributable to redeterminations, at least a big chunk of that delta as we are seeing some people who are redetermined off Medicaid laying of both employer-sponsored coverage as well as the HICS volume. Remind you it’s still roughly 6% or so of our borrowing. But we have seen really good growth in that. And so we’re pleased with that.

Hard to tell where we are in that cycle. I think we may be there in the end, at least to the state’s redetermination process, but we’re very pleased with the trends we’re seeing so far. On the Medicaid redeterminations, as I said before and I think it has provided some benefit for us. We continue to track individuals that are presenting and what the previous coverage was, and we’re seeing the people who are being redetermined of laying in either employer-sponsored or its coverage.

Operator: Your next question is from the line of Gary Taylor from TD Cowen. Please go ahead.

Gary Taylor: Yes. Hi, good morning. Bill, you’ll be missed, so congrats.

Bill Rutherford: Thank you, Gary.

Gary Taylor: My two — there were two numbers that really jumped out at me, so I just want to get your comment on those. The first is, I think the occupancy number is all-time high you’ve reported or at least in the last decade. And I just want to think through — I mean, does that mean — I mean, we’re peaking in terms of operating leverage on labor and other operating expense outside of professional fees? Could there still be more room on leverage? And then the other would just be same-store, your visit’s up 7% versus a plug-in comp. And we had a similar phenomenon last year where we’re up huge against a very tough comp in the first quarter and then that kind of moderated. I’m just trying to think through if there’s anything around ER seasonality that’s new with redeterminations or ACA, SEPs or anything that numbers like that brings to mind for you.

Sam Hazen: Gary, it’s Sam. I think we’re actually pretty pleased with the occupancy levels. When you look at our operating agenda, our operating agenda is making sure, number one, that we have the staffing supply necessary in order to accommodate what we believe to be, again, a positive demand backdrop. And we’ve made solid improvements over the last 18 months in recruitment, retention, enhanced care models that really create a better environment for our patients. The second aspect to our capacity management and meeting the demand in the market is around our case management efforts. And our teams again have executed as normal inside of our company around whatever our imperatives are at a really high level. And we actually had acuity grow, as we mentioned, but length of stay were down.

That allowed us to open up more beds, receive more patients in through our transfer centers and our emergency rooms and so forth. And that’s not necessarily compromising our operating leverage. One quarter over one quarter is never a perfect proxy for the business. And so we’re looking at the business sort of over a longer run. And with the exception of proceeds, which we believe will moderate over time; we will continue to see operating leverage in most scenarios when we have incremental volume because we have fixed cost in our labor platform. We have other fixed costs inside of our other operating expenses. So we are investing to add inpatient bed capacity. We had, I think, a little over 2% come online this year versus last year. We have a significant pipeline of capital that will help deliver more inpatient capacity over the next 2 to 2.5 years, so that’s — that question.

On the emergency room, when you look at the emergency room and look underneath the emergency room, our commercial emergency room visits were up 20% on a year-over-year basis. That is a really strong metric. We’re down 10% in Medicaid, up slightly in self-pay, which speaks to the point Bill was making around redeterminations, finding a different level within the mix of our business. And so our emergency room business, obviously, we had one extra day, so we see the same level of emergency room business inside of the leap year dynamic this year. So that would pull it back in normal quarters. But we’re encouraged about what’s going on in our emergency rooms. We have a robust agenda there to revitalize the service levels because we’ve had a lot of dynamics coming out of COVID.

And as I mentioned in my prepared comments, our service levels have improved. The process time for a patient to be seen as well as the process time for a patient to be discharged or admitted to the floor has improved markedly. Our patient satisfaction continues to improve on a year-over-year basis in our emergency rooms and also on a sequential basis. Additionally, we’re investing in our emergency room platform, both on-campus and off-campus. And those efforts are proving to be important to that particular service line as well. So the emergency room and our urgent care platform play a huge role in our overall network model and we continue to be encouraged by what’s going on in both areas.

Operator: Your next question comes from the line of Justin Lake from Wolfe Research. Please go ahead.

Justin Lake: Thanks. Good morning. Let me add my congrats to Bill on his retirement. Really appreciate all your help over the years, Bill.

Bill Rutherford: Thanks, Justin.

Justin Lake: So my question was trying to get an update on your expectations for Medicaid, DPP, and DSH. You reported the benefit here at $3.9 billion in 2023, I should say benefit, that’s a gross number, I believe. Appreciate the increased transparency. Was hoping you could give us an update on what you’re expecting for 2024 on this metric relative to 2023. Maybe how much of that — that’s a gross number again. How much should we think of as kind of the net benefit there? And then can you go back, if you have the number handy, to 2019, pre-COVID, pre-kind of the big increase in some of these programs and tell us what the number looked like back then? Thanks.

