Good day, 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 to the Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.
Linette, thank you, 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, our 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.
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. to adjusted EBITDA is included in the company's first quarter 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, good morning to everyone joining us on the call and the webcast. This morning we issued our first quarter 2018 earnings release. Overall, we are pleased with the results from the first quarter. Revenue growth, supported by growth in volume and rates, along with good expense management, resulted in solid adjusted EBITDA growth in the first quarter of 2018. We were pleased that we were able to close the divestiture of our Oklahoma facilities and the acquisition of Memorial Health in Savannah, Georgia during the quarter. First quarter results were solid with revenues totaling $11.423 billion, up 7.5% from the previous year's first quarter. Net income attributable to HCA Healthcare, Inc. totaled $1.144 billion or $3.18 per diluted share, which compares to $659 million or $1.74 per diluted share in the first quarter of 2017.
The 2018 quarterly results included gains on sales facilities of $405 million or $0.85 per diluted share, related primarily to the sale of our Oklahoma facilities. We also recognized a benefit to our tax provision of $92 million or $0.26 per diluted share related to employee equity award settlements, which compares to $67 million or $0.18 per diluted share in the previous year's first quarter. Adjusted EBITDA increased to $2.118 billion, up 5.6% from the prior year's $2.005 billion. Adjusted EBITDA growth was unfavorably impacted by approximately 310 basis points related to the sale of the OU assets and our recent acquisitions. Volume trends were solid in the first quarter with our reported admissions and equivalent admissions each increasing 4.6% 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 first quarter 2018 same-facility ER visits increased 3.5% compared to the prior year. Cash flow from operations remained strong at $1.3 billion 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 million in capital projects during the first quarter of 2018, repurchased 4.37 million shares at a cost of $423 million, and paid a dividend of $123 million during the quarter. Also, during the first quarter, 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 1st, 2018, for proceeds of $758 million.
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 six 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. With that, I'll turn the call over to Bill.
Great. Thank you, Milton, good morning, everyone.
Let me give you some more detail on our performance and the results for the quarter. As we reported in the first quarter, our same facility admissions increased 2.2% over the prior year, and same facility equivalent admissions increased 1.8%. Our same facility admissions 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 first quarter, 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 first quarter 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 first quarter of 2018, compared to 18.4% in 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 billion in the quarter as compared to $5.327 billion 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 our revenue recognition. Now turning to expenses and operating margins. Our as-reported EBITDA margin declined 40 basis points from 18.9% in the first quarter 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 equivalent admission increased 3.5% compared to last year's first quarter. On a consolidated basis, salaries and benefits as a percentage of revenues were 46.3% compared to 46.1% in the last year's first quarter.
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 first quarter on a consolidated basis. Same facility supply expense per equivalent admission increased 2.7% for the first quarter compared to the prior year period. Other operating expenses increased 30 basis points from last year's first quarter to 18.5% of revenues. On a same-store basis, other operating expenses as a percentage of revenue were flat compared to prior year. Let me just 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 1st of 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 $1.3 billion, compared to $1.28 billion last year's Q1. Free cash flow, which is cash flow from operations of $1.3 billion, less capital expenditures of $694 million, distributions to non-controlling interests of $92 million, and dividends paid to shareholders of $123 million, was $391 million in the quarter compared to the $564 million in the first quarter of 2017.
At the end of the quarter, we had $1.77 billion available under our revolving credit facilities, and debt to adjusted EBITDA was 3.99 times at March 31st, 2018, compared to 4.02 times at the end of 2017. Our effective tax rate in the first quarter was 18.4% as we benefited from the lower tax rate resulting from tax reform and $92 million 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 first quarter of 2017. First quarter 2018 results include the $405 million or $0.85 per share gain on sale of facilities. Excluding this gain, earnings per share grew approximately 34% as compared to the prior year. Excuse me.
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. Excuse me. 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 first quarter, our same-facility health exchange admissions increased 4.4% over prior year and represent approximately 2.5% 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. 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 first quarter 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 Division, 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 continued 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 first quarter 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 Healthcare 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, 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. Anyone wishing to ask a question may signal by pressing the star key followed by the digit 1 on your touchtone telephone. We would like to ask that you please limit yourself to one question. Individuals asking questions should not use speakerphone. Please flip the handset before posing your question. Again, that is the star key followed by the digit 1 at this time. We'll take your first question from Justin Lake with Wolfe Research. Please go ahead.
