Good day. Welcome to the HCA second quarter 2019 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 Senior Vice President, Mr. Mark Kimbrough. Please go ahead, sir.
Well, thank you for the promotion, Ian. I appreciate that very much. Good morning, and welcome to everyone on today's call and our webcast. With me this morning is our CEO, Sam Hazen, and Bill Rutherford, our CFO, which will provide comments on the company's results for the second quarter. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements 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. Many of these factors are listed in today's press release and in our various SEC filings. Several other factors that will determine the company's future results are beyond the ability of the company to control or predict.
In light of the significant uncertainties inherent in any forward-looking statement, you should not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. 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 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 second 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, and thank you for joining us today. Earlier today, we reported our second quarter results. The results were driven by positive trends in the following areas: solid volume growth, cost metrics that were mostly in line with our expectations, and good performance from our acquisitions. These positive results were offset by slower growth in revenue per equivalent admission, which resulted in reported revenue and adjusted EBITDA that were slightly below our internal expectations. Adjusted EBITDA grew by approximately 3% to $2.3 billion, with adjusted EBITDA margin at 18.2%. Diluted earnings per share in the quarter was $2.25, which was down 2.6% from last year. We have carefully reviewed what drove this slower revenue growth. Importantly, we don't believe it presents a headwind with respect to achieving our full year's earnings guidance. Bill will provide the details in his comments.
Revenue grew by almost $1.1 billion, a 9.3% increase. This increase was driven by volume growth broadly across our markets, service lines, and by revenue generated from our recent acquisitions. On a same facilities basis, revenue grew by 4.3%. Inpatient admissions and equivalent admissions grew 2.1% and 2.6% respectively. Emergency room visits grew 3%, and total surgeries were up modestly. We have now grown same facilities inpatient admissions in 21 consecutive quarters. Inpatient market share trends remained positive for the company. Based upon an analysis of our results and year-to-date performance, we are confident in the second half of the year. We have not seen any major structural changes within our markets from a competitive standpoint, physician standpoint, payer standpoint, or execution standpoint. The fundamentals in our markets remain strong with growing demand for healthcare services.
We continue to believe we are well-positioned for growth as we execute our operational initiatives, improve the overall competitive positioning of our local healthcare systems, and integrate our acquired hospitals. The strategic investments we are making to expand the inpatient and outpatient capacity within our networks and improve our clinical capabilities create more opportunities for patients to access high-quality, convenient care in an HCA Healthcare facility. With that, let me turn the call over to Bill.
Thank you, Sam, good morning, everyone. I will cover some additional information relating to the second quarter results, then we will open the call for questions. As Sam mentioned, our volume stats were solid, and I'll provide some additional information. During the second quarter, same-facility Medicare admissions increased 2.5%, and equivalent admissions increased 3.2%. This includes both traditional and managed Medicare. Same-facility Medicaid admissions increased 3.2%, and equivalent admissions increased 2.3% in the quarter compared to the prior year. Our same-facility commercial admissions were flat, while equivalent admissions increased 1.9% in the second quarter compared to the prior year. Same-facility self-pay and charity admissions increased 5.1% in the second quarter compared to the prior year and was in line with our expectations.
When looking at our 3% growth in emergency room visits in the quarter, our level 1 through 3 visits increased 0.6%, while our higher acuity level 4 and 5 visits increased 4.9% over the prior year. Admissions to the emergency room increased 3% over the prior year. Same-facility net revenue per equivalent admission grew 1.7% over the prior year in the quarter. This growth rate was lower than our recent results, which has averaged 1.5%-2% higher. Let me give you a little more information on factors that affected this in the quarter, and there are two primary drivers I would like to call out. Our commercial revenue growth was softer in the quarter, primarily because admissions were flat and there was a moderation of our acuity growth in the quarter, which was primarily driven by a decline in inpatient surgeries.
The second item is that we had some favorable revenue items last year across some state supplemental and graduate medical education programs that did not reoccur this year. Our total adjusted EBITDA impact from these supplemental programs was approximately $65 million, which was primarily attributable to revenue. We do not believe the supplemental programs will be a headwind for the remainder of the year. Our year-to-date revenue performance is in line with our full-year expectations. Year-to-date, same-facility net revenue per equivalent admission has increased 3%, which is within our guidance range of 2%-3% for 2019. Let me move on to operating expenses. Operating expenses per equivalent admission for the second quarter were consistent with recent trends. Our same-store operating costs per adjusted admission grew 3.1% over the prior year in the quarter.
