Operator: Ladies and gentlemen, welcome to HCA Healthcare’s First Quarter 2026 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, 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 to net income attributable to HCA Healthcare, Inc. is included in today’s release. This morning’s call is being recorded, and a replay of the call will be available later today. With that, I’ll now turn the call over to Sam.

Samuel Hazen: Good morning, and thank you for joining the call. First, I want to recognize our colleagues for continuing to demonstrate a remarkable ability to adapt to changing conditions and deliver positive results for our patients, communities and stakeholders. The start of the year presented a dynamic environment for HCA Healthcare. From a volume perspective, we did not experience the typical lift related to seasonal respiratory conditions. Compared to the first quarter of last year, our respiratory-related admissions were down 42%, and our respiratory-related emergency room visits were down 32%. Additionally, winter storm that hit a few of our markets adversely impacted our volumes in the quarter. On the positive side, however, we experienced a greater net benefit than anticipated from state supplemental programs.

As a reminder, these programs are complex, they’re variable and difficult to predict. This benefit mostly offset impacts from the shortfall in volumes. Regarding payer mix for the quarter, the underlying shifts resulting from the changes in the health insurance exchanges were generally in line with our expectations. This area remains fluid. As we stated in our fourth quarter call, we have considered a range of potential scenarios as the effects continue to evolve. As mentioned over the last several quarters, our teams have been focused on a broad resiliency plan designed to generate cost savings where appropriate, enhance network execution and strengthen organizational capabilities. I am pleased with our resiliency efforts to date, and we expect they will continue to help offset some of the expected impact from the payer mix shift.

Additionally, we were pleased with the volume results exiting the quarter. The reparatory related and winter storm impacts were mostly contained to January, with February and March volumes rebounding nicely. For the first quarter, revenue increased 4.3% compared to the first quarter last year. Adjusted EBITDA increased almost 2% and diluted earnings per share, as adjusted, increased approximately 11% versus the prior year period. We continue to deliver for our patients and important metrics including improved quality measures, increased patient satisfaction and reductions in the average length of stay. I remain excited about our digital transformation program and AI agenda. They progressed during the quarter with rollout of some key initiatives to more facilities.

Our clinical teams continue to advance efforts to enhance quality, safety and services to our patients, with progress on broad initiatives across nursing care, hospital-based physician services and support functions. We continue to invest significantly in network development with our capital spending and with selective outpatient facility acquisitions. As compared to the first quarter last year, our networks expanded their overall sites of care by more than 4%, increased hospital beds through capital spending by almost 1% and added 4% to emergency room capacity. To summarize, we view the respiratory-related volume shortfall and the increase in supplemental payment net benefits as first quarter events. As such, we believe our assumptions for the remainder of the year related to volumes, payer mix and costs continue to remain in line with our original guidance.

HCA Healthcare has an impressive capability to remain disciplined in dynamic environments. This is a resounding strength of our teams and what they have built over time. It is rooted in our culture and it helps us to execute on our mission to provide high-quality care to our patients while delivering strong financial results. With that, I will turn over the call to Mike for more details on the quarter.

Mike Marks: Thank you, Sam, and good morning, everyone. Let me start by providing same-facility volume comparisons for the first quarter of 2026 versus the first quarter of 2025. Admissions increased 0.9%, equivalent admissions increased [ 1.3% ], inpatient surgeries were down 0.3% and outpatient surgeries declined 1.7%. ER visits increased 0.3%. As Sam mentioned, we had a much milder respiratory season in the quarter. This produced a drag on our quarterly volume growth in admissions and ER visits, up 70 basis points and 140 basis points, respectively. In addition, the winter storm in January impacted a wide swath of our markets, including Texas, Tennessee, North Carolina and Virginia, reducing admissions and ER visits by an estimated 30 basis points and 50 basis points, respectively.

The impact of these 2 factors was consistent across all payer categories, and in total, adversely impacted adjusted EBITDA by an estimated $180 million. Regarding payer mix, commercial equivalent admissions, excluding exchanges, increased 0.6%. Medicare increased 1.9% and Medicaid increased 0.3%. We believe the variance in volume relative to our expectations was almost entirely driven by the respiratory season and winter storm. We view these factors as being temporal and not structural. Overall, taking all of this into consideration, our volume growth in the quarter was generally in line with our 2% to 3% volume growth assumption for the year, albeit at the lower end of the range. Adjusted EBITDA margin decreased 50 basis points versus prior year quarter.

Salaries and benefits as a percentage of revenue improved 30 basis points and supplies improved 20 basis points. Other operating expenses as a percentage of revenue increased 90 basis points, primarily due to an increase in cost related to the Medicaid state supplemental payments, professional fees and technological investments. As Sam noted in his comments, volumes continued to improve throughout the quarter, and we noted a similar progression of operating leverage and cost trends. Regarding Medicaid supplement payment programs. While we expected an increase in net benefit of $80 million, we realized an increase in net benefits of approximately $200 million to adjusted EBITDA versus the prior quarter. This was primarily due to the grandfathered approval of Georgia, the reinstatement of the Atlas program in Texas and the year-over-year benefit of the Tennessee program that was approved in the third quarter of 2025.

