Again, welcome to the HCA First Quarter 2018 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 the Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.
Lynette, thank you, and good morning, everyone. Mark Kimbrough, our Chief Investor Relations Officer, and I'd like to welcome everyone on today's call, also welcome those of you who are listening to our webcast. With me here this morning are Chairman and CEO, Milton Johnson Sam Hazen, President and Chief Operating Officer and Bill Rutherford, our Chief Financial Officer. Before I turn the call over to Milton, 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.
Many of these factors are listed in today's press release and in our various SEC filings. Several of the 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 statements, 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, gains on sales of facilities, losses on retirement of debt and legal claim costs, which are non GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. 2 adjusted EBITDA is included in the company's Q1 earnings release. This morning's call is being recorded. A replay will be available later today.
With that, I'll turn the call over to Milton.
All right. Thank you, Vic, and good morning to everyone joining us on the call and the webcast. This morning, we issued our Q1 2018 earnings release. And overall, we are pleased with the results from the Q1. Revenue growth supported by growth in volume and rates along with good expense management resulted in solid adjusted EBITDA growth in the Q1 of 2018.
We were pleased that we're able to close the divestiture of Oklahoma facilities and the acquisition of Memorial Health in Savannah, Georgia during the quarter. First quarter results were solid with revenues totaling $11,423,000,000 up 7.5% from the previous year's Q1 And net income attributable to HCA Healthcare Inc. Totaled $1,144,000,000 or $3.18 per diluted share, which compares to $659,000,000 or $1.74 per diluted share in the Q1 of 2017. The 2018 quarterly results included gains on sales facilities of $405,000,000 or $0.85 per diluted share related primarily to the sale of our Oklahoma facility. We also recognized a benefit to our tax provision of $92,000,000 or $0.26 per diluted share related to employee equity award settlements, which compares to $67,000,000 or $0.18 per diluted share in the previous year's Q1.
Adjusted EBITDA increased to 2.11 $8,000,000,000 up 5.6 percent from the prior year's 2.005 1,000,000,000 dollars Adjusted EBITDA growth was unfavorably impacted by approximately 3 10 basis points related to the sale of the OU assets and our recent acquisitions. Volume trends were solid in the Q1 with our reported admissions and equivalent admissions each increasing 4 point 6% over the prior year. Same facility admissions increased 2.2% and same facility equivalent admissions increased 1.8% in the quarter compared to the prior year period. While the Q1 2018 same facility yard business increased 3.5% compared to the prior year. Cash flows from operations remained strong at $1,300,000,000 in the quarter.
We continued a balanced approach to investing in capital expenditures in our existing markets and repurchasing our shares, while also completing select acquisitions. We invested $694,000,000 in capital projects during the Q1 of 2018, repurchased 4,370,000 shares at a cost of $423,000,000
and paid
a dividend of 1 $23,000,000 during the quarter. Also during the Q1, as previously mentioned, we completed the acquisition of Memorial Health in Savannah, Georgia. We're excited to enter this new market in Georgia and believe it will complement our existing operations along the Southern Atlantic Coast. We also completed the divestiture of Oklahoma facilities on February 1, 2018 for proceeds of 758,000,000 dollars As reported, we have signed a non binding letter of intent to purchase Mission Health based in Asheville, North Carolina. Mission is a system of 6 hospitals combined with several other sites of care in Western North Carolina.
We are excited to move forward with our due diligence and exclusive discussions with this outstanding organization. I believe we are well positioned for growth as we continue to invest capital in large growing markets, execute our growth agenda and deliver high quality care for our patients. And with that, I'll turn the call over to Bill.
Great. Thank you, Milton, and good morning, everyone. Let me give you some more detail on our performance and the results for the quarter. As we reported, in the Q1, our same facility emissions increased 2.2% over the prior year, and same facility equivalent emissions increased 1.8%. Our same facility emissions for our United States domestic operations increased by 2.4% over the prior year, and adjusted admissions increased by 2%.
Sam will provide more color on the drivers of this volume in a moment, but I'll give you some results by payer class. During the Q1, same facility Medicare admissions and equivalent admissions increased 2.9% and 2.6%, respectively. This includes both traditional and managed Medicare. Managed Medicare admissions increased 9.5% on a same facility basis and represent 36.3% for total Medicare admissions. Same facility Medicaid admissions were flat, while equivalent admissions declined 0.8% in the quarter.