While our cost as a percent of revenue did increase in the quarter, we view this as a function of the softer revenue growth I discussed previously. Our recent acquisitions had an approximate 80 basis points unfavorable impact on margins for the quarter. Same-facility labor trends were consistent with recent trends in prior year. Man-hours per adjusted patient day and employee per occupied bed, two key productivity indicators, both improved 0.8% compared to the prior year. Same-facility average hourly rate grew 2.6% in the quarter versus prior year. Same-facility supply cost per equivalent admission grew 2.1% over the prior year period. Same-facility other operating expense per adjusted admission rose 3.6%, mainly due to a change in some state supplemental program expenses, which I mentioned earlier. In summary, while our revenue results were softer than our expectations, our adjusted EBITDA was only about 1.5% below our internal expectation.
Overall, we remain pleased with our year-to-date performance. Let me take a moment to talk about cash flow. Cash flow from operations was strong in the quarter. Cash flow from operations totaled approximately $2 billion versus $1.58 billion in the second quarter of last year. Capital spending for the second quarter was $964 million, in line with our expectations. During June 2019, we issued $5 billion aggregate principal amount of senior secured notes and used the proceeds to temporarily reduce the outstanding balance on our asset-based revolving credit facility. During July 2019, we redeemed $4.95 billion outstanding aggregate principal amount of senior secured notes. Pre-tax losses on retirement of debt totaling $211 million for these redemptions will be recognized during the quarter ending September 30th, 2019.
During the second quarter, we paid $242 million to repurchase 1.9 million shares and had $1.75 billion remaining on our previous authorization as of June 30th, 2019. As mentioned in our release this morning, our board of directors has declared a quarterly cash dividend of $0.30 per share. At the end of the quarter, we had $5.7 billion available under our revolving credit facilities, and our debt to adjusted EBITDA ratio was 3.83 times. The amount available under our revolving credit facilities would've been $2.47 billion, and the debt to adjusted EBITDA ratio would've been 3.66 times after giving effect to our July 5th, 2019 debt redemptions. As noted in our release, we adjusted our full year 2019 guidance with projected adjusted EBITDA to range between $9.6 billion and $9.85 billion, and projected EPS to range between $10.25 and $10.65.
Let me turn the call back over to Sam before we go to Q&A.
Thank you, Bill. Before we go to Q&A, I want to make four more points. First, our management teams are relentlessly focused on executing our agenda as we have always been. Secondly, we are confident in what we are doing and our outlook for 2019. Third, periodically, we have quarterly results that don't reflect our longer run beliefs. The first quarter was that. The second quarter was also that. That's why we believe year-to-date performance is more indicative. Fourth, where appropriate, we are making adjustments to our cost structure as we historically have done. With that, Ian, let's go into questions and answers.
Thank you. Today's question and answer session will be conducted electronically, and anyone wishing to ask a question may signal by pressing the star key followed by the digit 1 on your touch-tone telephone. We would like to ask that you limit yourselves to one question, and individuals asking questions should not use speakerphones. Please lift the handset if you're asking a question. We will now take our first question. Comes from Pito Chickering of Deutsche Bank. Please go ahead.
Good morning, guys. Thanks for taking my questions. Just to drill down a little bit more on the inpatient admissions for your commercial book of business, a couple questions. Can you talk about different markets, if that weakness was widespread among the markets? You talked about some more competition. Did you see some markets that had increased competition from that? Then also on strategic investments, you guys are continuing to invest in inpatient admissions. Do the 2Q results change your view of making those investments?
Sam? All right, Pito, thank you. This is how I would answer that question. We had 12 of 14 domestic divisions that had admission growth. We had 12 of 14 divisions that had adjusted admissions growth. On the managed care side, we had eight divisions that were up, two that were flat, and four that were down. On surgeries, in total, we had nine divisions that were up, one was flat, and four was down. Generally speaking, our portfolio performed pretty well. We did have a couple of markets that were softer than we anticipated. We understand what those drivers are. We think we have the appropriate responses in place to deal with them, and we'll continue to execute on those. To give you a few more statistics on the volume side, which again, the company had a very productive volume quarter. Rehab admissions were up 8%.