Bill Rutherford: Yes. Justin, let me try, and I think we’ll have to get back to you on the 2019. I don’t have that upfront. But if I reflect back to your year-end discussion, that’s still our belief today. First is level set, these DPP programs are really fundamentally part of our Medicaid reimbursement. There’s a lot of them. We have 18 or 19 states have these programs, but a lot of them have some complexity with a lot of variables associated. So use that as a backdrop. But we still believe when we look at the full year, there’s going to be a modest headwind in the revenue to these programs 2024 versus 2023, largely because of some settlements that we realized in 2023 we do not expect to reoccur going forward. And so that’s still our belief.

In any one quarter, there may be factors that influence quarter-by-quarterly trends. But for the full year, we think there’s still going to be a modest headwind on the revenue component that we have. Each state has a little bit different in terms of whether they’re tax-based or contribution-based. So there are clearly operating expenses associated with the revenue number that you quoted that we disclosed within our 10-K. But the ratios have remained relatively consistent. And we’ll have to maybe get back to you on the 2019 levels. I don’t have that handy.

Operator: [Operator Instructions]. Your next question comes from the line of Andrew Mok from Barclays. Please go ahead.

Andrew Mok: Hi, good morning. Thanks for the question. I just wanted to echo congratulations to Bill. I just wanted to follow-up on the comments you made on other OpEx. I think the year-over-year comparisons all make sense, given the timing of Valesco, but I’m still confused on the sequential progression from Q4 because it sounds like Valesco performed better, physician fees moderated. And it was my understanding that supplemental payments would actually step down a bit from elevated Q4 levels. So I’m just trying to understand why we didn’t see a larger decrease or more leverage on the other OpEx line, given those trends. Is there something that we don’t understand or some other unexpected kind of item in that other OpEx line? Thanks.

Bill Rutherford: No. I’d say we did have growth in our state supplemental payment expense quarter-by-quarter. As I said in Justin’s response, there are certain variables that come of the timing of those. So sequentially, that was up. And the probe fees were up sequentially, it just was up small on there. So those are the two main factors to callout in the other operating is probe fees and the state supplemental payment. And I think when you look at sequentially, it makes sense, pretty much the trends were in line with our expectations but nothing else there that I highlighted.

Operator: Your next question comes from the line of Kevin Fischbeck, Bank of America. Please go ahead.

Kevin Fischbeck: Hey, thanks. So maybe two questions. I guess one question, I guess, just about the guidance. I guess there’s been a lot of talk about how you guys are thinking about providing guidance. And you reaffirmed guidance in the quarter. I wasn’t sure if that was trying to move away from providing an update every Q1 or whether that was — you’re actually reaffirming guidance because everything is exactly in line. So you’re changing your communication around that without the — giving an update on that. But then second, just really about the volumes. Obviously, 3% to 4% volume for the year, you’re above 5% to start. So does that imply that you’re going to end the year more like 2%? And is what we’re seeing this year is 3% to 4%.

How do you think about where volume will be in 2024 relative to that long-term trend line with the demand that you see in your markets? Are we maybe more or less back to that long-term trend line in 2024? Or is there still some room for that to kind of move up towards a longer-term trend line? Thanks.

Bill Rutherford: Yes. Hey Kevin, this is Bill. Let me start and I’ll ask Sam to add in. On the guidance, we typically would not adjust guidance in Q1 in normal years. But we — as we talked in our year-end call and as we’ve tried to set the guidance ranges, I believe the ranges are wide enough to accommodate a range of outcomes. And so we want to get out of the trend, if you will. I’m trying to reset guidance every quarter by quarter. I think the long-term business trends that we’ve highlighted over the years and we highlighted in our Investor Day last year, we believe, are solid. They’re kind of durable. They’ve been pretty predictable over time. And our overall guidance is based on that. So we’re not planning to adjust quarter-by-quarter unless there’s material circumstances to warrant on either side of that.

And on the volume trends, again, Sam can comment on here. As we’ve said, we’re very pleased, very strong volume, very strong demand. And perhaps we do end up on the high side of our overall annual guidance. We’ll remind you as we get into kind of the second half year-over-year comparisons; we started to see some volume — positive volume trends in the third and fourth quarter last year. So the year-over-year comps will adjust a little bit. But we’re very pleased where the volume trends are. And with these efforts, hopefully, we will end up on the high side.

Sam Hazen: Nothing else to add. Thank you.

Operator: Your next question comes from the line of Stephen Baxter, Wells Fargo. Please go ahead.