Same facility self pay and charity admissions increased 10.1% in the quarter, while equivalent admissions increased 7.3%. These represent 7.4% of our total admissions compared to 6.8% last year. Texas and Florida represent about 70% of our total uninsured admissions. Managed care, other and exchange admissions increased 1% and equivalent admissions increased 1.2% on a same facility basis in the Q1 compared to the prior year. Same facility emergency room visits increased 3.5% in the quarter compared to the prior year, and same facility self pay and charity ER visits represented 19.1% of our total ER visits in the Q1 of 2018 compared to 18.4% from the prior year.
Intensity of service or acuity increased in the quarter with our same facility case mix increasing 4.4% compared to the prior year period. Same facility surgeries declined 0.2% in the quarter, with same facility inpatient surgeries increasing 0.3% and outpatient surgeries declining 0.5% from the prior year. Same facility revenue per equivalent admission increased 3.9% in the quarter, primarily reflecting continued increase in the intensity of services during the quarter. Our same facility, managed care, other and exchange revenue per equivalent admission increased 5.8% in the quarter, relatively consistent with recent trends. With the adoption of the new revenue recognition standard, we no longer report a provision for doubtful accounts or bad debts as a separate line item.
Our previously reported bad debts are now referred to as implicit price concessions. Our total uncompensated care, which includes implicit price concessions, charity care and uninsured discounts was $6,252,000,000 in the quarter as compared to $5,327,000,000 as reported in the prior year. This reflects growth from uninsured volume, pricing trends as well as our recent acquisitions. The adoption of the new revenue recognition standard had no material impact on the amount or timing of a revenue recognition. Now turning to expenses and operating margins.
Our as reported EBITDA margin declined 40 basis points from 18.9% in the Q1 last year to 18.5% on an as reported basis. Our recent acquisition had an 80 basis points unfavorable impact on EBITDA margins. Our same facility EBITDA margins increased approximately 40 basis points over the prior year. Same facility operating expense per Accrual and Emission increased 3.5% compared to last year's Q1. On a consolidated basis, salaries and benefits as a percentage of revenues were 46.3% compared to 46.1% in the last year's Q1.
On a same facility basis, salaries and benefits as a percent of revenue were 43.1% versus 43.2% last year. And same facility salaries per equivalent admission increased 3.5% in the quarter. Overall, our labor costs remain relatively stable. Supply expense as a percent of revenue was 16.8% this quarter as compared to 16.9% in the last year's Q1 on a consolidated basis. Same facility supply expense per equivalent emission increased 2.7% for the Q1 compared to the prior year period.
Other operating expenses increased 30 basis points from last year's Q1 to 18.5 percent of revenues. On a same store basis, other operating expenses as a percentage of revenue were flat compared to prior year. Let's discuss briefly the impact of the acquisitions and divestitures. Our as reported adjusted EBITDA growth of 5.6 was negatively impacted by our acquisitions and divestitures. We closed on the divestiture of OU operations on February 1 this year.
This negatively impacted our adjusted EBITDA growth rate by approximately 150 basis points in the quarter. In addition, the impact of our recent acquisitions negatively impacted our adjusted EBITDA growth rate by approximately 160 basis points in the quarter. Let me touch briefly on cash flow. Cash flow from operations totaled $1,300,000,000 compared to $1,280,000,000 last year's Q1. Free cash flow, which is cash flow from operations of $1,300,000,000 less capital expenditures of 694,000,000 dollars distributions to non controlling interest of $92,000,000 and dividends paid to shareholders of $123,000,000 was $391,000,000 in the quarter compared to the $564,000,000 in the Q1 of 2017.
At the end of the quarter, we had $1,770,000,000 available under our revolving credit facilities and debt to adjusted EBITDA was 3.99 times at March 31, 2018 compared to 4 point 0 two times at the end of 2017. Our effective tax rate in the Q1 was 18.4% as we benefited from the lower tax rate resulting from tax reform and $92,000,000 or $0.26 per diluted share related to employee equity award settlements. Let me speak for a moment on our earnings per share of $3.18 this quarter compared to the $1.74 per share we recorded in the Q1 of 2017. Q1 2018 results include the 405,000,000 or $0.85 per share gain on sale of facilities. Excluding this gain, earnings per share grew approximately 34% compared to the prior year.
We attribute approximately $0.20 to the tax reform benefit and an incremental $0.08 due to equity award benefit based on $0.26 this year versus $0.18 in the prior year. Lastly, we estimate our divestiture of our OU operations coupled with the impact of recent acquisitions had approximately $0.13 negative impact on EPS in the quarter as compared to the prior year. We talked briefly about health insurance exchange. In the Q1, our same facility health exchange admissions increased 4.4% over prior year and represent approximately 2.5 percent of our total admissions. Same facility health exchange ER visits increased 6.6% over prior year and represent 2.4% of our total ER visits.
