Welcome to the HCA Healthcare first quarter 2020 earnings conference call. Today's call is being recorded. After the speaker's remarks, there'll be a question-and-answer session. Please press star one on your telephone to queue up for a question. At this time, for opening remarks and instructions, I would like to turn the call over to Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead.
All right. Thank you, Marcella. Good morning, welcome to all of you on today's call on our webcast. With me this morning is our CEO, Sam Hazen, and CFO, Bill Rutherford. Also joining us this morning is Dr. Jonathan Perlin, our Chief Medical Officer. Sam and Bill will provide comments on the company's first quarter results and also the company's response to COVID-19. We'll open up for questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations. Numerous risks, uncertainties, and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and those 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 and net income attributable to HCA Healthcare, Inc, excluding losses or gains on the sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc, to adjusted EBITDA, is included in today's first quarter earnings release. This morning's call is being recorded, and a replay of the call will be available later today. I will now turn the call over to Sam.
Good morning. Thank you for joining the call. I will focus my comments this morning on the COVID-19 pandemic and direct you to our earnings release for the financial results for the first quarter. In general, the first 80% of the quarter was very similar to the growth we had experienced over the past two years and was a reflection of the momentum we had heading into the year. The effects of the pandemic began to hit us in mid-March. We will answer any questions you have about the first quarter's results following our comments. The early planning and preparations we did for COVID-19 involved updating clinical policies and operational guidance, preparing supply chain with added inventory levels for key personal protective equipment, drugs, and ventilator equipment.
It also included building approaches to add capacity for a potential surge in patient volumes, leveraging data, initiating our emergency operations center, and refining our management structure to execute. Like most things in our company, the basic approach was to find ways to maximize unique enterprise capabilities, leverage financial resources, and further develop corporate relationships with others to support our hospitals. HCA Healthcare has a storied history of responding well to disasters, such as natural disasters like hurricanes and floods, as well as mass casualty events like the concert shooting in Las Vegas. We used these past experiences to guide and inform the planning and response during the crisis, which was the first one we would face at enterprise scale. This event has required us to respond differently with a structure that included a more balanced approach between corporate support, division coordination, and facility execution.
As part of our plan, we developed five guiding principles that established a framework for decision-making and actions through the crisis. These principles are simple, yet extremely powerful, and they endure today. They are as follows. First, protect our employees and physicians. Second, be there for patients. Third, partner with others. Next, be a resource for communities and government. Last, accelerate the company through the crisis. We started this effort and we still remain focused on protecting the safety and health of our employees and physicians as the first principle. We enhanced training, established better PPE acquisition, distribution, and control systems, implemented a universal masking policy, and improved lab testing turnaround times as part of this endeavor. We have cared for approximately 5,500 positive COVID-19 inpatients so far across the company.
We were early to implement universal masking of care providers, and to date, we have had limited exposures to employees and doctors. A strong corporate culture is the bedrock of HCA Healthcare. This event has reinforced its importance and provided us with an opportunity to see it in action every day. Our dedicated and caring employees are the lifeblood of the company. To date, we have not laid off or furloughed one employee as a result of the pandemic. Instead, we adopted a pandemic pay program that supports approximately 80,000 employees who are not getting their normal hours as a result of reduced overall volumes. Almost 11,000 corporate and division colleagues graciously took a salary cut of 10%-30% for April and May, depending upon their compensation level, as a show of solidarity for our caregivers in the hospitals.
Additionally, over 90% of our support staff are working productively from home. This remote work model has provided insight into operational efficiencies for the future and is but one example of organizational learning from this event. To further support our colleagues, many within the organization have contributed to the HCA Hope Fund, which is a 501(c)(3) charity that is exclusively focused on providing support to fellow colleagues when they experience hardships in their lives. In less than one month, the fund has received unprecedented levels of contributions from employees, board members, and the Frist Foundation. A true testament to our culture, mission, and values. Already, the Hope Fund has over $1.3 million in grant applications that have either been paid or pending approval for more than 1,200 employees. It is times like these that test whether we honor our mission or not. We choose to honor it.
For affiliated physicians, we have implemented a COVID-19 response model that includes partnering with other technical experts to assist them with navigating the CARES Act and accessing certain benefits available to them. Also, HCA Healthcare is a large medical office building landlord, and we took a leadership position, and many of our third-party developers have followed in implementing a rent deferral program which addresses medical practice or business disruption and maintains availability of medical care and related services for patients and the community. This program, which is allowed through federal waivers, provides relief for our tenants over the next few months. We have also provided similar relief to physician partners in our ambulatory surgery centers. We have great relationships with our physicians, and we wanted to help them through this difficult period. The second guiding principle was to be there for our patients, and we have been.