Stephen Baxter: Yes. Hi, thanks. Just to hopefully put a bow on the Medicaid state-directed payment question. Can you just remind us; are we at the point now that you’re accruing these evenly each quarter in 2024? Is there any lumpiness to kind of keep in mind about the first quarter or the rest of the year? And then just to tie on to that, the final rule that got published earlier this week around this issue. Do you feel optimistic that maybe more of your states kind of have more to do here? Or do you think maybe your state is doing a better job of proactively seeking these programs out? Thank you.

Bill Rutherford: Yes, let me. There is some variability in the timing of when we recognize these. For the most part, programs we’ve had under while we’re on an accrual basis. With new programs, we would typically wait until we get some established history and actually funds starting to flow. So it’s a little bit of a mix, but there is some variability that we see as we go year by year. Remind people, previous to this year, we were recognized Florida on an annual lump sum basis. We started accruing a little bit, but we try to accrue those as much as we can as we’ve got some historical practices. Relative to the rule that was released earlier this week, it’s still early. We’re working our way through the assessment. But generally, we review it as positive.

It removes the potential for some capping add-on payments, and there’s a potential for changes to — in terms of how providers receive payments. It will take a little bit of time for states to work through those and implement them. But generally, we view that as a positive development for us.

Operator: Next question comes from the line of Jason Cassorla from Citi. Please go ahead.

Jason Cassorla: Hi, great. Thanks. Good morning. I just want to follow-up on labor. I know you’re benefiting from reduced contract labor spend and the like. When we think about the first quarter SWB per just a patient day of about 3%, can you give us a sense of how wage growth trended in the quarter and then offset on the productivity front that you’re seeing? And if there’s anything within the first quarter that gives you confidence on your labor agenda kind of for the balance of the year? Thanks.

Bill Rutherford: Yes. I mean, obviously, as we’ve talked about over the past year, we’ve got a lot of initiatives on the labor, and our teams are executing very well from turnover reductions to recruitment and retention efforts on there. And our core labor trends are in line with our expectations. We said we anticipate wage inflations in that 2.5% to 3% level, and we’re starting to — and we are seeing that. And that’s helping to offset, and we continue to be pleased with the contract labor trends. So I would say the core labor trends that we are seeing this year are right in line with our expectations and the initiatives that we have are continue to be underway.

Operator: Your next question comes from the line of Lance Wilkes, Bernstein. Your line is open.

Lance Wilkes: Great. Thanks. One follow-up on the labor question. And just if you could give any comment on hiring pipeline and if there are any categories where you’re seeing either more appetite out there or any sort of constraints? And then my real question was on your comment on folks getting shifted over due to redeterminations and maybe that impacting outpatient surgeries. I was wondering if you’re seeing any impacts of that sort of stuff on bad debt or any other things where perhaps the overall backdrop is impacting consumers here.

Bill Rutherford: Yes, let me attempt on that. Relative to the pipeline of labor, I don’t know if there’s any specific things I’d call out. I mean, obviously, we have diversity of geography, diversity of different employer cohorts. And labor teams are doing a great job. Our nurse hiring is up. And so I don’t think there’s anything unique I would call on that and Sam or others can add in on that. And relative to the redeterminations and perhaps that influencing our outpatient surgery, I think both the combination of the HICS volume growth that we spoke about earlier, some of that due to the Medicaid redetermination, it is just a working thesis that perhaps there’s a little bit more sensitivity on some of those elective procedures early in the year relative to deductible and co-pays.

As Sam mentioned in his comments, almost all of our drop in outpatient surgeries was in Medicaid and self-pay levels. So we’ll need a little bit more time to see how that plays out, and perhaps it will be some rebound on that as that begins to kind of normalize throughout the year. And on your question relative to the impact of that on bad debts, we’re saying, no, I can’t say we’ve seen any impact on that right now. There’s still some of our self-pay growth or individuals that are in what we call a pending Medicaid status as we’re pursuing eligibility efforts on there. But it has not yet resulted in any material change in our collectibility or bad debts at this stage.

Operator: Your next question is from the line of Joshua Raskin from Nephron Research. Please go ahead.

Joshua Raskin: Hi, thanks. Good morning. And Bill, I’ll also add my congrats, and thanks for all the help.

Bill Rutherford: Thanks, Josh.

Joshua Raskin: My question is just on CapEx. Could you speak to the CapEx and sort of the deployment in the quarter? It was down a tiny bit so let’s call it flattish year-over-year, but generally been trending higher in recent years. I guess maybe there’s obviously a lot of timing. And then any new capacity specifically to call out in the next 12 months? I know you’ve got a bunch of projects over the next sort of 2 to 2.5 years as well.

