Hello, hello. I think we're ready to get started. This is the HCA Healthcare presentation. My name is Matthew Gillmor, and I lead healthcare services research coverage at KeyBanc. Joining me on screen is HCA's CFO, Mike Marks, and VP of Investor Relations, Frank Morgan. As most of you know, HCA is one of the country's leading providers of healthcare services, encompassing 190 hospitals and approximately 2,400 ambulatory sites of care across 20 states and in the U.K. HCA is distinguished by a number of things, but one of the main ways is by the depth of its local market hospital networks that are concentrated in faster-growing markets. This will be a fireside chat format, so I'll be leading Q&A. We do want to have your participation, so if there's questions from the audience, there's a dialogue box to submit those, and we'll get them addressed.
With that, Mike and Frank, welcome, and thanks for being here.
Good morning. Good afternoon.
Good afternoon.
I have been trying to start these conversations at a somewhat higher level before we dig into some of the financials and some of the policy questions that I know are top of mind. Mike, I thought we might sort of start off with the areas where HCA is particularly distinguished. I know you compete against really tough non-profits in your local markets, but I just thought you might kind of give a quick overview in terms of how the company is distinguished locally relative to the competitive set. We will kind of get into state of the union from there.
Sure. When I think about our 43 markets, and you mentioned this in our opening, we're in markets that grow faster than the national averages with strong economies and, frankly, good coverage environments. If you think about kind of the managed care, the employer-sponsored insurance, the healthcare exchanges, that's helpful as a healthcare system. We always say kind of where you operate is almost as important as how you operate. We're blessed with these 43 markets to have really solid positions in fast-growing, strong economic markets. We're generally either number one or number two in market share in the markets we're in. We're relevant. We're relevant in terms of patient care in the communities. We're relevant to payers. We're relevant to suppliers. Frankly, in the competition for physicians and nurses, it's important to be relevant.
We believe that the strength of our markets is one of the key characteristics of our success. We really combine that with the idea of operating at scale. The ability to kind of leverage a growth plan, a strategic plan, and fund that plan through strong capital investments and provide really strong corporate support really helps our local markets be better than they would be if they were a standalone system. We do that with our shared service platforms. We do that with our balance sheet and funding capital investments. We do that with a lot of corporate support departments and functional areas that provide operating support to our facilities.
It is this combination of really strong local markets where we have relevance and strength coupled with scaled corporate solutions and support that help these local markets be better than they would be otherwise. I think that is really the success of HCA strategically.
That has translated into a really durable sort of EBITDA growth outlook that you have had out there, 4%-6% growth. Last year was a lot stronger than that at 9%. I thought you might just provide some comments in terms of what are some of the areas that have been driving strength in the EBITDA growth in the most recent period?
Sure. I mean, I think it clearly starts with volume. If you go back to kind of the decade ending 2023, we've had this long track record of growing our equivalent admissions 2%- 3% per year. As you just noted, really 2024 and 2023 to a degree as well really was strong. I think there's a host of reasons for the strength in volume that we've seen in the last couple of years. The first is back to the markets, and we've seen really strong population growth and growth in demand for healthcare services at a really strong level. I think our capital investment program, where we're building out this network of facilities around our hospitals in the markets, has allowed us to really do two things.
One, it has allowed us to add capacity to service this elevated demand in a way that has been really competitive for us. Number two, it's allowed us to continue to build out our network of outpatient facilities, really meet the patients where they are in the marketplace. That's allowed us to take share. Growing demand and capturing that demand, increasing your competitive position, and then increasing market share combined has really allowed us to grow volume in an elevated way. We thought it was durable enough to guide 2025 a little bit above our long-term guide as well at 3%-4%. You couple that with our net revenue per equivalent admission agenda, our pricing area, we've had good, steady, and consistent pricing growth both with our commercial payers and with governmental payers.
We've had a long-standing tradition of investing in our service lines to both deepen our service lines and broaden our service lines in our market. This has led to acuity growth, which has really helped our net revenue rate continue to grow as well. We've been blessed, really, in the last couple of years and going into 2025 as well with really good payer mix. I think one element of that payer mix that speaks to demand growth as well is the healthcare exchanges. We just had significant growth in healthcare exchange enrollment in 2024, over 30% in our markets. In 2025, it came in even better than we thought. I mean, we kind of came into 2025 thinking that healthcare exchange enrollment would be maybe 8%-10% increase, and it ended up being closer to 13%-15% increase.
The coverage environment has been really strong, and that's helped our payer mix. You couple the top-line growth that we've been able to produce with strong expense management. If you look at the margin profile of the company, we've had good margin performance, good expense management. Some of that is coming off the pandemic and really being able to capture the things like staffing stability, wage stability. Our general financial resiliency action plan has allowed us to really perform well on margin. At the end of that has been, as you noted, in 2024, really strong EBITDA growth. If you think about 2025 guidance, we've guided really at the top end of our long-term range on EBITDA guidance right at 6%. Those would be the drivers, as I see it, Matthew, on our ability to produce EBITDA growth.