Our employees have shown up, our physicians have shown up. They have been on the front line, and they have not wavered during this pandemic crisis in meeting their responsibilities of placing patients first. We've had ample capacity across our system to serve community needs. We have used the logistical capabilities of our supply chain to move supplies and ventilator equipment to needed hospitals. We have increased significantly telemedicine capabilities to keep patients in touch with their physicians. We have numerous research projects underway with our Sarah Cannon Research Institute as we continue to find ways to improve critical care medicine protocols for COVID-19 patients, lab testing methods, drug therapies, and much more. Lastly, we have used our internal supplemental staffing organization to enhance personnel needs when and where necessary across the enterprise. HCA Healthcare is a nation of heroes.
I want to thank our colleagues and physicians for their unwavering commitment to patients, their tremendous sacrifice and hard work, and their remarkable teamwork and dedication to each other. I salute them, and I know their communities salute them as well. The third principle was to partner with others and forge new relationships. We have evolved existing relationships with other companies in the industry to collaborate and solve problems. We have developed new relationships that allowed us to accelerate protocols for in-patient COVID-19 testing that have become the norm for many health systems. We have partnered with a technology company to advance monitoring of community resources and illnesses. We believe these relationships and others will benefit us in the future as we see many opportunities for further enhancing our shared commitment in creating more value for patients and the communities we serve.
I want to thank the leadership of these organizations for their collaboration and commitment to support our hospitals. The fourth guiding principle was to be a resource for the community and for government, both local and federal. We have collaborated with local health systems, health agencies, first responders, and many more. Our teams are working directly with FEMA, CDC, and recently, we took a leadership position in developing with the federal government and the American Hospital Association, a dynamic ventilator response network that will utilize excess inventory across the country to support needs in COVID-19 hotspots as they arise. We believe these type of public-private sector partnerships are necessary and valuable in responding to a public health emergency of this type and in creating channels of understanding between sectors.
The last guiding principle was to accelerate HCA Healthcare through this crisis and position the company for success in the future. This principle means that we are focused on using this pandemic to learn more and to learn faster. It demonstrates also our capacity for improving and becoming more agile at planning, executing, communicating, and processing solutions more effectively. Finally, this principle means that we, as a company, take steps to navigate appropriately through this difficult and uncertain period for the benefit of all stakeholders. We view our networks as part of and fundamental to community infrastructure. Across the 43 communities we serve, our local health systems have a sacred responsibility to always be there when needed. To meet this promise, we must take prudent and necessary actions.
As part of our planning, we took a number of steps which we believe are appropriate to protect the company and be there for the people we serve. The culture of HCA Healthcare is laser-focused on the patient. Our strategy, our decisions, and our resource allocation revolve around that. We also have a strong track record when it comes to making decisions that benefit our shareholders. The philosophy we have with respect to shareholder value remains. We continue to believe that a capital allocation strategy of reinvesting in our business and repurchasing stock will generate long-term value for the company. These strategies in the past, plus dividends, have benefited our shareholders. Given the uncertainty around this unprecedented pandemic, we felt it prudent to adjust the company's current capital allocation strategy. First, we reduced capital spending by delaying certain projects and postponing various initiatives.
Second, we suspended share buybacks under existing programs. Third, out of an abundance of caution, we suspended the dividend. We will continue to review the capital allocation strategy as we always do and plan to determine the appropriate adjustments as we get better visibility into our business. As we look ahead to the next phases of this pandemic, which starts with the reboot of core operations, we have developed various scenarios to inform the ranges of management actions necessary to respond appropriately to them. These scenarios are built around three major variables. First, understanding the impact of the recently unemployed on payer mix is important, including how many people either maintain existing employer-sponsored insurance coverage through COBRA programs, move to coverage from products sold in the exchanges, enroll in Medicaid, or become uninsured.
Obviously, the timing of the economic recovery and government program support will determine the outcome of this variable. The second variable relates to the rebound in volume. As directed by federal and state governments, we have suspended certain operations, especially elective business, which is mostly surgical and generally more profitable than medical business. Additionally, emergency room visits have declined significantly during this event because of general concerns with COVID-19 and sheltering at home policies. Our modeling includes different levels and different timelines for their rebound. We are focused on a reboot plan that places us in the best possible position for success in resuming suspended operations. The reboot will require us to work with the governors on social distancing policies, which we believe will vary by market. We have to understand what physicians need to restart their practices.