Sam Hazen: This is Sam. The amount for the quarter is flattish, to your point, and it is timing. We haven’t slowed anything down. Some of our construction projects move at different paces than we anticipate at some level, but we expect for the year to be somewhere close to the number that we guided to last quarter, which is somewhere around $5.2 billion or so. So we’re investing more in the business than we’ve ever invested because of the capacity that we need in the network development that we want. And so those efforts continue as we go through the course of this year. As far as any particular capacity that I would call out, I would tell you, we have a new hospital in San Antonio, Texas, that will open up later this year on the west side of that community.

We’re excited about that. We have other major projects on a host of campuses that will come online over the year. I think our bed capacity when we conclude the year will be somewhere similar to the growth that we experienced this year, which is maybe another 2% or so. As I mentioned previously, our emergency room capacity is also growing as we invest in new units or as we expand existing units. I don’t have the number in front of me as to exactly how much we’re anticipating there. But we’re investing consistently as far as in the areas of our business, but we’re investing more inside of those as a reflection of our overall spending. We also continue to invest in basic infrastructure in our facilities, whether it’s capabilities and technology for our nurses or surgical equipment and so forth.

Those investments continue, again, at elevated levels to improve the offerings for our physicians and patients. And so we have some increases embedded in that as well. So we’re really excited about what we’re spending our money on. And our patterns have proven that we can generate very positive returns, and we continue to believe that’s the case.

Operator: Your next question is from the line of Sarah James, Cantor Fitzgerald. Please go ahead.

Sarah James: Thank you. I was wondering if you could give us what the commercial outpatient surgeries were. Just with the moving pieces, I think we’re all just trying to understand if that piece was where you expected it to be. I know it’s coming off of a tough comp last year, but was it still positive like it was the last few quarters? And then, Galen, I think you guys are within a few weeks of your first graduating class. So just wondering, strategically, how has that panned out? Did you get your share or better of the work commitments of the graduating class?

Sam Hazen: This is Sam. On the commercial side of outpatient surgery, I would say it’s generally flat, so it performed better than the aggregate as a whole. Again, the calendar effects affected outpatient surgery in general. Specifically, it had a more dramatic effect on Medicaid, as we mentioned. But we aren’t anticipating or seeing anything that’s structural with our outpatient surgery business. And as I just mentioned, our capital spending has investments in our outpatient surgery platform as well. With respect to Galen, we have had graduating classes in the past. We continue to have larger ones as we expand that component of our organization. And one of our priorities within our facilities and within our nursing agenda is to integrate the Galen campuses into sort of the organization more effectively.

And we are seeing incremental improvement in retaining those grads within our company, and we continue to see opportunities for improvement there. It’s really early to say that, that has completely solidified. We have numerous campuses that are in early stages of development. We will have, again, somewhere around 30 campuses by the end of 2027 with roughly 30,000 students across those campuses, graduating somewhere between 7,000 or 8,000 per year, allowing us to pipeline and hopefully create a really good student experience, integrate them into the system through clinical integration and retain them when they graduate. So that’s our strategy, and we’re still early in seeing the effects of that, but we’re encouraged by the efforts.

Operator: Your next question is from the line of Cal Sternick from J.P. Morgan. Please go ahead.

Cal Sternick: Thanks for the question. We’ve heard commentary from some others that January and February were strong from a volume perspective, with some softening of demand in March. Can you talk about what you saw in the quarter? And then if you’re seeing the expected rebound volumes into April? And if I could also just ask one clarification on the Medicaid supplemental payments. Do you have any visibility right now into any retro programs that could come through in the second quarter?

Bill Rutherford: This is Bill. I’ll answer the last one. No. We don’t have specific visibility. There’s always timing differences of certain aspects but no specific visibility now.

Sam Hazen: As far as the volumes, every quarter has calendar effects. And again, as I mentioned previously, we judge the business over a longer period of time to really understand what’s working and what’s not working. March was a difficult calendar for purposes of elective outpatient business and elective inpatient business simply because we had less working days, business days, and we had the Easter holidays during that time period. So it was clearly softer. We actually grew our inpatient admissions, however, in March, but our outpatient activity was soft and influenced sort of the aggregate for the quarter. We don’t give guidance with respect to one month into the next quarter. I will tell you, as I mentioned in my prepared comments, that we’re encouraged by the overall backdrop of demand in our markets.

Operator: And this concludes our Q&A session for today, and I would like to turn the call back over to Frank Morgan for closing remarks.

Frank Morgan: Wally, thank you for your help today, and thanks, everyone, for joining our call. We hope you have a nice weekend. I’m around this afternoon if you have additional questions, give us a call. Have a good day.

Operator: This concludes today’s conference call. Enjoy the rest of your day. You may now disconnect.