As Bill said, our emergency room visits were up 3%. Our trauma was up almost 15%. We had tremendous growth again in our cardiac volumes with our PCI volume, our cardiac cath volume up 2.5%, electrophysiology up 4%, CV surgery up 4.5%. We had very broad-based, as I mentioned in my comments, service line growth and also division-wide growth. The issue is we were a little bit softer in total for our managed care admissions, as Bill alluded to, and that did put some pressure in the quarter on our revenue. I don't think it significantly changes our thinking around investments. As I mentioned, we believe our strategy is appropriate for the market. We continue to invest in it in an appropriate way, in my opinion, and we think it will produce opportunities for the company to generate growth in the future.
Great. The one follow-up, if the weak commercial story continues in the back half of the year, what leverage do you guys have available on the cost side to react to the softness?
Yeah, Peter, this is Bill. Let me try to address that. As Sam mentioned, our teams are making adjustments every day. We have great operators, and we're obviously proud of the work they do. We manage productivity daily, even hourly, matching our labor trends to projected volume. I mentioned our productivity gains in the comments. We have process improvement teams throughout our operations who work in a variety of cost efficiencies, such as throughput in the emergency room and OR, also working with our clinical teams on clinical efficiencies. We benchmark ourselves to our best performers on a wide range of metrics and identify improvement opportunities. We continue to strive for cost efficiencies in our support structures and continuing to leverage size and scale, which we've been doing for some time in revenue cycle, supply chain, information technology support, human resources, and the like.
As Sam mentioned, we'll look for fixed cost and overhead reductions where appropriate and where we believe we have the opportunity. We continue to believe we have appropriate control systems around managing our cost structure. As we step back, we don't think cost management was the issue for the quarter. We continue to make adjustments where we believe is appropriate, and we'll continue to do that in the future. Thank you, Peter.
Great. Thanks so much.
Thank you. We'll now take our next question from Steve Tanal of Goldman Sachs.
Good morning, guys. Thanks for the question. I guess I just wanted to focus on the revenue per adjusted admission, the metric there, and some of the drivers you called out. Forgive me for being specific here, there's a few things I wanted to touch on. The lapping of the $65 million of supplemental payments in the second quarter, was the expectation that that would recur? I just don't remember that as a call-out last year. Just thinking through that, I think the size of that is maybe 60 basis points or so. You framed 150 basis point-200 basis point delta versus recent trends on the metric. Is it fair to say that the biggest driver within there was commercial volumes? Any reason why that slowed, maybe how widespread it was?
Just really trying to understand if that's just a function of low unemployment, more macro-driven, or if there's anything more specific you could tell us about that. Finally, just an acuity mix read would be helpful. I don't know if I missed that, those are the three parts to that question.
Yeah. Thanks, Steve. Let me start. On the supplemental payments on there, we did not expect that to reoccur. We didn't call it out in 2018 because it wasn't really an issue on a year-over-year basis because we had at least two of the three programs we mentioned in 2017 and 2018. As we went through our budget process, we knew those wouldn't reoccur, so they were not in our internal plan as we went forward in 2019. That's why, our internal plan, we weren't that far off with on our performance for the level. On the managed care volume, as Sam mentioned, it's a handful of markets. We did see our commercial surgical volume decline in that area. That did flow through on the acuity in a couple of service lines.
As Sam mentioned, we don't think that we see any structural or significant changes across the marketplace. That influenced both the volume and the flow-through acuity related to that.
Okay.
Thanks, Steve, yeah.
Thank you.
Thank you. I will now take our next question from A.J. Rice of Credit Suisse. Please go ahead.
Hi, everybody. Just wondering, picking up on Sam's comment toward the end there, the little more volatility from quarter to quarter, that seems to be something we're seeing across the sector. Obviously, one of your major peers had the exact opposite, a really soft first quarter and a strong second quarter, and surgeries were part of that. Do you think there's anything going on, either with benefit design changes, I don't know, in terms of your managed care contracts? People talk about the deductibles and the high-deductible plans and that having an impact on traditional seasonality. Is there anything, you can look at the calendar? I know the calendar's different in the way some of the holidays fell this year versus last year.