Finally, we have to respond to patients in a way that reassures them that we have the safe and protected care environment they deserve. We expect to bring on capacity in a conservative manner as markets allow and in the most efficient way possible during the reboot. At this point, we believe the reboot phase will be accomplished across most of the company by the end of the second quarter. The third variable is our cost reduction plan. We have developed three stages of cost reductions, with each one being more significant should there be a longer time to recovery. We have already executed on most of the first stage items, and now we are implementing aspects of the second stage as we look to enter the reboot phase. The third stage of our plan includes a response to a situation where we see structural changes to revenue.
We will be vigilant about determining if this happens, but at this point, we believe it is too early to implement the measures in this third stage. We have demonstrated over the years the ability to respond and adjust operations to various conditions. I have faith in our teams and believe they will once again prove it in the face of this ongoing challenge. As I've said many times in the past, I believe HCA Healthcare is incredibly resilient because of our dedicated people, the scale we have, and the ability to leverage it uniquely to capitalize on business opportunities or address challenges. We believe our resiliency is further enhanced by our diversification of markets, diversification of services, and a strong asset base, which can provide a certain level of strategic optionality and flexibility.
We have seen it demonstrated over our 50-plus year existence, and I believe we will see it again. In closing, I say with confidence that we will get back to normal in time, but we realize it may be a new normal. Fortunately, I see HCA Healthcare as uniquely positioned to help define the new normal and capitalize on new opportunities. I want to thank our shareholders again for their support of HCA Healthcare, and now I will turn the call over to Bill for a few more comments.
Okay, great. Thank you, Sam. Good morning, everyone. Let me provide some additional information. We reported our quarterly results this morning. As Sam mentioned, the quarter really had two distinct periods to it. The pre-pandemic period, which was January 1st through March 15th, then the last half of March, where we began to see the impact of the COVID-19 pandemic. Our reported same-facility admission growth of 0.6% in the quarter comprised of about 5% growth through March 15th. For the last half of March, we saw an approximate 20% decline in admissions as compared to the prior year period. Almost all of our key volume indicators reflected growth through March 15th and contraction in the last half of March as compared to the prior year period.
Same-facility emergency room visits grew about 5% through March 15th and declined close to 30% in the last half of March as compared to the prior year. Same-facility inpatient surgeries grew about 2% through March 15th and declined about 20% in the last half of March. Hospital-based outpatient surgeries grew about 2% through March 15th and declined about 30% in the last half of the month. Generally speaking, most all volume statistics were adversely affected and results were comparable among the payer classes. In essence, we saw strong results across the board until the impact of COVID-19 started to materialize in the last half of March.
Rather than repeating all of our typical statistics, let me discuss briefly what we see as the different phases as we navigate through this event, what we are seeing in April, and most importantly, the actions we've taken as a management team to guide the company through this period. First, as we think about the pandemic broadly, we see three phases that we believe will likely unfold in the coming months and quarters. A response phase, a restart, and recovery phase. We are in the first response phase that was highlighted, started with our planning in the first quarter. We then see moving to the restart phase as governmental restrictions on elective procedures are lifted, as we work with our affiliated physicians on clinical and operational protocols, and hopefully we begin to see some reduction of COVID-19 activity.
We are fully focused and have begun our planning for this restart process. We have multiple work streams around securing adequate laboratory testing capabilities, securing additional personal protective equipment, developing and providing surgical support, and other important areas. Our focus is to be ready and have the capability to service the needs of our communities as quickly, confidently, and safely as possible. We are preparing and will be ready to serve many of the procedures that have been deferred or canceled. While much depends on the easing of social and governmental restrictions, we believe this restart phase will begin towards the last half of the second quarter. After the restart phase, we believe we will move into a recovery phase. Our base assumption has this occurring sometime during the summer.
There will be many factors that influence how long this phase will last and what the impact will be to our operating results. We are preparing for a range of scenarios with varying durations of the recovery period. We believe the extent of the COVID-19's impact on the company will depend on many factors, and we cannot predict the future implications this pandemic will have on our business trends at this time. As a result, and highlighted in our release, we are withdrawing our guidance for 2020. We do believe the impact to the company will be most pronounced during this current response phase as we continue to see volume declines in April. Thus far through April, our inpatient admissions are running about 30% below the prior year. Our emergency room visits are running about 50% below prior year, as are inpatient surgeries.