We are adjusting our full year range to reflect the decline in supplemental payment program net benefit between $50 million to $250 million versus prior year. This updated guidance does not include any potential impacts from additional approvals of grandfathered applications. We continue to monitor the ongoing developments related to these programs, and particularly Florida. We continue to feel positive about the prospects for the approval of the Florida program, which covers the period of October 1, 2024, to September 30, 2025. If approved, we believe it should result in additional revenues, which may be significant. Now let me provide additional information regarding the exchange environment. As we stated in our fourth quarter call, the complexity of the exchanges is significant, and we’re tracking several areas within the company.

For the quarter, we estimate our same facility exchange equivalent adjusted admissions declined approximately 15% versus prior year quarter. This represents our comprehensive evaluation of patients that presented with exchange coverage that ultimately will not be covered for their episodes of care. Using the same analysis, we estimate same facility uninsured equivalent admissions increased approximately 16% versus prior year quarter. Over half of this implied increase relates to the movement from exchanges and normal uninsured growth. The remaining portion reflects a slowdown of conversions to Medicaid from patients who were not willing to fill out applications. We estimate the adjusted EBITDA impact from the exchanges to be approximately $150 million in the first quarter of 2026 versus the prior year quarter.

Given our experience to date, we still believe our full year range of $600 million to $900 million expected impact on adjusted EBITDA is appropriate. However, the exchange environment remains dynamic and has not fully settled. We will continue to track the fluid nature of this reform and will provide further commentary on our second quarter call. Moving to capital allocation. Capital expenditures totaled $1.1 billion in the quarter. Additionally, we purchased $1.57 billion of our outstanding shares, and we paid $183 million in dividends for the quarter. Cash flow from operations was $2 billion in the quarter, representing a 22% increase in the first quarter of 2026 versus the prior year quarter. Our debt-to-adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well positioned for the future.

As noted in our release, we are reaffirming our estimated guidance ranges for 2026. I will now hand the call back to Frank Morgan for questions.

Frank Morgan: Thank you, Mike. [Operator Instructions] Andy, you may now give instructions to those who would like to ask a question.

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Operator: [Operator Instructions] And our first question comes from the line of Ben Hendrix with RBC Capital Markets.

Benjamin Hendrix: I appreciate the color on the respiratory, SDP and other components. Maybe you could just give us a rundown broadly of how your results compare to your internal expectations for the quarter?

Mike Marks: Thanks, Ben. This is Mike. I mean our results were a bit short in terms of adjusted EBITDA to our internal expectations. Besides our internal expectations is being pretty consistent with the midpoint of our guidance in terms of growth, pretty consistent actually with consensus coming into the call. Really 2 main drivers in terms of the shortfall to internal expectations. The first one is this kind of shortfall in the seasonal volume uplift from respiratory in the winter storms, which was mostly offset by the net benefit from the supplemental payment programs. A little detail here on seasonal volumes [indiscernible]. I’ve already kind of quantified the volume side of that. So let me talk about the expense side. As we were — as we were coming into January, our respiratory season was actually strong at the beginning of the year.

However, later in January, it became apparent that the respiratory season was actually ending abruptly. And we were then hit with a significant January winter storm across several of our states. Both the quick ramp down of the respiratory volume as well as the winter storm delayed our ability to flex down our seasonal cost in the quarter. We were ultimately able to do so as we move through the quarter, but there was a delay. So let me switch now to the supplemental payment program activity. As noted, Medicaid supplement payments net benefits was better than expected. As we came into the quarter, we did anticipate an increase in the supplemental payment net benefit in Q1 of $80 million, largely due to the increase in the Tennessee program that was approved in Q3 of 2025.

So the $200 million of net benefit in the first quarter was about $120 million higher than our internal expectations in the quarter, and again resulted from the approval of the grandfathered Georgia program as well as the reinstatement of the Atlas program in Texas. So in summary, Ben, when I think about first quarter, largely, we were just a bit short in total. But when you take the temporal factors of the lack of the seasonal volume uplift and the pickup in net benefit supplemental payments, those are really the main drivers in the quarter.

Benjamin Hendrix: Appreciate that color. And then kind of just a quick follow-up. Can you just give us an update on the moving pieces that kind of get you back to the initial guide? Maybe walk us through the components of the EBITDA bridge as you see them today after such a dynamic first quarter?