Is there anything else that you think is creating a little more volatility from quarter to quarter, where you still end up at the same point for the year, but maybe the seasonal patterns are not what they used to be exactly?
A.J., this is Sam. I don't know that we have anything that would suggest the seasonal patterns are changing on us. We went through a period of time, as we've discussed on these calls in the past, where we felt there was some migration to outpatient procedures in the last part of the year because of deductibles and holidays and so forth. We tend to see some outpatient surgical activity and procedure activity increase in the fourth quarter. As it relates to the first half of the year, I don't know that we have any indications that seasonality factors are changing on us. I think my point was that, the first quarter was incredibly good for HCA and had tremendous mid-teen same-stores growth, if I remember correctly. We just felt that we had a perfectly good quarter that yielded tremendous bottom-line results.
We looked at the second quarter, it just didn't play out as we had anticipated entirely, not that far off as Bill indicated. When we sort of pull up and look at the business and then look at our markets, we just completed our mid-year reviews with our divisions, we feel pretty good about where we are on a year-to-date basis, we think that's fairly reflective of our business and how it should play out over the remainder of the year. That's why we sort of called it out that way. We will continue to study. We'll hopefully get a good indicator here in the third quarter and move through the year as we think. There's nothing to suggest that seasonality has played into this in any material way.
Thank you, A.J.
Okay. I think the managed care companies have pointed to an extra business day in the third quarter as a bit of a headwind for them. Is that enough to move the needle in your mind for you guys at all?
Clearly, with an extra business day, we will have more procedures, most likely, because of that. Whether or not, over the course of the whole quarter, that will have a material impact, we'll just have to wait and see. Business days do influence our surgical activity and some of our procedure activities.
Okay, thanks.
Thanks, A.J. Appreciate it.
Thank you. I will now take our next question. It comes from Justin Lake of Wolfe Research. Thank you. You may go ahead.
Thanks. Good morning. Sam, I appreciate the comments on the confidence in the second half EBITDA run rate. Given the weaker commercial volumes and acuity in the second quarter, I'm curious whether that confidence is a function of management expecting commercial trends to return to previous levels in the second half or whether you're driving cost improvements that'll allow you to hit these numbers even if the commercial trends continue at those second quarter levels.
Well, I would say it's a bit of a blend. It's not one or the other. I don't think the second quarter is necessarily reflective of commercial volumes. We've had, I think, 6 straight quarters where we've had adjusted admission growth in our commercial activity. I think five straight quarters heading into the second quarter where we had inpatient commercial admission growth. We don't necessarily see anything changing within the markets, as I've mentioned, that would suggest that the second quarter is the marker for us as we move forward. When you do bump up our expectations for some rebound there, plus some cost initiatives where we think we have some incremental opportunities for improvement. Those two combined, I think, Justin, give us a reasonable level of confidence as we look to the last half of the year.
Okay. If I can just squeeze in a quick number. All right, go ahead, guys. Thanks.
Bye.
Thank you. We'll now take our next question from Ralph Giacobbe from Citi. Please go ahead.
Thanks. Good morning. Can you maybe call out the specific service lines where you saw the pressure that drove the lower acuity? Then I think in the past you've given managed care revenue, I think per admission. So hoping you can give that for the second quarter. Then the last thing, just anything to call out on bad debt or collection rate that could have maybe influenced the revenue capture and pricing stat in the quarter? Thanks.
Yeah, Ralph, let me try to take some of those. When we look at the service lines, it was in some of our spine surgical procedures, orthopedics, and some women's services. We think on the orthopedic side, on the commercial, we could have caught some of that as it moved into the outpatient area, but it was mainly in the spine and women's services, and as Sam mentioned, spread among a handful of markets on there. On the collection rates, we're not seeing any material change in our collection rates, where our net days actually had declined on us for the year, so we continue to feel very comfortable with our revenue cycle operations.
Revenue per.
The net revenue per admission for our commercial side was running 3.5% on a revenue per admission in the second quarter.
Thank you.
Thanks, Ralph.
Thank you. We'll now take our next question. Brian Tanquilut of Jefferies, please go ahead.
Hey, Brian.
Hello, Sam. Can you hear me?
Now I can, yeah.