Our hospital-based outpatient surgeries are running about 70% below our prior year, as most elective procedures have been deferred. We have started to see these volume declines stabilize over the past week. We believe we will begin to see some recovery of these volumes as different regions of the country begin to open up during the second half of the quarter. Before I talk about some of our future planning, let me highlight some of the actions and precautionary measures we have already taken to strengthen the company's financial flexibility. First, due to our early planning, we entered into a $2 billion short-term credit facility to provide the company with additional liquidity. As of March 31st, we had $3.8 billion of liquidity available under our credit facilities. In addition, we took a series of other actions to strengthen the company's financial position.
We suspended our share repurchase program on March 13th. We also began to reduce the company's planned capital expenditures, and at this point, anticipate reducing our capital spending anywhere from $1 billion-$1.5 billion for the remaining part of 2020. We expect this will be accomplished from deferring new project starts, reducing some technology capital spending, as well as reducing some routine capital expenditures. Out of an abundance of caution, we also announced this morning the suspension of our dividend program. We expect to evaluate resumption of the dividend program at a future date. Our operating teams have also implemented a series of cost management strategies, including hiring and travel freezes, reducing our variable cost structure, reducing discretionary spending, among many other efforts. In short, we believe the steps that we have implemented enhance the company's financial flexibility as we navigate these unprecedented times.
In addition, we are also appreciative of the administration's recognition of the burden this pandemic is having on the nation's healthcare system, and the passage of the CARES Act that will help provide some relief to healthcare providers. We anticipate that HCA will receive approximately $4 billion of accelerated Medicare payments provided by the CARES Act, and have already received substantially all of these funds in the month of April. As stipulated in the act, for our hospitals, these monies will be repaid over an eight-month time period, beginning in August of 2020. During April, we have also received approximately $700 million of funds distributed from the first phase of the Public Health and Social Services Emergency Fund. We are working through providing the necessary attestations that are part of the distribution process.
We understand there are planned future distributions from this fund, but do not know what future funds, if any, we might receive at this point. The CARES Act also provided deferral of the employer portion of Social Security payroll taxes, which we estimate to be approximately $75 million a month starting in April of 2020. These deferred amounts will have to be paid in late 2021 and 2022. There are certain other aspects of the CARES Act that we believe will provide benefit to the company in the future. In our planning for potential impacts to the company, we are running different scenarios around major variables such as payer mix, volume rebound, and cost reductions with different durations. Given this is an ongoing and unprecedented public health event, there are just too many unknowns to provide any specific estimates of the impact at this time.
While it is still early in the process, what we have identified is a cascading range of additional management actions available to take depending on how the business returns. We have already implemented our stage 1 actions, and we are implementing aspects of our second stages as we begin the restart process. We have a third stage action plan available to execute if we believe there is a long-term structural change to our revenue. Ultimately, we are confident in HCA's ability to manage through these phases, however they may unfold. Before I turn the call over to Mark, let me close by saying we believe the strength, scale, and resiliency of HCA are longstanding and critical attributes that will serve us well during this time.
It is important to note that our focus remains on the guiding principles that Sam outlined in his comments, including focusing on the safety and welfare of our employees and physicians, providing high-quality care to our patients, and appropriately managing the financial aspect of the company as we manage through this difficult period of time. With that, let me turn the call over to Mark to open it up for Q&A.
All right. Well, thank you, Bill. As a reminder, please limit yourself to one question so that we might give as many as possible in the queue an opportunity to ask a question this morning. Marcella, you may now give instructions to those who would like to ask a question. Marcella? Marcella?
They hear Bill.
Do they hear me?
Thank you for your patience. Sorry for the delay. If you'd like to ask a question, simply press star, then the number one on your telephone keypad. We'll pause for just a moment while we compile the Q&A roster. Our first question comes to the line of Sarah James of Piper Sandler. Your line is open. Please go ahead.
Hey, Sarah.
Thank you. Good morning, thank you for all the detail. Can you help us better understand what the return to rebooking looks like? Do you have different procedures in place for varied geographies as they may not all be affected equally? How should we think about what that looks like overall across your portfolio?
I guess, this is Sam. Let me give you a sense of what we're seeing in what we're calling the reboot. That's our term. Obviously, we have each state implementing different policy decisions about social distancing, elective care, when certain businesses start, and so forth. That's the first point. The second point I would add is that we are working with our physicians to understand their needs as they reboot also. We've got a task force with surgeons and others on our team developing a work stream to assist them. Once we get a better sense of their backlog, a better sense of what's allowed from local government and state government, we'll be able to start a scheduling process and ensure that we have the resources necessary to address their needs.