So that concludes my remarks, and I'll turn the call over to Sam for some additional comments.
All right. Good morning. I'm going to provide more detail on our volume performance for the quarter as compared to the Q1 of last year. My comments will focus on our same facilities domestic operations. In general, we had broad based growth across most of our divisions and we had broad based growth across the various service lines.
10 of 14 divisions had growth in admissions. Growth was especially strong in 6 divisions, North Texas, North Florida, Capital, San Antonio, Central Texas and Tennessee divisions. Conversely, our East Florida, Far West and Mountain divisions were down. 11 of 14 divisions had growth in adjusted admissions. 12 of 14 divisions had growth in emergency room visits.
Freestanding emergency room visits grew 23%, while hospital based emergency room visits increased 1.2%. Once again, growth was stronger in high acuity visits, but we did see growth in lower acuity visits also. Admissions through the emergency room grew by 3.5%. Trauma and EMS volumes grew by 4.4% and 2.8%, respectively. Inpatient surgeries were up 1%.
Surgical admissions were 26% of total admissions in the quarter, generally consistent with the prior year. Surgical volumes continue to be strong in cardiovascular and orthopedic service lines. 8 of 14 divisions had growth in inpatient surgeries. Outpatient surgeries were mostly flat in both our hospital based and freestanding ambulatory surgery centers. 8 of 14 divisions had growth in outpatient surgeries.
Behavioral health admissions grew 4.2%, rehab admissions grew 4.8%, Cardiology procedure volumes both inpatient and outpatient combined were up 1.3%. Births were up 0.3%, which is the Q1 we have seen growth in 2 years. Neonatal admissions were down slightly at 0.6%. However, neonatal patient days were up 3.2%, an indication of a higher level of acuity in these units. Urgent Care visits for the company were up 14% on a same facilities basis and 34% in total.
The flu season in the quarter had a positive impact on our admissions and emergency room visits. Approximately 29% of our admission growth was flu related and approximately 50% of our emergency room visits growth was flu related. HCA has now grown same facilities admissions and emergency room visits in 16 consecutive quarters. We believe this consistent pattern of growth is a result of positive macro factors in our markets and a comprehensive growth agenda that is both well resourced and well executed. With that, let me turn the call back to Vic.
All right. Thank you, Sam.
All
right. With that, we're ready to take calls, Lynette, or take questions. And please limit yourself to one as we have several on here that probably would like to ask questions.
Thank you. Today's question and answer session will be conducted electronically.
This is Steve Baxter on for Justin. I was hoping that you could explain sort of the progression of some of the newly acquired facilities that you mentioned as being an EBITDA drag. I guess could you size for us how much revenue sits in that bucket and quickly those margins will progress over time and whether getting to company average margins is kind of realistic given the starting point there?
All right, Steve. Thank you. Yes, I'll
go ahead and add in. So our new acquisitions contributed about $320,000,000 of revenue in the quarter and principally comprised of our acquisitions in Houston towards last year. And then as Milt mentioned in his comments, Memorial Savannah is a recent acquisition closed in February 1. Going into Savannah, we knew that was going to take a longer term to bring that up to reasonable margin expectations. I think in our previous acquisitions in Houston, it's on the chassis of an existing division.
So we are optimistic there's going to be continued improvements occurring through the balance of the year and they'll contribute to the long term growth of the company.
We'll move to the next caller in the queue, Matt Foresch from BMO Capital Markets. Yes.
Thank you. Good morning. Excuse me. I was hoping that you could talk to the impact you think you might get and perhaps the probability that you see of a Medicaid expansion I
touched base with our Virginia folks this morning. I think they are reasonably optimistic that Medicaid may expand. It likely will have some employment qualifications with it. So it's hard to know the full impact, but we won't know for sure until probably some time in May as to whether or not it does expand or not.
We'll hear next from Josh Raskin from Nephron Research.
Hi. Thanks. Good morning. Wanted to follow-up on the 14% urgent care growth. I think you said that was actually same store basis.
And so I'm curious if there's target approaches and you guys doing something differently in the market around your urgent cares or is maybe some of that just through this quarter?
Well, I think it's a combination of both. There were clearly flu activity in our urgent care centers. I don't have the specific metric on that. We have continued to add to our overall portfolio of urgent care centers. We're up to roughly 125, I think, compared to maybe 80 or so last year at this particular point in time.