Hey. Good morning. Yeah, just wanted to ask a question on price transparency. Obviously, CMS came out with a proposal yesterday, and how do you think that plays out, and where do you think HCA is positioned, if that actually goes through in terms of pricing, and where you stand in the markets that you operate in? Thanks.
Yeah. This is Bill. I'll make a stab at that. Obviously, it's early. We just got that last night. We're still interpreting that. We've been on record that HCA supports price transparency, and we believe that's helping our patients gain a reasonable understanding and estimate of their costs prior to service. We support those efforts. We'll have to see in implementation in terms of the specific procedures out there, our approach to complying with that, and we think HCA will continue to show good value. We don't know exactly where we stand relative to others in the marketplace. We think that will create some opportunities, maybe some challenges there. We think, again, the HCA system will stand up well on a price transparency view.
Yeah, let me just add to that, Bill. I think a couple of things. Over the past 5 to 10 years, we have been on this journey to try to narrow the band amongst our payers so that there's not a large delta between the lowest payer and the highest payer. We have a delta, but it's not significant, and we've narrowed it significantly over time. That's point number one. Point number two, we think we are competitive in the marketplace, otherwise we would not be accomplishing contract renewals at the pace that we are. For 2020, we're about 80% contracted, and for 2021, we're about 60% contracted at what I would call normal inflationary trends. Therefore, I believe we are generally competitive. To Bill's point, there could be a market here or there where we're under a competitor. We believe that in a handful of cases.
There could be a market here or there where maybe we're in a better position from a pricing standpoint, and we'll just have to sort that out over time. At this point, we're focused on the patient and getting the patient the necessary information for them to understand their costs. We're going to go through this comment period that CMS has offered and make sure we push forward appropriate thoughts and appropriate ideas on dealing with the patient, and then we'll determine whether or not there's an appropriate way to deal with other kind of pricing that is embedded in the proposed rule. All right, Brian, thank you.
Thanks, guys.
Thank you. We'll now take our next question, comes from Frank Morgan of RBC Capital Markets. Please go ahead.
Good morning. Hate to keep beating this issue, could you talk just a little bit maybe about on the commercial volume side, how that progressed and tracked through the months of the second quarter? Did you see any kind of change in that by the end of the quarter? Just also wanted to confirm, no major losses of contracts, nothing went out of network during the quarter? Any commentary around surprise billing legislation? Thanks.
Yeah, Frank, let me try. The quarter, you have to align, as we mentioned before, around business days. April had a favorable business day. June had one less business day. I haven't normalized for that, but I don't think we see any interquarterly trends of any material nature in the trends that we're talking about. Relative to surprise billing, I don't think there's any new developments out there. We've worked with various policymakers and industry leaders to express our views on surprise billing, and we'll see where that ultimately finalizes, but we don't think that's an issue for us in the near term as we look at various proposed legislation that's out there.
Any of you go out-of-network during the quarter?
No.
No.
We haven't lost any material contract or any material out-of-network activity.
Thanks, Frank.
Thank you. I will now take our next question. This is from Josh Raskin of Nephron Research. Please go ahead.
Hi. Thanks. Good morning, appreciate the question. I understand you guys are saying it's not really a cost side of the issue, and I think I heard a couple of comments around labor, but maybe you could just flesh that out. Was there any increase in temporary labor? Are you seeing any shortages in specific markets, any specific lines, et cetera, that caused any potential changes in the volumes? Is it really steady as she goes on the labor front?
I think it's pretty consistent. When we look at the overall labor trends, as I mentioned in my comments, Josh, our productivity improves. We improved just under 1% for the quarter. Our wage rates at 2.6% are in line with our expectations. Our temporary and contract labor has remained stable recently. We're very proud of the efforts our operators are making in Outfront, and we're running nice turnover ratios in there. Again, when we step back and look at the cost trends, when we manage on our per unit basis, they're very consistent with our trends. We recognize as a percentage of revenue, they're showing some growth, just as in the first quarter, when you got really solid commercial growth, it helps the per revenue stats, and the opposite occurred in the second quarter.
When we look at how we're managing the cost on a volume basis, they're remaining relatively and stable in our view, across all categories, labor and supplies at that standpoint.
All right. Thanks.
Thank you, Josh.