Mike Marks: Sure. If you go back to the release, the really only change to our key assumptions for the 2026 guidance relates to the supplemental payment programs. We estimate that the Georgia approval and the reinstated Atlas program I previously discussed, will provide approximately $200 million of incremental net benefit for the full year that was not originally included in our guidance. I would note that the $120 million for Georgia and Texas that we talked about for the first quarter had a prior period impact in it. And so the component that applied the first quarter and for the full year of ’26 really make up that $200 million. And so that’s why we’re adjusting our assumption for full year net benefit to now be a decline of $50 million to $250 million.

And just to note, that assumption does not include any additional approvals of grandfathered applications. When I think about the rest of our assumptions, Ben, if you think about the impact of the exchanges, we still believe that, that $600 million to $900 million range is appropriate based on what we’ve learned in first quarter. Our resiliency assumptions that were in guidance also, we believe, are still reasonable and appropriate. And so at the end of the day, we just felt like that it was appropriate not to change our total guidance range, even with the $200 million improvement in first quarter. A chunk of that really goes back to this temporal nature of the headwinds that we saw in first quarter being related to the seasonal volume impacts in the winter storm and the related cost impacts.

And so as we think about how we progress through the quarter, Sam mentioned that as we exited the — exited the quarter in March, there are volumes were improving largely back to our original plan. We also saw the same thing in our cost structure. As we got through March, our cost trends really reflected good performance in March, and we’re largely on plan. And so that’s the walk-through on guidance.

Operator: And our next question comes from the line of A.J. Rice with UBS.

Albert Rice: Just to put a fine point on what we’re just going on the numbers flying back and forth. Is the right way — am I hearing you say, you basically had $180 million of negative impact from flu and weather in the first quarter? You picked up $120 million of benefit from DPPs in the first quarter that was not expected. So the net was a $60 million drag net of the unusual items or weather and flu. And then on the $180 million versus the $200 million of DPP in the full year impact. So you’re ending up roughly $20 million if you maintain your guidance for Q2, Q3, Q4 better because of the incremental impact of DPP over the course of the year. I just want to make sure that’s the right take from what you’re saying.

Mike Marks: Yes. I think that’s — you’re generally in the zone. I mean we view the $180 million headwind in the quarter as being temporal and not structural. So we don’t think that will repeat. The $200 million improvement for the full year ’26 from supplemental payment benefits reflect Georgia and Texas. And then just broadly, we’re not changing our full year guidance on earnings. And I think that’s the way to read that. I think I would acknowledge there’s a little bit of softness [indiscernible] consensus. It may be not fully explained, but it’s pretty close from the moving factors in the first quarter. And then A.J., when we look at the rest of the year, and we think about the demand that we’re seeing in the marketplace, we believe that we will be able to run between 2% to 3% volume growth in the next 3 quarters of prior year.

Our original assumption around the exchanges, around revenue and our cost trends, we think that the balance of the year is another way of saying is largely back on our original plan.

Albert Rice: Okay. And maybe a follow-up — go ahead.

Samuel Hazen: No, it’s Sam. I mean, we do, I’ll call it, a business analysis of the company in the first quarter. It’s pretty much where we expected, save the respiratory dynamic. So we believe the business outcomes of the company in the first quarter are in line with the guidance we provided just 90 days ago. And so we’re at a point where we’re judging that. We’re trying to influence what we can on the edges and put ourselves in a position where we get to where we need to be by the end of the year. I mean that’s sort of the short story on what happened here. There’s always puts and takes with the supplemental program. We’ve talked about that for years. What we’re trying to judge is the business functioning and performing as we thought. And generally, that case, save the one item associated with the respiratory activity.

Albert Rice: Okay. Could I just — as a follow-up, your $400 million resiliency program, I know you’ve got a lot of AI initiatives and — but some of that is other stuff. Can you just sort of update us on where you’re at with the AI initiatives? And is that $400 million a pretty firm number? Is there a range around that as to what you might ultimately realize this year?

Samuel Hazen: Well, in the quarter — this is Sam. A.J., in the quarter, as Mike indicated, we get operating leverage. When we get volume, whether it’s respiratory volume or surgical volume, we get operating leverage. So we lost a little bit of that in the first quarter. But again, when you sort of normalized for that, as we exited the quarter, we felt good about the leverage we were seeing in the subsequent months. And so when you merge that with the maturing of our resiliency program over the course of the year, we think we can get where we need to be with our cost objectives for 2026. Are there opportunities on maybe more possibly? Could we fund pressures that we haven’t anticipated? Of course. I mean, that’s what a dynamic business environment represent.

I will tell you that our artificial intelligence agenda is getting implemented. We have productivity with our physicians, with our ambient listening capabilities and the documentation associated with that. We’re rolling out our nurse handoff program, as I mentioned. We’ve got new initiatives that are rolling out to more facilities. That’s got more patient safety and nurse engagement, some productivity to it. We’re really excited about what the artificial intelligence program can do to complement our caregivers in our company and help us provide better care, do it more cost effectively and run the business better. We’re seeing it in case management. We had good outcomes with case management, as we talked about with average length of stay. So all of this is coming together.