So quite a bit of growth in our overall urgent care center development, which is a very important component of our overall provider system offerings. And so the company has been very intentional about adding urgent care centers, which is a low cost capital entry into certain markets. It's a very efficient price point for our payers and our patients. And it starts a relationship in many instances with new patients that allow us to introduce the HCA system to them. I think we will continue to see growth.
We have moderated our development somewhat in 2018 in order to absorb and assimilate the number of centers that we've added over the last 18 months. But we anticipate picking up the pace again in 2019 2020 as we continue to evolve this particular component. In addition to that, we have our freestanding emergency room center development, which is a complementary to that. We have roughly 75 freestanding emergency room centers across the company with another 45 to 50 that are in development, again, complementing our inpatient offerings and then also complementing our urgent care center strategy as well. So the combination of both of those are very important to our provider system development.
A. J. Rice from Credit Suisse. Your line is open.
Thanks. Hello, everybody.
Maybe I'll just ask about the payer some payer dynamics. I know you have a Medicare proposed rule on the table that has some interesting provisions on it. And then just an update on where you stand with your managed care contracting? And are you seeing any change in terms or change in approach to the business? All right.
A. J, this is Vic. I'll take the Medicare piece of it and then I think Bill Rutherford will talk about managed care contracting. Yes, as you saw last week, we did see the IPPS proposed rule. Still, it's proposed.
We're still running numbers and looking at it on balance. It looks better than what we have seen in recent years. I think, as you all know, Medicare inpatient rates, they've ranged anywhere from up to 0.5 point to maybe 1.5 in recent years. This looks a little better for next year. We'll wait and see how it plays out when we see the final rule in August.
But net net, it looks it does look a little better. Bill or Sam, you want to talk about Managed Care? Well, A.
J, on the Managed Care side of the equation, and we've been saying this consistently now for multiple years, there are very few structural changes in how we have contracted in our trends on pricing on the commercial side of the equation. Our company has been very productive, I think, in building out competitive relevant provider systems across our 42 domestic markets. And that's allowed us to have, I think, productive discussions with the payers on how to add value on their side, how to add value for their members and ultimately how to add value for HCA. So those discussions continue. We're largely contracted for 2018.
We have roughly half of our 2019 30% of our 2020 portfolio contracted. I anticipate most part, our terms, our conditions, our network configurations and the value based components of those contracts are relatively consistent with the past and aren't going through any material changes.
All right. Thanks, Jim. Thank you, A. J.
Moving next to Steve Chenault from Goldman Sachs.
Thanks a lot, guys. I guess just parsing through
a lot of different metrics. It maybe seems like outpatient surgeries, they have been just a touch softer than you guys thought, but there's obviously a lot going on. And I'm wondering just broadly if you think what you're seeing may be consistent with sort of an increased seasonality this year, maybe in part due to a bigger increase in deductibles or that sort of thing?
Anybody want to take
a note? This is Sam again. I don't think that we can point to any unusual seasonality driving outpatient activity. I've heard people about, well, the heavy flu season resulted in people choosing not to have surgery. I can't really find that in any explanation from our teams.
We actually grew our hospital based outpatient surgeries very modestly and we're down very modestly in our And again, I can't point to that. We And again, I can't point to that. We actually accelerated outpatient surgical activity as we move through the quarter. But for whatever reason, the 1st week and a half or 2 weeks were very soft and it compromised the overall quarter's performance. We continue to remain focused on building out our outpatient surgery capabilities across the company.
We're adding ambulatory surgery centers to our overall portfolio of offerings within each of our markets. We're continuing to add physicians as investors in many of these centers. And within our hospitals, we're able to create a very efficient outpatient environment for our surgeons who want to also operate on inpatients at the same time. And we think the combination of those offerings is very competitive and very responsive to our different constituents. But we're not seeing anything unusual in any particular market that would suggest any macro trend changes or seasonality or anything of that nature.
Nature. Got it. Really helpful. Thank you.
Bill, did you want to add?
No, no. I mean, I just think that, I mean, obviously, to add this one point, we have been seeing in the last several years, many years, more surgical volume in the Q4. And so what Sam is referring to, we don't think that that's accelerated or changed. It's been a consistent trend for a number of years. And we continue I think to see that with the 4th quarter being a really strong surgical quarter for us.
And typically over the last several years, the Q1 has been a lower surgical quarter for us. So that trend hasn't changed this year in any material sense.
Thank you. Thank you, Steve.
Thank you.