Yeah.
Thank you. We'll now take our next question, which comes from Whit Mayo of UBS. Please go ahead.
Hey, thanks. One quick clarification. Can you provide what state supplemental program actually changed and why it was different versus your expectation? My real question was just on the Houston market. I think you've recently come out of a rebranding initiative and announced a new affiliation with a large medical school. Just looking for any commentary on the market. Thanks.
Yeah. Whit, let me start. The two supplemental programs that were the drivers were a graduate medical education bonus program we had received that didn't reoccur, that was principally in Florida. We had a disproportionate share settlement that was principally going back to Colorado in some past years. Those were the two major programs. We had a little bit of change in our California supplemental that showed down in our operating expenses. Those were the three. The remaining programs, as we said, we view as stable, and we think those issues are behind us. We don't see them creating a headwind going forward on there. Relative to Houston market, Sam?
Yeah. We're in our turnaround, I would say, in Houston. We struggled for a couple of years, as we've called out on this call, in the past. I think this year, we have started our recovery, and we're seeing pretty good results from some of our initiatives to grow our business. We've seen some results with respect to consolidating some excess capacity. The new acquisition we did in the northeast or the northwest side of town is going to be a nice acquisition for us. All in all, the branding, I think the repurposing of some assets, the focus that the team has put forth in that market is starting to show results. We think the macros in Houston have turned a little bit, where we're starting to see job growth again and see a slightly better payer mix in that market than what we had seen historically.
We're pretty pleased with the first six months of the year's performance in Houston and believe some of the other initiatives strategically that we have in place, including branding, are going to be productive for us. The graduate medical education program that you speak to is in an early stage, and it's really not yielded anything yet. We think over time, it will be a valuable program for us in the Houston market.
Thank you, Whit.
Thank you. I will now take our next question, which is from Sarah James of Piper Jaffray. Please go ahead.
Thank you. I wanted to ask a bigger picture question. When you talk about seeing competition in the market, how exactly is it presenting today? Are you talking more from surgical referrals, branding, or where you sit in insurers' efficiency networks and how that presents to the consumer? If you could give us some color on where the big competition is now in your industry, that'd be helpful.
Well, I'll try to generalize it as best I can. Obviously, it's market to market and somewhat competitor to competitor. I think the unique thing about HCA, and we've mentioned this before, is we don't compete against the same systems from one market to the other. We believe fundamentally that creates competitive advantage for us as we look to deliver best practice solutions from one market to the other or allocate resources in a more timely manner. I think generally speaking, most of our competitors are trying to do a lot of what we're trying to do. They're trying to attract physicians. They're trying to create outpatient capabilities that are responsive to the markets and so forth.
I think, from that standpoint, those are always won and lost, in my opinion, when it comes down to execution, when it comes down to detailing your business and your relationships with physicians and so forth. Creating a compelling offering for the patient. We think that's in HCA's wheelhouse. We have been about that for many years, and we will continue to be about that. We think it's that level of execution and such that ultimately delivers market share gains. Again, we are growing our market share on the inpatient side, as we've mentioned. We have actually grown our market share from a commercial standpoint. We don't have the second quarter of 2019 yet, so we have fairly broad-based market share performance when you look at the most recent available data, which is all of 2018.
We had two-thirds of our markets grow their market share. The company, in total, is at an all-time high on both overall market share as well as commercial market share. We think our approach to building out comprehensive and clinically capable networks that are easy to access for our patients, very responsive to our physicians, and produce a positive outcome for our payers, for our patients, and others, is yielding results, and we'll continue to focus on that, and we'll continue to resource that as we move forward. We think that's going to be a successful model for us. Thanks, Sarah.
Thank you.
Thank you. We'll now take our next question. It comes from Peter Costa of Wells Fargo. Please go ahead.
Good morning. My question is on same store outpatient surgery cases. If I look at Q1, you're up 1.3%. This quarter, you're up 0.6%. Q1, you should have been negatively affected by the number of days, so this quarter you would think it'd be a little bit stronger. When I look at a year ago, you had a very strong quarter, up 2.6% in the second quarter, but you had an even stronger quarter in the third quarter for outpatient surgeries. I'm wondering what happened last year in outpatient surgeries that's perhaps not happening this year, if that's the right way to look at it? Will the problem be bigger in the third quarter?