Does it have some upside in some areas? Yes. Could there be some pressures in other areas? Of course. So when we put it together, we feel like we’re on the program that we estimated at the beginning of the year.

Operator: And our next question comes from the line of Ann Hynes with Mizuho Securities.

Ann Hynes: I just had a quick follow-up from a comment you made in the prepared remarks, and then I have a question. Just on the Florida DPP, I do think there are some anxiety in the market because it’s taking so long to approved. Do you have any color on maybe from a timing perspective when that could be approved? And then my real question is just on ACA, just with the increasingly uninsured and the bad debt, is that coming in line with your initial expectations? And can you remind us, does your guidance assume a deterioration in the collectibles of co-pays and deductibles of the insured? And what change is embedded in your guidance?

Mike Marks: That is a multipart question, Ann. It was impressive. So when I think about — let me start with Florida. And I do think that the size of the Florida program as such, the enhanced size that CMS is thoroughly reviewed this program, as you noted. But based on our sense of things as we sit here today, we do feel positive about the prospects of approval for the Florida program. And if approved, as I noted in my prepared comments, we believe it would result, not only in additional revenues, but those that may be significant. So that’s a quick update on Florida. And obviously, we’ll be watching this just like you will, and we’ll keep you informed as that moves. As it relates to the exchanges and what we’re seeing related to patient amounts do, I would say like this, as we came into our modeling, our models included some shift from silver, bronze.

And what we’re seeing is we study our patients so far is that there has been a bit of a shift from silver to bronze in the patient selection of metal tier. I wouldn’t say, however, that, that shift is significant at this point, but there is some. We’re also noting that even within silver, if you compare the benefit designs in 2025 to 2026, that the amount patients to within silver are also increasing as we are studying the 2026 activity. And so all this is leading us to conclude that we are seeing a growth in patient amounts due on the exchanges. And as we’ve noted in the past, we see a lower collection rate on patient balances from the exchange plans as compared to traditional managed care patients in this shift. I do think we’ll have an impact on patient collections on uncompensated care.

But from a context standpoint, I don’t think that the — the impact of the shift and the growth in the patient out dues is going to be overly material, given the relatively minor portion of our patient cash collections that relate to exchange patients. We did include in our original estimate of $600 million to $900 million, this increase in patient amount due on the exchanges. It’s within the range of our models based on what we’re seeing. On the broader part with the exchanges, to your point, we did anticipate movement out of the exchanges to uninsured. And so if I think about the kind of the payer mix implications within the model, as you go back to that discussion, we thought that we would lose about 15% to 20% of volume, of people leaving the exchanges.

And we — we think we saw about a 15% decline in first quarter, so at the lower end of that. You may recall that our assumption was about 15% to 20% of beds who lost coverage on the exchanges would migrate to employee-sponsored insurance and the rest who uninsured. As we’re studying the patients during the first quarter that previously had exchange coverage, we are noting that the patients converting to employee-sponsored insurance or generally within the estimated range that we built into our guidance model. Interestingly, patients migrating to uninsured are just a little bit less than expected as we are seeing some individuals converting to Medicare or Medicaid due to the age or to changes in life circumstances. But I would note that this is a slight improvement and was not significant.

And overall, that the payer mix deterioration from the exchanges is generally in line with our expectations for the quarter. [indiscernible], and obviously, this is going to continue to mature. So we’ll have more mature insights. So I’ll just end with this. I mean if you think about the growth in the uninsured that I highlighted in my prepared comments, a little more than half of that 16% growth was from the movement from exchanges, and that’s in line generally, with our expectations. The other factor that did show up as growth in uninsured volume was the slow down in Medicaid conversions that we highlighted. Broadly, those are the components that I would say that are in our uncompensated care results for the quarter and largely are in line with our expectations and plans.

Operator: And our next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut: Maybe, Mike, just a quick view, maybe to follow up with your comments on Ann’s question to you. How do you want us to think about the sequential move then from Q1 EBITDA to Q2, factoring in the recovery in volumes and then your expectations on HICS and how that’s all going to play out?

Mike Marks: Yes. We don’t generally give guidance by quarter, other than just kind of pointing back to normal seasonality, Brian. Clearly, as you noted from our comments, and we do view the volume shortfall in first quarter as being temporal and not structural. So I mean that’s an important note. Broadly on the exchanges, you get a sense for what we saw in the first quarter, it is dynamic community. I think about what we’re going to learn on the exchanges. I mean, we’re going to continue to learn more as we go along. I think — what that looks like is studying how much of the anticipated 2026 full year volume decline like came through during the first quarter, which is a bit difficult to today. We — as we studied this, we know that certain individuals were in their grace period throughout the quarter, and they may drop coverage after the first quarter.

We made an estimate for those patients in both our equivalent admission statistics and our financials. But I still think based on the data we’ve seen to date, we do believe that our assumption of a 15% to 20% volume decline continues to be reasonable. So those would be the thoughts that I can give you now related to the progression through the year.