Hi, 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 how 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. I'll start and then add in. Our new acquisitions contributed about $320 million of revenue in the quarter, and principally comprised of our acquisitions in Houston towards last year. Then, as Milt mentioned in his comments, Memorial Savannah is a recent acquisition closed in February 1st. 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. All right. Thank you, Steve.
We'll move to the next caller in the queue, Matt Borsch 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 in Virginia.
Matt, I'll go ahead and take that. This is Vic. 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. We won't know for sure until probably sometime in May as to whether or not it does expand or not.
Oh, okay. Okay. Fair enough. Thank you.
We'll hear next from Joshua 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. I'm curious if there's targeted approaches. Are you guys doing something differently in the market around your urgent cares, or is maybe some of that just flu this quarter?
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. Quite a bit of growth in our overall urgent care center development, which is a very important component of our overall provider system offerings. 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. We anticipate picking up the pace again in 2019 and 2020 as we continue to evolve this particular component. In addition to that, we have our freestanding emergency room center development, which is 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. The combination of both of those are very important to our provider system development.
Thank you.
Josh, thank you.
A.J. Rice from Credit Suisse, your line is open.
Thanks. Hello, everybody. Maybe I'll just ask about some payer dynamics. I know you have a Medicare proposed rule on the table that has some interesting provisions on it, and then also just an update on where you stand with your managed care contracting. 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 half a point to maybe one and a half 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. Net, 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, we've been saying this consistently now for multiple years, there are very few structural changes in how we have contracted and 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. Those discussions continue. We're largely contracted for 2018. We have roughly half of our 2019 and 30% of our 2020 portfolio contracted. I anticipate that accelerating over the next 90 to 120 days in both of those two years.
For the 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, Sam. Thank you, A.J.
Moving next to Stephen Tanal from Goldman Sachs.
Thanks a lot, guys. I guess just parsing through a lot of different metrics, it maybe seems like outpatient surgeries may have been just a touch softer than you guys thought, but there's obviously a lot going on. I'm wondering, just broadly, if you think what you're seeing may be consistent with an increase seasonality this year, maybe in part due to a bigger increase in deductibles or that sort of thing.
Anybody want to take a run at that?
This is Sam again. I don't think that we can point to any unusual seasonality driving outpatient activity. I've heard people talk 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 ambulatory surgery center divisions. A lot of that was because of the soft start that we had in the first week and a half of the quarter. Again, I can't point to that. We actually accelerated outpatient surgical activity as we moved through the quarter. For whatever reason, the first week and a half or two 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. 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. We think the combination of those offerings is very competitive and very responsive to our different constituents. We're not seeing anything unusual in any particular market that would suggest any macro trend changes or seasonality or anything of that nature.
Got it.
All right.
Really helpful. Thank you.
Bill, did you want to add?
No, I mean, obviously, just to add this one point. We have been seeing in the last several years, many years, more surgical volume in the fourth quarter. What Sam is referring to, we don't think that's accelerated or changed. It's been a consistent trend for a number of years. We continue, I think, to see that with the fourth quarter being a really strong surgical quarter for us, and typically over the last several years, the first quarter has been a lower surgical quarter for us. That trend hasn't changed this year in any material sense.
Good. 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 in the Florida Medicaid as we move to those new contracts?
All right. Bill or Sam?
We have not seen, across HCA's markets, any significant Medicaid participation changes. We've been pretty stable in that environment. The issue for us is the recapture of outpatient reimbursement that was inappropriately implemented inside the Florida state administrative process. We're hopeful that issue gets resolved and we recover the reimbursement that has been not applied properly. From a managed care standpoint, we don't have any significant changes in our overall participation within the different networks. We feel pretty good about where we are in total.
Yeah, I'm talking about going forward into 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, when I know they're one of the bigger contractors for you. I'm curious if that's going to result in more business coming your way in 2019.
Yeah. 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.
Okay. Thank you.
All right. Thanks, Pete.
Frank Morgan from RBC Capital Markets, please go ahead.
Good morning. Obviously, you're reaffirming your guidance today, As I go back through and look at some of the underlying assumptions around your guidance, both from a volume and pricing standpoint, looks like you're clearly ahead of schedule from the pricing side. I'm just curious, how sustainable do you think the level of pricing growth that you have seen will be throughout the year? Certainly from the volume side, it seems like some things are ramping back up there as well. I just want a commentary on those two main drivers to your guidance. 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? Thanks.
All right. Frank, thank you.