We'll move next to Peter Costa from Wells Fargo Securities.
Good morning. Can you talk about the Florida Medicaid rebid results for managed care? You saw a number of shifts in providers. Do you think that's going to help you guys in terms of picking up more business from the in the Florida Medicaid as we move to those new contracts?
All right. Bill or Sam?
We have not seen across HCA's market any significant Medicaid participation changes. So we've been pretty stable in that environment. The issue for us is the recapture of outpatient reimbursement that was inappropriately implemented inside of the Florida State administrative process. So we're hopeful that issue gets resolved and we recover the reimbursement that has been not applied properly. But from a managed care standpoint, we don't have any significant changes in our overall participation within the different networks.
And we feel pretty good about where we are in total.
Yes. I'm talking about going forward
in 2019 because the rebid just happened and we've just seen the results and you see Humana in particular as one of the bigger winners. I know they're one of the bigger
Yes. I
Yes. I don't have any visibility into that at this particular point
in time changing in any significant way our volume trends in the state.
Frank Morgan from RBC Capital Markets. Please go ahead.
Good morning. Obviously, you're reaffirming your guidance today, but as I go back through and look at some of the underlying assumptions around your guidance, both from a volume and pricing standpoint, it looks like you're clearly ahead of schedule from the pricing side. So I'm just curious, how sustainable do you think the level of pricing growth that you have seen will be throughout the year? And certainly from the volume side, it seems like some things are ramping back up there as well. So just want a commentary on those 2 main drivers to your guidance.
And then finally, I think Bill mentioned the growth in the uninsured volumes here. I'm just curious, how much of growth of uninsured volumes did you actually build into your guidance for 2018?
All right, Frank. Thank you for that.
Yes, Frank. Let me try to make it. Yes, we are reaffirming our broad brush guidance with our earnings kind of slightly above what our expectations were and others, I think we feel pretty good about that. Earnings per share was strong in the quarter, obviously, and I think that may push us on the higher of that. All of our other major guidance after Q1, we feel comfortable with and continue to affirm.
And we'll obviously revisit that after the Q2. As you know, our broad brush guidance was 2% to 3% volume expectations and 2% to 3% pricing expectations.
We're within the volume
for the Q1. As you mentioned, pricing was favorable, driven by continued strong case mix index that we started to see in the Q4. So again, we'll keep our eye on that. But again, very displeased with the performance that we have up to the start of the year and we'll continue to evaluate our guidance as we go through Q2. Regarding uninsured volumes, yes, we did report 10%.
We've been seeing 5% 6% towards the last half of twenty seventeen growth. We've said before, based on our market complexion, I anticipate really a high single digit and that's kind of built into what our expectations are. As you've heard us talk about and as you know, Florida and Texas represent about 70% of our uninsured volume and they contribute about 50% of the uninsured volume growth. That number can fluctuate from time to time as you have different kind of processes going on with Medicaid applications and so forth. So there are some timing issues that affect uninsured and when they may become Medicaid eligible.
But in essence, this high single digit is built into kind of reasonable expectations for us. And obviously, I'll just remind everyone that the real impact of the growing out in Chiridon is just the incremental cost that we have to treat these patients. And I think with what we have built in our manage that and absorb that through the overall context of the core operations. Let me add
to that. This is Sam, Frank. I think when I look at our revenue growth in the 4th quarter and our revenue growth in the Q1, both of them are pushing 6% on the domestic side of the equation as far as overall revenue growth. And part of that has been solid volume. And then obviously, we've had very good revenue per adjusted admission.
Not all of that is coming from pricing. A piece of that is pricing. Part of it is coming from mix in the type of patients that we're getting, number 1, and then the payer mix improving, number 2. So the combination of those two things has yielded revenue growth on the upper side of where we thought we might be. And so that's those are positive metrics we believe and they really relate to significantly better revenue growth than what we had seen over the past 6 or 8 quarters.
And so that's on
the same facilities basis. So we're pretty pleased with how that's played itself out. And we think, as we indicated throughout last year, that the market would start to move more toward a normal growth rate in overall demand. Now we don't have the 4th quarter market share data yet. We have the 3rd quarter and we're starting to see, we believe some transition back to that normal growth rate that we were expecting on overall demand and that's what's playing out.
The other thing I would say is that in the quarter, we had tremendous inpatient revenue growth. Our revenue growth was about 7.3% on the inpatient side and roughly 4% on the outpatient side. That confuses some of the adjusted admission statistics, but it's a reflection of the acuity that we had inside of our inpatient business in the face of flu admissions in the quarter. So very significant acuity across our inpatient book. And again, that's part of our strategy in trying to create more complex, deeper capabilities within our service lines so that we can take care of patients when they need really acute care, inpatient needs.