Operator: And our next question comes from the line of Whit Mayo with Leerink Partners.

Benjamin Mayo: So the health plans are all on an organized campaign today on prior authorization. I just was wondering if you could talk about any of the — any payer behavior changes, particularly post discharge denials? Anything new that you saw emerge within the quarter or year-to-date? And I know you’ve been working with a number of plans to sort of streamline all this back and forth stuff. So just any color would be helpful.

Mike Marks: Sure. Thanks, Whit. We continue to experience increased activity levels with our payers on denials and underpayments pretty broadly across payers and across products. I mean I might continue to call out Medicare Advantage as being a specific driver within the product mix. As you know, we’ve been working really hard over the last several years to strengthen our revenue cycle. We’ve added resources, technologies and a lot of capabilities around speed resolution to really go after the root cause of the denials. That work has continued to pay dividends. Given the results of the work of the company, I think as you look at first quarter with — even with the pretty significant increase in activity around denials and under payments that we are seeing, our recoveries, our work around speed resolution, our work around appeals and getting these overturned or such that we were able to mitigate and not see a lot of year-over-year impact to earnings.

But the denials and underpayments are still really high. And so it’s a key part for our industry to continue to work together on. As you noted, we have launched over the last really 18 months now, a series of partnerships with many of our strategic payer partners. These partnerships really focus on digital integration to try to share more digital and structured data back and forth between us and our payers, eliminate faxes, eliminate paper. A lot of work around administrative simplifications for both us and our payers to deal with the really significant administrative cost burdens that are associated with kind of the health care in America. And then lastly, management of disputes. I would say that those are good in early work products, but we have a long way to go as we continue to move that forward.

So that’s a bit of an update on denials and underpayments [ improvement ].

Operator: And our next question comes from the line of Andrew Mok with Barclays.

Andrew Mok: Wanted to follow up on the slower conversion to Medicaid. Just curious which states you’re seeing that slow down, whether you view that as a temporary or issue or durable trend? And when you take a step back on the broader uninsured ACA population this year, did you make any changes to your bad debt accrual process?

Mike Marks: Thank you. So when I think about Medicaid and the slowdown in the conversions, we think, and it’s still early, there can be potentially some other contributing factors. But we largely think about this as people, who, this year, are less willing to fill out Medicaid applications. And so we suspect that, that could be driven a bit by concerns around immigration and like. So that — we’re studying that. I’m not quite sure if that’s the full reason why. But that is a piece of the story here in terms of the year-over-year growth in the slowdown in Medicaid conversions that’s impacting our uninsured volume increases. Broadly, yes, our budget is — our plans for 2026 reflected the payer mix shifts and the patient amount due collections that we anticipated being impacted by the exchanges.

And so that was reflected both in what we anticipated related to uninsured volume growth and related to the potential impacts in terms of patient due collection. So that was built into generally our models for 2026.

Operator: Our next question comes from the line of Matthew Gillmor with KeyBanc.

Matthew Gillmor: I wanted to ask about the hurricane-impacted markets. I think guidance didn’t assume any continued improvement from those markets. Can you just give us an update in terms of how things are playing out and if there’s any signs that those markets are improving, particularly in North Carolina?

Samuel Hazen: So this is Sam. North Carolina, here’s the short story. Demand is above our expectation. It’s costing us more to serve that demand because North — Western North Carolina has a significant workforce deficit. We’re having to bring in labor, nursing, nonnursing to support the demand. We have a very aggressive recruitment campaign and compensation program to service that demand, and we’re hopeful, over time, we can mitigate the cost. So we’ve seen more volume. It’s cost us more to serve it. So we’re a little bit behind our expectations in North Carolina on the bottom line.

Mike Marks: The other thing, Sam, that we’re seeing is the payer mix change. In North Carolina, the — it clearly has been disrupted in terms of that workforce disruption is also impacted in a less favorable overall payer mix. Broadly, when we think about the hurricane-related markets, in our guidance, we indicated that we did not think that we would see any kind of material improvement in year-over-year earnings from the hurricane markets. I mean, our Tampa facility [ Argo ] Medical Center has largely recovered in [indiscernible] but we don’t think we’re going to see any net material increase in year-over-year earnings from the hurricane markets due to the reason that Sam articulate.

Operator: And our next question comes from the line of Ryan Langston with TD Cowen.

Ryan Langston: On the impact from winter weather, should we expect any loss procedures in January to come back through the year? I think you said February, March volumes more in line or just wondering if you picked those January volumes up already. I’m sorry if I missed this, but can you quantify the impact from weather to the same-store inpatient and outpatient surgery growth?