We also have a work stream around our patients and making sure that we can reassure them that we have a safe environment. We've implemented universal precautions. We've implemented advanced lab testing. We've stepped up our PPE controls and patient cohorting processes. Again, we can reassure them. Finally, I think it's about how do we bring on capacity. We won't immediately reopen with the existing capacity that we had in the middle of May. We're determining ways to reopen our capacity very efficiently. We think this will result in some early consolidation of existing operations until we get to the next phase.
As I said in my comments, we're hopeful that the reboot process will be accomplished across all of our markets by the end of the second quarter, but that's still to be determined based upon some of these other hurdles that have to be cleared.
Thank you.
All right. Thanks, Sarah.
Your next question comes from Pito Chickering of Deutsche Bank. Please, line is open. Please go ahead, Pito Chickering. His line might be on mute. Let's move on to the next question. How about Joshua Raskin of Nephron Research? Please go ahead. Your line is open.
Hi. Thanks. Good morning. Obviously, a big thank you to the entire organization, especially the clinical staff at HCA. Question just on cash flow initiatives. Appreciate the comments that both Sam and Bill made. What are you asking payers to do? If you look at April as a proxy for what life looks like under the current environment, how do you think about cash flow needs, and how long does this last until you have to do something external? Again, just sort of keeping it, using April as kind of your base.
Yeah, Josh, this is Bill. Let me start. Well, first, as Sam mentioned, we think partnerships was an important guiding principle for us. We've been in active discussion with our payers, and we are very pleased with their support during this process. I think our normal kind of AR process is continuing on there. We're thankful for their efforts on that. Relative to cash flow, I don't know if April is a proxy. As we've said, we think the second quarter will be probably the most pronounced quarter. Hopefully, we will begin to see some recovery throughout the quarter.
I think the steps that the company has taken that I mentioned regarding liquidity, position the company very well, not only from where we finished the first quarter, but you look at the additional actions that we've taken with the share repurchase program, the adjustments to our capital spending. As I mentioned, with the administration support through the CARES Act, our cash position is very strong from where we sit right now. We believe we're in a very strong position from a liquidity standpoint, and our focus has really been working through providing the necessary response during this time frame.
Let me add to that, Bill, if I may.
Yeah.
This is Sam. I would like to acknowledge a number of the payers. In particular, I'd like to acknowledge UnitedHealth Group. I think they took a very significant leadership position in relaxing some of their claims edits and so forth, and sped up payables in a very significant way for our company as well as for the whole industry. Also, other components of the health insurance industry, I think, relaxed aspects of their pre-authorizations and other type of controls to allow for a smoother process and a more efficient turnover of payables on their side as well, and that's helped, I think, the industry as a whole. It's helped us as well, and we will continue to work with them, I think, in a very collaborative way to address issues that we have as well as issues that they have.
Thanks.
Thanks, Josh
Next question, please.
Your next question comes from the line of Ralph Giacobbe from Citi. Your line is open.
Thanks. Good morning. Thanks for all the details. Just hoping to understand a little more, when you say restart in the back half of 2Q, sounds like that just means states opening up and allowing elective procedures back. I don't know if there's any more details you can provide on that. When you say recovery in the summer, can you just give us a little bit of a sense of what that means? Is that just, you'll be sort of fully go to see patients, or should we think of it as we're 60%, 70%, 80% there in terms of volume that's been lost? Any willingness to give details there would be helpful. Thanks.
I don't think we're in a position to give you any kind of percentages at this particular point. When we define the first phase as the reboot, that's basically getting over the hurdles that are state requirements, getting over some of the backlog, if you will, on the elective cases that have been postponed, and helping our physicians and others get back in business. That's what we mean by the reboot. The recovery period is really difficult to determine at this point. We don't know what the full effects and the damage to the economy are going to be. We don't understand clearly what the uninsured levels are going to be. We anticipate the effects to vary by market. We also believe that there will be major areas that influence our business results.
As we've talked about, we think patient confidence is very important, and it's incumbent upon all health systems to create that reassurance that patients can come to a health system as they did just two months ago with confidence and that their safety can be protected. We have universal precautions, as I mentioned, patient cohorting, sufficient PPE, different lab testing capabilities to support this effort. We've also got to manage through the possibility of a COVID-19 recurrence, so we're maintaining our surge capacity. All of this converges on trying to understand a recovery process, and we don't feel like we can predict that at this particular point in time. Some of that is going to be determined by factors way outside of our control. Whether or not there's antiviral therapies that work or a vaccine that's developed at a timeline that's more current than what's out there today.
All of this is part of what we're calling the recovery phase. As we get some visibility into the variables associated with that, we can make adjustments in a more informed manner, and that's how we're thinking about it. We're not in a position at all to estimate percentages or timelines. That's why we had to pull our guidance. That's why we took some of these other capital preservation tactics to ensure that we have the flexibility to make those adjustments in an appropriate way.