Yeah, Frank, let me try to make it. Yes, we are reaffirming our broad brush guidance with our earnings 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 end of that. All of our other major guidance after first quarter, we feel comfortable with and continue to affirm, and we'll obviously revisit that after the second quarter. As you know, our broad brush guidance was 2%-3% volume expectations and 2%-3% pricing expectations. We're within the volume for the first quarter. As you mentioned, pricing was favorable, driven by continued strong case mix index that we started to see in the fourth quarter.
Again, we'll keep our eye on that, but again, very just pleased with the performance that we have off 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 had been seeing 5% and 6% towards the last half of 2017 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.
There are some timing issues that affect the uninsured and when they may become Medicaid eligible. In essence, this high single digit is built into kind of reasonable expectations for us. Obviously, I'll just remind everyone that the real impact of the growing uninsured is just that the incremental cost that we have to treat these patients. I think with what we have built in our expectations, we can manage that and absorb that through the overall context of the core operations.
Let me add to that. This is Sam . I think when I look at our revenue growth in the fourth quarter and our revenue growth in the first quarter, both of them are pushing 6% on the domestic side of the equation as far as overall revenue growth. Part of that has been solid volume. 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. The combination of those two things has yielded revenue growth on the upper side of where we thought we might be.
Those are positive metrics, we believe, and they really relate to significantly better revenue growth than what we had seen over the past six or eight quarters. That's on a same facilities basis. We're pretty pleased with how that's played itself out. 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 fourth quarter market share data yet. We have the third 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, it's a reflection of the acuity that we had inside of our inpatient business in the face of flu admissions in the quarter. Very significant acuity across our inpatient book. 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. All of that sort of plays into how we're evaluating this quarter and really the fourth quarter as well.
All right.
Frank, thank you.
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. 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 for you at all if that trend continues? Second, we're seeing consumers that are kind of in the pre-Medicare age group, like 63-64, starting to more frequently delay their surgeries in order to wait until they get Medicare eligible because their cost share is lower. How are those two factors factoring into how you think about your Medicare payer mix going forward? Thank you.
All right. Somebody want to take a wing at that?
This is Milton. 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. That's not bubbled up as an issue for us. Certainly, whether there's deferrals of surgery for people approaching Medicare eligibility, I don't know if that would be a new trend if it's out there. Again, really can't, I think, respond to that with any credible sort of data.
Yeah. I think if you, again, if you just look at our numbers on the quarter, you look at the Medicare growth was 2.5%-3%. 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 volume.
Yeah. This is Milton. As Sam mentioned, the payer mix this particular quarter is actually quite favorable with managed care admission growth up 1%.
In the quarter, that's the highest growth that we've had in probably going back into the first quarter of 2016. Again, the payer mix trends here in the quarter are actually pretty positive for us.
Yes. All right. Very good. Thank you.
We'll hear next from Ana Gupte from Leerink Partners.
Yes, thanks. Good morning. I wanted to follow up on the points you were making earlier about the positive surprise in the acuity and the revenue per admission. It feels like, I don't want to make any kind of trend assumptions, but a couple of your peers had pretty high acuity as well. 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? Is that in any way correlated with payer mix and in the capacity utilization as you look at those things? Would you think this is a sustainable trend of 3% to 4%-plus pricing growth?
All right. Thanks, Ana. Sam.
Well, we've had, I think now, Bill, help me if I'm wrong, about five or six straight quarters of fairly significant case mix index growth across HCA. More in the mid threes or so in the first part of 2017, and then trending up above four in the latter half of 2017 and the first part of 2018. 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 and 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. 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 four or five 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. This is a slow-moving business. We think from that standpoint, it yields over time very positive metrics and is central, like I said, to the strategic approach that we're taking within each of our markets.
I can't really say that 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.
All right.
Thanks.
Ana, thanks.
We'll hear next from Matthew Gillmor from Baird.
Hey, thanks. I wanted to ask about the geographic discussion. Sam mentioned East Florida and the Far West as being weaker from an admissions perspective. I think you've called those markets out before, so can you just give us a sense for the dynamics in those markets?
Thanks.
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. That's driven their inpatient volume metric down somewhat. The growth in that issue was a little slower in the first quarter than what it was in 2017. It continues to be a metric issue. We did have solid financial growth in 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. 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. 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. Nothing strategic there of any significance. The Far West division in 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.
Thank you.
Thanks, Matthew.
We'll hear next from Brian Tanquilut from Jefferies.