Mike Marks: So when I think about the winter storm specifically, in my prepared comments, we indicated that, that was 30 basis impact on year-over-year volume growth on admissions and a 50 basis impact on year-over-year ER visits. So just to keep that in mind. From a recovery standpoint, we do believe that from the winter storm, that we largely recovered the surgical component of that with the end of the quarter. What was not recovered and what drove the net volume impact here was really the emergency visits and the related emergency admissions, where there was really not a second chance to recapture that volume. And so I don’t think that the winter storm was really an impact on our surgical volumes in the corporate and material.

Samuel Hazen: Yes, it’s not going to be notable over the rest of the year that we — and we’ll likely recover some volume, but it will be sprinkled into our mix in a fashion that we won’t be able to really discern it.

Operator: And our next question comes from the line of Justin Lake with Wolfe Research.

Justin Lake: I wanted to follow up on your comments around exchange patients sitting in the grace period in February and March that you might not get paid for. My understanding is that managed care will let you know who these patients are in real time and that their coverage is suspended. Is that right? And just to be clear, how do you treat these patients within the exchange volume decline of 15% in the first quarter? And maybe share a little more color on how you accounted for this utilization during the quarter from an accounting revenue recognition perspective.

Mike Marks: Sure, Justin. So if you think about the verification process that we have with our payers, we have some payers where we do receive some premium status information through our verification process. But the information that we are able to access is not consistent and is not standardized across exchange payers. As a result, we generally do not have reliable third-party visibility at the time of service whether a premium has been paid. When the information is available, it certainly helps us inform further patient engagement to encourage these patients to maintain their coverage. Generally, though, I would not characterize the eligibility and verification information we received at the time surface as comprehensive consistent are largely accurate as the verifiable data.

Let’s talk a minute, Justin, about the grace period and how that’s flowing through. Patients that received premium assistance, whether they are auto reenrollees, new exchange enrollees or switching plans, generally have a 3-month grace period after the coverage is effectuated. For the first month of the grace period, the payer is required to cover the care. For the remaining 2 months, the payer is not required to cover any care episodes, unless the premium was called out by the enrollee. So our work, as we studied the quarter, was to first look at every patient that came in with exchange coverage and try our best to understand whether or not they attrited in — they had an attrition during the quarter, at which point we recognize that revenue impact during the quarter, or to make an estimate of those that we believe will lose and come out of the grace period with attrition, where we will not get paid for that, and we’ll know that in second quarter and beyond as they get past their grace period.

For that last part, we’ve made an accounting evaluation and a business evaluation that we included in our analysis about equivalent admissions and revenue. And so when we articulate that 15% drop in equivalent admissions, it contains both of those components and same thing with the impact on our revenue and earnings.

Operator: Our next question comes from the line of Scott Fidel with Goldman Sachs.

Scott Fidel: If you could talk about what you saw with acuity and case mix in the quarter. Maybe putting aside the lighter respiratory, which we know when probably drive a lower case mix. And then in terms of — maybe in terms of patients and then some of the types of procedures and service lines, how that impacted the Q&A in case make as well.

Samuel Hazen: So this is Sam. We saw increased acuity as reflected in our case mix. It was modestly up on a year-over-year basis. Inside of that, we did have the respiratory dynamic that we alluded to. But within the respiratory dynamic, we had a fairly acute component last year that was more pace mix driven than maybe we’ve seen in the past. But yes, we still jumped over that. So when you look inside of our business, in the first quarter this year, we had really strong cardiac activity. So our cardiac procedures grew significantly. Trauma was up 2.5%, also driving acuity. We had rehab services grow at a very good pace. So a lot of the elements that we’ve had momentum and from a service line standpoint, over the past few years, continued into the first quarter, again, influenced somewhat in total by these other factors that we alluded to.

So we continue to find opportunities in the market to develop more comprehensive programs as our communities grow and service our communities more effectively closer to home. That will continue to be a part of our journey here. One other metric that I think is important with respect to case mix is our receiving of patients through our patient logistics centers grew by 2.4%. That tends to have a higher acuity level as well as rural hospitals, other community-based hospitals are using the deeper service offerings that we have in some of our tertiary and quaternary facilities. So all in all, we were generally satisfied with our case mix.

Scott Fidel: And can I just ask a follow-up, just around the payer buckets on acuity [indiscernible]. Were they relatively consistent or would the exchange sort of disruption, did you see any sort of movement around the different payer…

Samuel Hazen: What’s interesting, the case mix was pretty consistent. The respiratory effects were pretty consistent. So we had consistency across all aspects of our payer classes when it came to sort of the overall story for the company.

Operator: And our next question comes from the line of Kevin Fischbeck with Bank of America.

Kevin Fischbeck: Okay. Great. Can you just talk a little bit about the $150 million impact from the exchanges this quarter and how that compares to the $600 million to $900 million annual number? Did you guys assume that, that number would build as the year goes on? Or are you saying that you’re kind of trending towards the lower end for the year on that dynamic? And then also on the Medicaid side, is this dynamic something that you just kind of started noticing in Q1? Or has it been building for a while? And is it a dynamic that you think is peaking in Q1 or will get better or worse from here?