Let me speak to outpatient surgery. This is Sam. Our hospital-based outpatient surgeries were up 1.9% in the quarter. Our ambulatory surgery center surgical volumes were down 0.6%. Our U.K. surgery volumes were down, and that influenced the composite. When you look at our hospital-based outpatient surgery up almost two, that's a pretty good number for us. Yeah. Some of that was a migration from inpatient in a couple of service lines, as Bill alluded to. It didn't influence, I think, the aggregate number in any significant way for the company. In the ambulatory surgery center area, we actually categorize our surgical cases into three tiers. Tier 3 being the most significantly reimbursed, tier 2 in the middle, and tier 1 at the lowest. When you look at our tier 1 volumes, they were down significantly.
That's some ophthalmology cases, some pain cases and so forth, and that's what influenced the metric for the quarter. I don't recall the specifics in the second quarter of last year.
I can look.
We feel pretty good about what we're doing with our surgical growth initiatives and our quality and investment initiatives inside of our ORs, and we've had a fairly good pattern of growth over time. It does go up and down a little bit from one quarter to the other. Some of that could be calendar, some of it can be this transition that we spoke to. Generally speaking, we had a pretty good metric this quarter with our outpatient surgeries. Again, inpatient surgeries were the metric of concern for us. They were slightly down, flattish, if you will, domestically, but down with international. That created a little bit of pressure. We'll have to continue to work on that and monitor that as we move forward. All in all, our surgical activity on the outpatient side, I think is yielding pretty good results for the company.
Thanks, Pete.
Okay. Thank you.
Thank you. I will now take our next question. Comes from Steven Valiquette of Barclays. Please go ahead.
Thanks. Good morning, everybody here. Just sticking with the main topic of the day. I'm just curious, are you able to comment on whether the inpatient surgical volumes and/or revenue per admission are improving in early Q3 2019, just following the softer result in Q2?
Yeah. This is Bill. Steve, we do not comment on the current quarter, so we'll leave our comments to the period ending June 30th in the second quarter and year to date.
Okay. I just one quick question here around North Carolina. There's been some headlines around the proposed state employee contract hospital rates for 2020. The state wants to move to Medicare reference pricing. Obviously, hospitals do not want to do that. I'm just curious, first of all, how critical is that contract within North Carolina? If you are able to opine on it, is your bias to stay out of network, or are you willing to potentially agree to Medicare reference rates, knowing that it could filter into other contracts as well? Just curious to get your thoughts around that topic. Thanks.
This is Bill. I'll try. I think that's the point, is I don't know, and I don't have any data in front of me to suggest that if a move to reference for the state employees, that it would have a major impact on our North Carolina operations. I do think from a precedent standpoint, we don't believe having government dictate fixed pricing, especially Medicare pricing, is an appropriate response to managing healthcare demand. I think that's where our focus will be on that topic. I don't view it will be a material issue to HCA as we run it up. As we go through our 2020 planning, if it becomes an item, we'll disclose it. I don't think at this point that particular issue will be a material issue for us.
Got it. Okay, thanks.
Good.
We'll now take our next question, comes from Michael Newshel of Evercore. Please go ahead.
Michael?
Michael, your line may be muted. We'll move on. We'll now take our next question from Gary Taylor of JP Morgan. Please go ahead.
Hi. Good morning, guys. Just asking this question, certainly in the context that there is normal fluctuation between quarters, so I'm kind of beating the dead horse a little bit, but just maybe want to ask a slightly different way. When we look at net revenue for adjusted admission on the same-store basis, I mean, the comps do get a little tougher in 3Q and 4Q. So Sam, when you talk about looking at this, analyzing the quarter, reaching a conclusion that there's not a concern with respect to second half guidance, how much of that is looking at the market-specific explanations for some of the commercial softness this quarter and being comfortable with whatever issue that might have been and the trajectory versus some of the new cost initiatives that you've talked about?
Well, I answered that, I think, earlier. I don't remember who asked it. It may have been Justin. I do think we're not of the mind yet that our commercial volume growth is flattening out. Again, we've had five quarters in a row heading into the second quarter where we had inpatient admission growth on commercial activity in six quarters heading into the second quarter, and now seven, if you count outpatient, where we've had adjusted admission growth. We don't see anything, again, from a structural standpoint, whether it's payer, physician, competitor, what have you, that would suggest that our trends should just immediately change.