Hey, good morning. Sam, just to follow up to your answers to the last two questions. As I think about the capital spending for the last three years and all the bed adds that you've done and seeing inpatient growth finally re-accelerate, how are you thinking about the ramp in terms of the productivity of the new beds that you're adding? Any quantification you can give us in terms of new capacity that has been added over the last few years, just for us to be able to gauge how 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?
Yeah. I don't have all of those metrics in front of me. That's a piece of our strategy. 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, and 2020 than we've had in recent years. 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-lived 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. 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. 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. Obviously, the company is operating, as we said before, at a high water mark on inpatient utilization. We're operating at almost 72% on average inpatient occupancy. In many instances, we have hospitals that are operating much higher than that. 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. Again, very important to our overall network strategy that we have ample capacity available when patients need our emergency room services. 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.
All right. Anything else, anybody? Okay, thanks, Brian.
We'll hear next from Michael Newshel from Evercore ISI.
Thanks. Good morning. I know you said labor costs are relatively stable, 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. Yeah, we're really pleased with how our facilities have responded. I guess it's been almost two years ago that we had some struggles with contract labor utilization, especially in our nursing areas. 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%, 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. 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, Sam. Thank you, Michael.
Kevin Fischbeck from Bank of America, your line is open.
Great. Thanks. 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? 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 a drag to earnings? Is it really more about commercial? If commercial's up one, then it's kind of hard to come up with a bad payer mix on the rest of the business.
Yeah. Kevin, this is Bill. Let me give it a try on there. We did report 10, and I think as I said earlier, if you look towards the latter half of 2017, we were in that five to six. It is slightly up from where we were running. Honestly, I'm not sure I can give you a whole lot of detail on why. We continue to hear from time to time in certain states, slowdown in processing Medicaid applications. That has a potential impact in the uninsured volume in any one quarter. Not really sure, but imagine flu may have had an impact on this as we saw increased traffic in the emergency room. I think we go back to really, we don't see anything structural here, nor do I view just the increase to be a material factor for HCA as we know.
The impact is the incremental variable cost. We can accommodate that within the context of our overall guidance. 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. At those levels, I think we can manage through that, and we'll have to see how that plays out through the balance of the year.
Milton, you want to add something?
Yeah, I just want to add, I think this quarter, too, first quarter of 2017 was a low watermark for uninsured activity. I'm looking at, this is not a same stores consolidated numbers, a little bit out of the same stores, but we had 34,000 uninsured admissions in the first quarter of 2017. We had just over 38,000. About 4,000 increase, roughly. When you look at the fourth quarter of 2017, we had almost 40,000. Actually, we're down on a sequential basis, first quarter to fourth quarter, in terms of uninsured admissions.
I think part of this percentage increase here in the first quarter is attributable to a comp last year where we were a pretty low volume for uninsureds, 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 one or two 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 Oklahoma and the new deal. Sounds like that was about a 310 basis point drag on EBITDA. Is the way to think about that normalized towards EBITDA growth closer to 8.5%? Is that right? 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? 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 was up 5.7. EBITDA growth on the same store basis is going to be even higher than that.
Just trying to get the magnitude there. Thanks.
Well, yeah. Let me take the first part. You're right, it would've been about 8.5% sort of growth in EBITDA for the first quarter over last year, absent the impact of Oklahoma and the newly acquired assets. 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 first quarter to show improvement as we go throughout the rest of the year.
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 will be materially close to what our run rate is by the end of the year as we integrate Memorial 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 continued performance in the core business. Again, I think we remain confident, at least in the long term, contribution of these acquisitions for the company.
All right. Thank you. Got time for one last question.
Your last question will come from Gary Taylor from J.P. Morgan.
Wait a minute, Gary. I don't think so. We just ran out of time. Just kidding. Go ahead.
A little surprised myself. I appreciate it. Actually, I just wanted to clarify a little something Ralph was touching on. Maybe with just a touch more. I just want to make sure. It looked like Memorial closed about a couple days after you'd given previous guidance. I wasn't sure if that was in the prior guidance before or not. 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? Finally, when do you think that net acquisition drag becomes a neutral number? Do we get into first quarter of 2019 before we escape that drag?
Yeah, Gary, this is Bill. Let me First of all, Savannah was not in our original guidance. Going through, you're correct that we closed on February 1st, so it was not part of the original guidance going forward. Relative to Q2 and Q1. Q1, we are burdened with some transactional costs in that number that won't reoccur in Q2, and we anticipate continued improvement, I think, throughout the year. We'll have to wait to see what the Q2 performance looks like. I think internally, we're expecting a 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. Thank everyone for being on the call. 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.