So all of that sort of plays into how we're evaluating this quarter and really the Q4 as well.
Sarah James from Piper Jaffray. Your line is open.
Thank you. I wanted to get your thoughts on some of the trends that are impacting payer mix sort of more over the intermediate term. So first, the insurers are starting to talk about employers shifting their retirees over to straight Medicare as opposed to being part of their commercial coverage book. Is that impactful to you at all if that trend continues? And then second, we're seeing consumers that are kind of in the pre Medicare age group like 63 to 64 starting to more frequently delay their surgeries in order to wait until they get Medicare eligible because their cost share is lower.
So how are those two factors factoring into how you think about your Medicare payer mix going forward?
All right. Somebody want to take a wing at that?
This is Melton. Maybe I'll start by saying, I don't think we have any measurable data to drill down on those questions. I'm not aware of in our markets hearing any noise about shifting the benefits for retirees of corporate America. And that's not bubbled up as an issue for us. And certainly, whether there's deferrals of surgery for people approaching Medicare eligibility, I don't know that would be a new trend if it's out there.
So again, really can't I think respond to that with a credible sort of data.
Yes. And I think if you again, if you just look at our numbers on the quarter, you look at the Medicare growth was 2.5% to 3 percent. And really the number that sort of materially changed in my mind was the managed care exchange number, which was up 1 to 1.2 on admission and adjusted admission when that was substantially better than what we've seen in recent quarters. Those are good mix shifts and good volumes.
Yes. This is Milton. As Sam mentioned, I mean, the payer mix this particular quarter is actually quite favorable with Managed care admission growth up 1% and in the quarter and that's the highest growth that we've had in probably going back into the Q1 of 2016. So again, the payer mix trends here in the quarter actually pretty positive for us.
All right. Very good. Thank you.
We'll hear next from Ana Gupte from Leerink Partners.
Yes. Thanks. Good morning. I wanted
I
I was wondering if when you look at this, is this because of specific service line improvements and you picking up share of higher acuity procedures and services from your competition? Or are you beginning to see kind of a floor, if you will, on how much mix is shifting from inpatient to other sites of service? And is that in any way correlated with payer mix and capacity utilization as you look at those things? And would you think this is a sustainable trend of 3% to 4% plus pricing growth?
All right. Thanks, Anna. Sam or Well, we've had a,
I think now, Bill, help me if I'm wrong, about 5 or 6 straight quarters are fairly significant case mix index growth across HCA, more in the mid-3s or so in the 1st part of 2017 and then trending up above 4 in the latter half of twenty seventeen and the first part of twenty eighteen. I think it's a combination of things as you just indicated. It's difficult for me to point to them specifically, but we've had growth in surgical activity in higher acuity surgical service lines like cardiovascular or orthopedic. On the medicine side of the equation in both our neonatal units as well as our adult critical care units, we've seen a more acute medical patient. That's part of it.
We've clearly added service lines across HCA, whether it's trauma, burn, neurosciences and stroke capabilities in our facilities that result in a much more acute care offering when a patient requires that type of service. So all of those converge and this is not anything new. We've been talking about this being a core element of our strategy for the last 4 or 5 years. We think some of this is a yield from that. It's a yield from our capital spending.
It's a yield from service line development. It's a yield from network integration. All of these pieces and parts add up. And this is a slow moving business. And so we think from that standpoint, it yields over time very positive metrics and it's central, like I said, to the strategic approach that we're taking within each of our markets.
So I can't really say that outpatient transition from inpatient to outpatient is changing materially. If I had to pick, I would pick more toward our strategic approach, our development of service lines, our integration of our networks yielding more of the growth than the slowdown in transition from inpatient to outpatient.
We'll hear next from Matthew Gillmor from Baird.
I wanted to ask about the geographic discussion. Sam mentioned East Florida and the Far West being weaker from an emissions perspective. I think you've called those markets out before. So can you just give us a sense for the dynamics in those markets?
Yes. East Florida continues to struggle with the issue that we've mentioned in the past, which is the observation statusing by many of our Medicare Advantage payers. And that's driven their inpatient volume metric down somewhat. Now the growth in that issue was a little slower in the Q1 than what it was in 2017, but it continues to be a metric issue. We did have solid financial growth in the East Florida.