Okay. Thank you, Ralph. Next question, please.
Your next question comes from the line of Scott Fidel. Your line is open.
Hi. Thanks, good morning. I had a question just on one of the specific reimbursement provisions in the CARES funding, which was the 20% bump to the Medicare DRGs for COVID-related treatments. Just interested in terms of how you're seeing it in terms of discussions or already in terms of actions that's flowing through towards increased reimbursements that are tied to DRGs or not across the other payer classes. Specifically thinking about MA plans, commercial plans, and then also if Medicaid is doing anything similarly in terms of what they're evaluating on improving the reimbursement rates tied to COVID-related treatments. Thanks.
Hey, Scott. This is Bill. Let me try and answer that. We are appreciative of that 20% add-on for COVID patients as part of the CARES Act. I don't think in a net of all the things we're experiencing, that will be that material. I think the most significant part of the CARES Act are the items that I mentioned regarding the accelerated Medicare payments as well as distributions from the fund. There's other aspects of that that I think will be beneficial for us. We are appreciative of that 20% add-on. I can't tell you we've actually seen it yet. I fully expect it will play out in our claims as we adjudicate it. I think the MA plans will adopt similar reimbursement programs that the federal government does. I do not know about Medicaid programs yet. We can follow up on that.
Given the COVID activity that we've seen and that amount, I don't view that being that material. I think the most significant things going on with the CARES Acts are things that we've been in discussion with the policymakers about understanding just the overall impact to the healthcare system and the additional costs that healthcare providers are experiencing in their preparation, and then just this potential movement with uninsured patients. So that's where our focus has been. Thanks, Scott. Next question, please.
Your next question comes from the line of Kevin Fischbeck from Bank of America. Your line is open.
Great. Thanks. Hey, just want to follow up maybe on that one a little bit. Can you quantify the other provisions? The $700 million was good, but I guess the DSH and the sequestration impacts.
As far as that $700 million goes.
How and when would you expect to be able to book that? Does that show up as revenue, and does it show up in Q2, or does that have to phase in as the year progresses?
Kevin, thank you. Answer to the latter. Yes, I think the $7 million, once we go through our processes, will show up in revenue in Q2. We'll see what other fund distributions may occur. Regarding the other aspects, obviously, I mentioned the two significant. The sequestration aspect, we believe, will be approximately $100 million for us between the balance of the year at historical Medicare volumes. That number would be adjusted with our Medicare volumes being a little shorter than where they historically ran. The DSH was really just a continued deferral, which we had already, in our plans, anticipated that would be deferral. I think the sequestration, the fund distributions, and the accelerated Medicare payments would be the most significant things we'd call out.
All right. Thanks, Kevin. Next question, please.
Your next question comes from the line of Frank Morgan from RBC Capital Markets. Your line is open.
Good morning. I think you had some news yesterday, a number of states that are important to you, like Texas and Tennessee, were some of the first states that are likely to reopen. I'm curious what your conversations have been like with the state agencies in those states. Separately, I'd be real curious of the physicians and the surgeons that you talk to, what is their thought process right now in terms of the start back? Are they anxious to go? Are they still hesitant? Any color there would be appreciated. Thank you.
All right. Thanks, Frank. Sam?
I think the health system industry in Tennessee, Texas, Florida, Colorado, all these different states, is connected to the governor's office. If you think about social distancing and the objective around social distancing, it was to prevent an overrun of the healthcare system. Well, in many of our markets, the initial forecasts were sobering, to be honest with you. They have come in significantly less. We have ample capacity, and we've learned a lot over this past five or six weeks, and that's what we shared with the different governors' offices and local officials' offices, is that there's been significant learnings already that have come from this particular experience. There's been increases in lab testing capacity. There's been improvement in PPE supply chain inventory levels. There's a better understanding by our teams and our physicians on how to manage COVID-19 patients.
All of that is going to serve us well, we believe, and serve our communities well down the road as we battle this particular event. With respect to our physicians, it's mixed, as you would expect. Many of our physicians are eager to go and want to address their backlog. Others still have questions around patient safety, their own personal safety, and how all of that is going to be managed. Again, we have a very specific work stream of a multidisciplinary team that includes surgeons on there to ensure that we have the right procedures in place to deal generally with the issues that we have. We're excited about the reopening in Texas.