Mike Marks: Yes. On the — let’s start with HICS, Kevin. If I think about the $150 million for the quarter, I mean, it’s a quarter estimate. And obviously, that would put us a bit at the lower end of the full year range. But I think it’s a bit early. I mean, it’s dynamic. You can imagine, as we’ve gone through the quarter and we’re trying to understand and analyze all of the moving parts around the exchanges, it’s probably a little early to declare that the full year would be at the lower end of the range. So I’m not quite ready to say that. But I would say that we were pleased that in the quarter, we think that this $150 million reflects not only what we saw in the quarter, but our estimates of the attrition rate and a life that we’ve built in to our counter team.

So a little early to try to give you a broader sense for the full year yet. But I would say, like we do think that this range of $600 million to $900 million is sort of a reasonable estimate for the year. So let me leave that there. On the Medicaid conversion slowdown issue, it’s pretty nascent. We maybe saw a smidge of it at the very end of last year as well, but it really popped up on us here in first quarter. Given its nascency, again, a little early to call whether it’s a sustained trend or something that just popped in first quarter, and we’re watching it, as you can imagine, and we’ll keep you up to things as we go forward. So that would be the…

Samuel Hazen: Yes. I would say, though, Mike, just adding to that, I mean, our Parallon teams have a robust process for qualifying patients who need support through our financial counselors and other efforts. And so those continue. We’re just dealing with some dynamics here that we haven’t experienced before. And it’s like Mike said, too early to really suggest that it’s peaked or not peaked. We just need a little bit more time to judge it.

Operator: And our next question comes from the line of Sarah James with Cantor Fitzgerald.

Sarah James: And I’m sorry to circle back on to it. But amidst that March volumes were recovering towards the range of 2% to 3%, is that [indiscernible] possible for full year to hit the existing guide of 2% to 3% volume?

Samuel Hazen: We couldn’t hear what you were saying on the front end, but we think we know what you said, and that is how are volumes exiting the quarter and what does that do to our full year guidance. February and March were generally in line, when you put the 2 together, with our full year guidance. January was the quarter — I mean, the month in the quarter where we saw a decline in activity. So when we’re making a judgment about the rest of the year, we’re judging what we think is going to happen in the last 3 quarters of the year. And we think our guidance around volume of 2% to 3% in the rest of the quarters is appropriate. And what we see with demand in the market, what we see with trends coming out of the quarter and what we see with capital projects and other initiatives to develop our networks, we feel that that’s still a reasonable target. And so that’s where we are at this point.

Operator: And our next question comes from the line of Stephen Baxter with Wells Fargo.

Stephen Baxter: Thank you for all the color on the moving parts in the quarter. If we think about — I guess the only sort of year-over-year number you haven’t given us yet is on resiliency. And I guess I’m wondering, is there any reason to think that just kind of a quarter of the full year impact that you talked about wouldn’t be a reasonable placeholder for the first quarter? And then if we go through and kind of look at those moving parts, it does imply that the core growth in the quarter was probably closer to 2.5% or 3%. And I think you have a bit higher of a full year guide embedded here. Just wondering if you could help us understand what you think the shortfall was on the core kind of normalizing for all these moving parts?

Mike Marks: When I think about the resiliency plan, and we’re still confident in the full year $400 million guidance. So I’ll leave that there. I mean I think that’s a good estimate for the full year. When I think about core growth, I mean, we — our first quarter’s EBITDA growth was, call it, 1.9%. And the midpoint of our full 2026 year guidance is kind of, call it, 2.8%, 2.9%. And so that gives you a sense. I think we — we’ve articulated the drivers in the first quarter. And so we largely think that it indicates that — we believe we’re going to be largely on plan for the next 3 quarters in terms of the overall makeup of volume and revenue and earnings back to our original plan here over the next 3 quarters, and that’s how we think about it.

Operator: And our next question comes from the line of Jason Cassorla with Guggenheim.

Jason Cassorla: Maybe just to follow-up on the outpatient side. Historically, you’ve talked about some of the pressures you saw on Medicaid, but you more than made up of that on the revenue side of the fence. It looks like revenue was up just shy of 3% in the quarter for outpatient compared to the 9% or so you did last year. Sorry if I missed this, but can you give us any impact on the weather on the outpatient side? And then maybe how trends, revenue and volume-wise trended in the quarter, I guess, compared to — with your ASPs compared to your remaining outpatient footprint would be helpful.

Mike Marks: Sure. Let’s start with the EV side the outpatient business. And yes, between respiratory and the winter storms, there was an impact on our ER volumes. And it’s about 140 basis points impact on ER visits from respiratory, about 50 basis points of impact from the storm. If you think about that compared to the 23% growth in ER visits, it gives you a sense that you’re back kind of a normal trends when considering things like the winter weather storm and in the respiratory season shortfall there on ER. Sam mentioned this, but we did have good growth in year-over-year things like EMR, EMS visits and trauma visits. So that was good. On the surgery side, our outpatient surgeries declined 1.7%, and that was 2.1% in hospital-based outpatient and 1% in our ambulatory surgery centers.