Far West division is more of a California dynamic and our California hospitals struggled with their volume. Vegas was decent. That's also in the Far West division. And then in the Mountain division, which is primarily Utah and Idaho, we had some softness in our Idaho operations from a volume standpoint that brought the division down, but they were modestly down. They weren't down as much as East Florida and Far West, but they were one of the divisions that were down.
So nothing strategic there of any significance. The Far West division and our California hospitals, I think have some opportunities and we're making what I think to be some appropriate adjustments to deal with some of the dynamics there and hopefully put us back on a growth platform in those markets.
We'll hear next from Brian Tanquilut from Jefferies.
Hey, good morning. Sam, just a follow-up to your answers to the last two questions. So as I think about the capital spending for the last 3 years and all the bad adds that you've done and seeing inpatient growth finally reaccelerate, how are you thinking about the ramp in terms of the productivity of the new beds that you're adding? And any quantification you can give us in terms of new capacity that has been added over the last few years just for us to get to be able to gauge how like the outlook in terms of being able to fill those beds and what kind of growth we should be looking at for that?
Thank you, Brian. Sam? Yes. I don't have all of those metrics in front of me. But I mean that's a piece of our strength, it's been a piece of our strategy.
So it's in elements of our growth in the past. Having said that, we do have more capital coming online in 2018, 2019 2020 than we've had in recent years. So we're anticipating some acceleration in growth in those facilities as those capital items come online. It's important to understand, these capital projects are long live projects. They're very important to our long term positioning in the market and very important to our strategy of being able to transition patients from outpatient centers to inpatient centers when they need more acute care.
So we have to have that inpatient capacity. Obviously, our outpatient capital starts to yield much more quickly as we get freestanding emergency rooms, urgent care centers, imaging centers or ambulatory surgery centers online, those tend to produce more timely than a longer lived inpatient asset capacity growth will. But we need to get we'll get back to you on some color around how we're thinking about that. I just don't have that particular metric in front of me and I don't want to guess at it at this particular point. But obviously, the company is operating as we said before at a high watermark on inpatient utilization.
We're operating at almost 72% on average inpatient occupancy. And in many instances, we have hospitals that are operating much higher than that. So it's important for us to have the inpatient capacity in order to receive the full benefit of our network development. On the outpatient side in our emergency rooms, in particular, as I've indicated in the past, we're running almost 90% utilization of our emergency room bed capacity, which is a very good metric of productivity and such. And again, very important to our overall network strategy that we have ample capacity available when patients need our emergency room services.
So those are pushes as well on why we're spending money, but it also complements some of the service line development, physician strategies and so forth that we have already mentioned on today's call.
We'll hear next from Michael Newshull from Evercore ISI.
Thanks. Good morning. I know you said labor costs are relatively stable. But going forward, do you expect to see any pressure there from inflation or increased competition for hiring or retention given the tight labor market for nursing?
This is Sam again. We're really pleased with how our facilities have responded. I guess it's been almost 2 years ago that we had some struggles with contract labor utilization, especially in our nursing areas. And at that particular point in time, our turnover for nurses was somewhere around 21% or 22%. We've actually dropped that particular metric to around 17%.
That improvement along with our comprehensive nursing agenda that the company has and our human resource agenda, the combination of those is yielding, we believe, very positive results. Our contract labor on nursing was down almost 15% in the quarter and we've seen overall contract labor drop for HCA. That has yielded a cost per FTE of around 2.8 percent I think or so in the quarter, which is a pretty good metric and in line with our expectations. Clearly, from one market to the other, we will have dynamics in the nursing community that we have to respond to with compensation programs and other type of programs. But the company's workforce development, the company's nursing agenda and our ongoing connection to the marketplace and adjustments associated with that, we believe allow us to manage through these dynamics in a way that's not putting any undue pressure on the labor line at this point.
All right. Thanks, Saiyans. Thank you, Michael.
Kevin Fischbeck from Bank of America.
I wanted to get a little more color on the uninsured volume. It's up pretty significantly, I guess, at a time when the economy is doing about as well as you could expect. Do you know what it is that's driving that type of volume? Is it the service lines that you're expanding that are bringing that in? And then to your point about how you view this as a good payer mix quarter even with a 10% increase in uninsured volume.
At what point does it become, I guess, a drag to earnings? Or is it really more about commercial? Commercial is up 1, then it's kind to come up with a bad payer mix on the rest of the business?
Yes. Kevin, let me give a try on there. So we did report 10%. And I think as I said earlier, if you look towards the latter half of 'seventeen, we were in that 5% to 6%. So it is slightly up from where we were running.