We're excited about Tennessee. We anticipate other states starting to relax some of these procedures and policies, just as we mentioned over the course of the next few weeks, allowing us to start back on some of the care that's needed in the community. We'll just have to wait and see how all that ramps up. Again, it's variable, and we'll just have to process it, Frank, and hopefully have it behind us at the end of the second quarter.
Thanks, Frank.
Thank you.
All right. Next question, please.
Your next question comes from the line of Whit Mayo from UBS. Your line is open.
Hey, Whit.
Hey, thanks. Good morning. Appreciate all the comments. Sam, can you maybe just go back and elaborate a little bit more on the comments you made around structural changes? Any thoughts on how you're thinking about it? I know it's really a big multidimensional topic. If you could comment on the aspects of the CARES Act that you said might provide long-term benefits, Bill. Just curious what you're referencing. Thanks.
Yeah. I'll let Bill answer the question on the CARES Act. When we think about structure, we're thinking about the demand side of the equation and the supply side of the equation. On the demand side, we're trying to judge fundamentally, has there been a demand curve shift as a result of the COVID-19? By that, we mean, have income levels dropped because of unemployment and uninsured that starts to influence buying patterns and healthcare services demand? Do patient preferences with respect to concerns about COVID-19 cause patients to avoid the health system? Has telemedicine structurally changed certain buying patterns? We don't have a sense of that yet, but those are variables that we're trying to understand. On the supply side, we're trying to understand what happens with certain providers. Will they actually exit the marketplace and start to, again, think about a shift in the supply curve?
Will physicians changes occur and create changes to the supply side of the equation? There could be government regulations that create implications also on the supply side. Many of these, we think, create opportunities for HCA as we move forward. Those are the big structural variables, Whit, that we're trying to study, stay close to, have responses in our different phases of our plans, allowing us to respond appropriately and capitalize as well on opportunities as they develop. Bill.
Whit, on the CARES Act, sorry, if I said long-term, I didn't mean long-term. I think we view the CARES Act activity that we've seen really being more immediate term. Through the accelerated payment program we received, that was a short-term item to recognize the impact to the industry. We know those funds have to be repaid starting in August, over an eight-month period of time. I think the distributions from the Public Health Fund is a great first start and is a recognition of the impact on there. We see most of the CARES Act activity being much more of an immediate term impact to recognize the disruption that's going on with healthcare providers across the country.
Okay.
Helpful. Thanks.
Bye, Whit. Thank you.
Yeah.
Your next question comes from the line of A.J. Rice from Credit Suisse. Your line is open.
Hi, everybody. Thanks for all the thoughts and commentary on the rapidly changing situation. Just one clarification to your answer to Whit. There's been some talk about switching from inpatient to outpatient more as a result of all this, or outpatient to ASCs. I wonder about your comment there. Also on your cost reduction program, it sounds like the first two phases are well in hand, the third one is sort of on hold if things continue at a tough pace. Is there any way to quantify at all how much order of magnitude on the savings that you're trying to get in those programs?
Let me answer the first question. I'll let Bill answer the second question, A.J. We do have substitute settings as a variable on the demand side that we're studying. Does that mean our women's hospitals across the organization are better positioned than co-mingled women's services? We have, across many of HCA markets, dedicated women's hospitals that are separately controlled, if you will. Does that create advantage for us in obstetric services? Possibly. Will we see more activity in ambulatory surgery centers? Again, that's a possibility. It's incumbent upon us and our hospitals to create the same kind of safe circumstances, safe environment for outpatient surgical patients, outpatient cardiology patients, and so forth. Substitute settings are something that we are studying and we are thinking about as we go through this transition. Obviously, we believe we're already well-prepared to respond to those.
Again, it may create opportunities down the road, but there are levels of risk as well. We have to balance all of that out. We think, again, HCA's diversification of services, diversification of facilities, diversification of markets give us opportunities to navigate through that transition better than most.
Yeah, and A.J., and this is Bill on the cost side, I think it's too early to try to quantify the impact of all of these. Clearly, we identified some of the stage 1 actions, which is really more focused around some of our immediate discretionary spending. Our stage 2 that we're in now, as we begin the reboot process, basically goes deeper into our cost structure, mostly around discretionary spend, giving our commitment to our employees. You look at the stage 3, which we really aren't implementing yet, but we'll be prepared to if the circumstances require, really get more into some of the changes to our fixed cost structure and going deeper into our cost side. All of that, and we will pace, and we'll be dependent on how we see the volume returning as we go through these different phases.
All right, A.J., thank you.
Okay.
Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is open.