As it relates to pricing trends as we sequentially move through the rest of the year, we do typically run about third quarter and second quarter very close, and then we ramp up in the fourth quarter through normal contract provisions that we have and so forth. We don't see anything at this particular point in time preventing us from being able to ramp up in the fourth quarter as we typically do. Obviously, some of our Medicare increases come through in the fourth quarter as well. As we mentioned earlier, we do have a calendar day advantage in the third quarter that tends to produce more commercial activity because of the type of volume we get typically from commercial activity. There could be some influence there as we work through the quarter.
We're pretty confident in what I'll call the structural aspects of our business, and none of those issues suggest that anything has changed in any material fashion that would cause us concern. That's why we're reiterating our confidence in our outlook for the rest of the year.
Okay. Thank you very much.
Thanks, Gary.
Thank you. We'll now take our next question, comes from Kevin Fischbeck of Bank of America.
Great. Thanks. Just wanted to kind of understand a little bit the rationale for the guidance raise. You mentioned that Q2 came in below expectations, yet you're raising the guidance by $150. I assume it sounds like you're just saying that Q1 was so strong, you now feel comfortable with those trends, just trying to understand, maybe a little more color about what exactly came into the guidance. Is there anything new in the second half of the year versus what you were expecting? I guess we don't have the final regs. I don't know if DSH at all changed in that assumption, if there's any change in DSH in there, that'd be helpful.
Yeah, Kevin. This is Bill. Let me try to take that. After the first quarter, we fielded a lot of questions about our guidance adjustment that we made in the first quarter, which, as you know, we raised our guidance after first quarter $100 million, which was primarily due to that favorable payer settlement we recorded in the first quarter. We indicated we typically wouldn't raise guidance further after just one quarter, but we did just for that settlement. Obviously now that half the year is behind us, what, in essence, we did was tighten our guidance by raising the previous low and about $150 million, which obviously effectively raises the midpoint by $75 million. As we look at our year-to-date performance, it's an appropriate benchmark, we think, as we've said several times throughout the call, for our full-year guidance expectations.
You look at year-to-date, once you adjust for the payer settlement for us, we've grown EBITDA just over 9%. Our new midpoint suggests just over 9% growth for the second half of the year, when you adjust for last year's insurance settlement and the Harvey settlement that we had. We believe that tightening the guidance range after the second quarter, looking at the midpoint is really consistent with what our year-to-date trends. That was really what was behind the tightening and the raising of the midpoint of our guidance after this quarter.
Thank you, Kevin.
Thank you. Now we'll take our next question, comes from Matthew Gillmor of Robert W. Baird. Please go ahead.
Hey, thanks for the question. I wanted to ask about the contribution from recent acquisitions. Did Mission and the 2017 acquisitions contribute about 3% to EBITDA growth again this quarter, or was that any different? If you have any sort of general comments about how those deals are going, especially Mission and Savannah, that'd be helpful.
Yeah, this is Bill. Let me start. We are very pleased with the performance of the acquisitions, and they did have a good quarter. As you mentioned, we anticipated them in our guidance to contribute about 3%. That's what they had in the first quarter. They ran stronger in the second quarter. Year to date, we're running about 4% contribution from our acquisitions. Mission in particular continues to perform very well. We're ahead of both our internal expectations and plan at Mission, as did Savannah. Savannah is progressing nicely and had a nice growth in the quarter. Overall, the performance is very strong for the acquisition. I think when we look at the full year, we still think 3%-4% contribution is probably a good number for all the acquisitions. The Houston market is on track as well with our plans.
We've made some adjustments in Houston, our North Cypress acquisition in that market's performing very nicely. Overall, pleased with the performance of the acquisitions in the quarter and a little ahead of our expectations on a year-to-date basis.
Thank you.
Thanks, Matthew. Yep.
Thank you. We have no further questions at this time, so I'd like to hand the call back to our speakers.
Okay. Listen, I want to thank everybody for joining us today, and I'll be around if anyone wants to follow up. Thank you so much.
This concludes today's call. Thank Thank you for your participation. You may now disconnect.