On the hospital side, we saw a little bit of weakness in our ortho-related cases. On the ASC side, it was really more of the low acuity service lines like ophthalmology and ENT that drove the statistical decline. I would say, we were pleased with our revenue performance in our ASCs for sure. And when I think about payer mix for surgery, really for first quarter, the 2 big drivers of weakness on the payer side was Medicaid and of course, the exchanges, which we anticipated. So those would be kind of a run down.

Samuel Hazen: Let me give a little backdrop here. When you look at our outpatient revenue and the composition of it, about 1/3 of it is emergency room. About 1/3 of it is outpatient surgery. And the other 1/3 is imaging, primarily driven by cardiac and so forth. And so when you think about the storm, it affects, obviously, the emergency room and our outpatient surgery and our imaging, all 3 categories. The respiratory is mainly the emergency room. So all of it sort of comes together in this composite view. And that’s how we sort of dissect the outpatient business. So as we push into the rest of the year, we don’t really have the implications of either of those for our outpatient platform, and we’re confident that we’ll be able to generate the revenue expectations for the balance of the year.

Operator: And our next question comes from the line of Benjamin Rossi with JPMorgan.

Benjamin Rossi: Across your network development efforts, I guess, what’s your current cadence of ramping new beds in OR capacity? And how much of your 2026 growth is depending on projects already coming online versus future years? And then could you just give us an update on how you’re generally thinking about M&A as a potential growth lever this year? And how inbound and outbound conversations with opportunities in your pipeline have developed to start the year?

Samuel Hazen: So as I mentioned in our prepared remarks, we did see a number of outpatient acquisitions closed in the first quarter. Those were primarily related to opportunities in urgent care and ambulatory surgery and in our freestanding emergency room business unit. We had a number of acquisitions there. If we think about the going-forward aspects of acquisition, we continue to believe that’s where most of our opportunities will be. It’s in the outpatient arena and that complementing our hospital networks. And so our pipeline has a number of promising projects in it. And I’m hopeful that we’ll get to close those as we push into the balance of the year. With respect to capital spending, we do have a significant pipeline of projects that have already been approved that are in development.

That’s almost $5.5 billion to $6 billion of approved projects that will come online over the next 24 to 30 months throughout sort of different periods within that time period. A lot of those projects are long-lived projects. And by that, I mean they’re adding hospital capacity, which is difficult to do because they’re big projects, they’re disruptive projects to our facilities, and it takes a while to get them done. And then at the same time, we try to build those future growth that we anticipate in the markets. So there is a component of our growth expectation in ’26 that’s related to projects that have come online in ’24, ’25 and ’26. And so we sort of blend that into our expectations every year. And we do have a slightly accelerated expectation in ’26 as compared to the previous 2 years related to capital projects that are coming online.

So we remain encouraged with the opportunities to invest in our networks. Our occupancy levels continue to be at high levels for us, and that presents opportunities for investment and growth. And as we build out our networks with outpatient facilities, as communities grow and as our overall hospital positioning increases, we think that gives us a good opportunity to grow our share and deliver positive returns. And we’ve had a tremendous pattern, I think, of producing positive returns on capital, and we still continue to believe we can deliver on that.

Frank Morgan: Andy, let’s take one last question.

Operator: And our final question comes from the line of Craig Hettenbach with Morgan Stanley.

Craig Hettenbach: Yes. Just a question on kind of contracting just for this year, just kind of what you’re seeing in the rate backdrop as well as any visibility into 2027?

Samuel Hazen: This is Sam. For 2026, we’re pretty much fully contracted at our targeted levels. As we push into ’27 and ’28, we’re in a contracting cycle as typical with our payer contracts, and we’re about 1/3 of the way through on ’27 and modestly into ’28. And right now, we’re on target. We believe we’re going to be able to get into a range that works for our business as we finalize these contracts with the payers. As Mike alluded to, we got other issues that we’re working with them on, that we think can be additive to them, additive to us, beneficial to our patients and their customers in a way that makes the system work better. And so we’re confident that we’ll get to the good answers on these contracts that we’re in negotiations on currently.

Operator: That concludes our question-and-answer session. I will now turn the call back over to Mr. Frank Morgan for closing remarks.

Frank Morgan: Andy, thank you for your help today, and thanks to everyone for joining us on the call. We hope you have a great weekend. I’m [indiscernible] this afternoon if we can answer additional questions. Have a great day.

Operator: Ladies and gentlemen, this concludes today’s call, and we thank you for your participation. You may now disconnect.

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HCA HEALTHCARE INC

Q1 2026

Earnings Transcript

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