Hey, good morning, guys. I guess the question is for either Sam or Bill. You guys have both been at the company through the past couple of recessions. As we think about, you just mentioned diversification, how are you thinking about the ability of HCA to deliver growth as you had in past market pullbacks? Also, more specifically, there's a lot of fear right now about Texas. Houston's a 10% market for you guys. What do you see there? How are you thinking about the oil industry impact on your business?
All right. Thank you, Brian.
Obviously, this crisis is not a parallel necessarily to any other recession that we've been through. It's got public health connected to it as well as economy. The third variable, as you just mentioned, is energy. We have three pressure points, if you will, that we're trying to sort out. I don't know that we have a read on the energy implications for Texas at this particular point in time. Again, Texas is more diversified today than it's ever been. Obviously, energy and that particular industry plays a huge part in the economy, but not as much as it did 10 years ago, and clearly not as much as it did 20 years ago. For us, we have 43 markets in the U.S. Texas is clearly significant, and we will continue to pay attention to those details.
Across the portfolio, one market in Houston is less than 10% of the company and won't necessarily fully influence the company's results. Those are difficult for us to ascertain at this point in time, and we really don't have any visibility into it and cannot speak to the implications just yet.
All right. Thank you, Brian
Your next question comes from the line of Gary Taylor from JPMorgan. Your line is open.
I would like to add my thanks to HCA's leadership and its clinicians out there in the real world managing through this earnings and EBITDA sides. I think the U.S. is really fortunate to have companies like yours for sure, we really appreciate you. At this point, I just have a couple items for Bill just to clarify. On the $4 billion of accelerated Medicare payments for April, I presume that's a cash flow only item, not a P&L item. On the $75 million a month of FICA tax deferrals, is that also cash flow only since you ultimately have to pay? Will you still be accruing that in that SW&B line? Or is it an EBITDA benefit for 2020?
Yeah, Gary, first, thanks for your comments. Yes, you're correct on both of those. They're cash flow items only. There will be no P&L impact of the accelerated Medicare payments or the deferral of the FICA taxes. We will continue to accrue the expenses associated with the employer-sponsored FICA taxes through our P&L, just the payment gets deferred, and the accelerated payments will just go on the balance sheet until we go through the repayment cycles.
Great. Thank you.
Thank you, Gary. Marcella, we've got, I think, time for one more question, please.
Your last question comes from the line of Steven Valiquette from Barclays. Your line is open.
Great. Thanks. Good morning, everyone. Let me also commend you on all the work you're doing during this pandemic. A couple of questions here. Just on this first wave of $30 billion in industry leading data, once we get beyond that, when we think about the remaining $70 billion out of the total $100 billion from the CARES Act, I think you mentioned that the visibility on that is still not clear at the moment on timing, et cetera. Is there any color, at least on formulaically, how that might be paid out? Is it still, I think, possibly going to be tied to the Medicare fee-for-service formula? I know the AHA was also talking about a per-bed amount, $25,000 previously. That could change. I'm curious about the formula there.
The second quick follow-up would just be around your payer mix comments in your prepared remarks and the potential for people to move from commercial health insurance to exchanges or Medicaid. I guess just based on the timing of that sort of change, I'm curious if that's something that might be more impactful this year in 2020? Would that be something that may be a bigger variable in 2021, the way you're thinking about that?
Thanks, Steve. Yeah, Steve, let me try to address. At the end of the day, we do not have visibility into the formula of the distribution of the remaining funds. We stay connected. We've given our views of different formulas. We understand there's a lot of constituencies that are also doing the same. As of today, we just don't know what that formula will be. We understand there's some discussion on different metrics that will be tied to either going disproportionately to certain areas of the country and/or considering uninsured or considering some disruption on there. We think the position we've outlined is that almost every institution is impacted regardless of the number of COVID patients. We'll just have to wait to see on that. I think on the payer mix changes, you're right. That is obviously an important variable that we are modeling.
I think today is different maybe than in past eras where because we have some states that have expanded Medicaid and were in place the last time we went through an economic cycle. We'll have to see how that plays out. My sense is those are longer-term implications, much more than they are shorter terms, even as COBRA gets extended and as we are working with various community agencies to try to help people understand the potential coverage options in the event they find themselves unemployed for a period of time. I do believe that will be a longer-term impact, and we'll just have to wait to see how that plays out. Right. Steven, thank you so much. Marcella, I think we're finished with the call. Listen, I want to again thank everyone for joining us today.
Those of you who are shareholders of the company on the call, I want to thank you for your support of the company. I will be around, obviously, to answer additional questions that you might have, so feel free to give me a call. Have a wonderful week. Thank you.
This concludes today's conference call. You may now disconnect.