Honestly, I'm not sure
and give you a whole lot
of detail on why. We continue to hear from time to time in certain states slowdown of processing Medicaid applications that has a potential potentially impacting the uninsured volume in any one quarter. Not really sure, but the Magic Flu may have had an increase to be a material factor for HCAs. As we know, the impact is the incremental variable costs. So we can accommodate that within the context of our overall guidance.
So we'll have to wait for a few more quarters. As I said earlier, I think our anticipation is we settle in that kind of high single digit year over year trends. And at those levels, I think we can manage through that and we'll have to see how that plays out to
the balance of the year. Milton, do you want to add something?
Yes. I was going
to add, I think this quarter too, Q1 of last year was a low watermark for uninsured activity. I'm looking at this is not a same store as consolidated numbers, a little bit not over same stores, but we had 34,000 uninsured admissions in the Q1 of 2017. We had just over 38,000. So about 4,000 increase roughly. But when you look at the Q4 of 2017, we had almost $40,000 So actually, we're down on a sequential basis Q1 to Q4 in terms of uninsured admission.
So I think part of this percentage increase here in the Q1 is attributable to a comp last year where we were a pretty low volume for uninsured. And I would think as we go throughout the year, I still think our assumption around high single digits is going to be a good assumption for us.
All right. Good. Thank you. Thank you, Kevin. To about 1 or 2 more questions.
We're running out of time here.
Next is Ralph Giacobbe from Citi.
Thanks. Good morning. I wanted to go back to the first question and make sure I got the impact of open ended the new deal. It sounds like that was about a 3 10 basis point drag on EBITDA. So is the way to think about that normalized towards EBITDA growth closer to 8.5%, is that right?
And then the Oklahoma pressure is going to remain, but again, can you help with sort of the ramp of the new deals and when you'd expect more incremental contribution as we think about sort of the balance of the year? And if I could sneak in one more, same facility EBITDA growth, can you actually give us what that is? Because you said margins expanded, your same store revenue is up 5.7 percent, so EBITDA growth on a same store basis is going to be even higher than that. Just trying to get the magnitude there. Thanks.
Well, let me take the first one. I mean, you're right, it would have been about 8.5% sort of growth in EBITDA for the Q1 over last year, absent the impact of Oklahoma and the newly acquired assets. So that is correct, about 310 basis points drag on EBITDA growth from those. Obviously, we've got OU in our model for the rest of the year. And we do expect the acquisition drag that we have here in the Q1 to show improvement as we go throughout the rest
of the year. Yes. And this is Bill. I'll just add on to it. We have management plans being implemented and we fully anticipate improved performance for the balance of the year.
We believe in our Houston acquisitions, we'll be materially close to what our run rate is by the end of the year As we integrate Memorial and Savannah, I think that's a little bit longer ramp for us going throughout. We have confident that we continue to hit kind of our overall expectations. We can offset any shortfall from our acquisitions due to the continued performance in the core business. And again, I think we remain confident, at least in the long term, contribution of these acquisitions for the company.
All right. Thank you. We got time for one last question.
Your last question will come from Gary Taylor from JPMorgan.
Wait a minute, Gary. I don't think so. We just ran out of time. Just kidding. Go ahead.
I was a
little surprised myself. I appreciate it. Actually, I just wanted to clarify a little something Ralph was touching on, maybe just a touch more. I just want to make sure it looked like Memorial closed about a couple of days after you'd given previous guidance. I wasn't sure if that was in the prior guidance before or not.
And then on this $30 some odd million of acquisition drag, you're saying it gets better through the year, which makes sense. Is it actually a little bit bigger drag in the 2Q because you have the full quarter of Memorial? And then finally, when do you think that net acquisition drag becomes a neutral number? Do we get into Q1 of 'nineteen before we escape that
drag? Yes, Gary, this is Bill. Let me first of all, Savanna was not in our original guidance going through, you're correct, that we closed on February 1. So it was not part of the original guidance going forward relative to Q2 and Q1. Q1, we have a burden with some transactional have to wait to see what the Q2 performance looks like.
But I think it's only we're have to wait to see what the Q2 performance looks like, but I think it's early we're expecting continued performance improvement. In terms of when they get to net neutral, I think we hope by the end of the year, we're on that kind of run rate. Thank you.
All right. Gary, thank you, Bill. Thank you. And thank everyone for being on the call and Mark will be here to take calls all day if you need him. Thank you so much.
That does conclude today's teleconference. We thank you all for your participation.