Yeah, it's been remarkable in terms of just the durability of the volume growth. Clearly, a lot of there's some environmental stuff, but there's also a lot of company-specific drivers as well. On those lines, I did want to ask about Asheville. I know that was impacted last year by hurricanes, which who would have thought Asheville, North Carolina, would see a big hurricane impact? I thought I heard you all make some encouraging comments in the last kind of week or two about how that market has bounced back. If you could provide a little bit of context in terms of the impact on that market. I know it's early days here, but just any update in terms of what you're seeing with the recovery in that market, either local to Asheville or just beyond that in terms of that community you serve.
Sure. Let me, for context, just remind the audience. If I think about 2025 and the lingering effects of the hurricane, our guidance really contemplated two major factors for EBITDA growth. One would be the recovery in our Tampa market, and specifically the reopening of the hospital called Largo Medical Center that got damaged during the hurricane and was actually shut down for about 53 days while it was getting repaired. We do believe that the Tampa market will recover in 2025, and that that would show a year-over-year earnings growth in 2025 versus 2024 in Tampa. We think that that will largely offset the lingering effects in the community of the hurricane in western North Carolina. We have a fairly large system in western North Carolina. Our biggest hospital is Mission Hospital in Asheville.
That area did sustain really significant impacts from the hurricane, more in terms of the community impact. If you think about the flooding and the rainfall in that area, even wind damage was pretty significant. We do see, and we're encouraged by, good recovery so far in that market. I do think that the lingering effects will show themselves through the balance of this year. We're watching it carefully. The thing that I think about as hospitals and markets like this recover are things like payer mix and things like demand and elective surgeries and elective cases while the population recovers and the community recovers. We're there. We never lost our operations during the hurricane. It's really going to be how fast the community recovers and how fast both demand and payer mix recovers in that market.
We will watch it as we go through the year. We are encouraged that the recovery seems to be on track.
Got it. Okay. I wanted to hit on some strategy questions. Externally, you at least define some of the key strategic priorities in terms of how you allocate capital, particularly back into your local markets, your labor agenda, and your technology agenda. I wanted to get into some of those topics with you. HCA invests a lot back into your local markets. If I was doing the math correctly, and Frank can certainly correct me if I was wrong, but I think over the past 10 years, you've done something like $40 billion back into your local markets, which is just a really impressive number. Would you mind level-setting for us just in terms of where does that money go? How do you prioritize projects? Ultimately, what's the benefit to the patients and the relevancy that creates with the payer community?
Sure. We have a target in the zone of 45%-55% annually of our operating cash flow to use as investments in capital back into our markets to really drive organic growth. As you know, we're more of an organic growth-oriented company, at least historically, and certainly as you head into 2025. If you think about that capital spend, and I'll use 2025 as an example, we're targeting between $5 billion and $5.2 billion of capital investments in 2025. It's roughly half, maybe 40%-45% of that capital is more what you would think of as routine or maintenance capital. Every year, like you can imagine, you have to do things like replacing roofs and boilers and chillers and air handlers and medical equipment and beds.
Renovation of your properties is really important as well so that you maintain good curb appeal and maintain competitive assets and facilities for your patients and, frankly, for the physicians as well. That is 40%-45% of the total capital spend every year you would put in that bucket of routine and maintenance. There is an annual IT-related capital spend that is a component. Another, call it 40%-45%, is growth capital. On the growth capital, we really break it into what you would think of as inpatient acute investments to add capacity into our facilities.
We're averaging roughly 600 beds a year in new inpatient capacity, mostly by adding expansions on existing campuses, although we do open a new hospital from time to time as well and have a list of de novo hospitals that we are studying and that we have funded over the last several years. We couple that with outpatient investments. If you think about new freestanding emergency rooms, surgery centers, urgent care clinics, physician clinics, and the like, we have a goal of expanding the outpatient sites of care between now and, call it, over the next decade to 2021 , so 20 outpatient sites of care per hospital as we kind of go through the next decade.
That's also a component of how we use our capital is to really fund capacity on the inpatient side and then network expansion on the outpatient side. I would only other mention that the inpatient capital spend tends to be more intense. It uses more of the dollars just because adding floors and bed floors to towers in new hospitals is more expensive than adding outpatient facilities. You get a little bit more production at a lower per project cost on the outpatient side.
Maybe a hard question to answer precisely, but even a qualitative comment would be great. Coming out of COVID, and you guys have been able to sustain that level of reinvestment back into local markets, any sort of acceleration in the separation in terms of maybe your local competitors? Does that feel different at all today than pre-COVID or sort of hard to tell? We will just sort of point to the market share numbers that you guys give us.
I think it's really, and we would measure that with the market share. As we noted at Investor Day at the end of 2023, we've increased our market share in our markets during that decade at that point from like 23%- 27%. We have a goal of taking our market share from 27% to, call it, 29% by 2030. We feel like we're on track with that goal. That demonstrates really the two components of how we drive growth. The first is this idea of the capital investments and reinvesting back into our markets. That's really coupled with the HCA strategic plan, things like building out our service lines and adding our network optimizers and really kind of reaching out into the outreach markets with services and with network optimizers like transfer centers, like transportation capabilities, and the like.
I think the capital investments coupled with the HCA strategic plan and, frankly, our ability to execute, I think jointly have allowed us to capture the demand growth in the marketplace and then stay on track with our market share gains. You mentioned this earlier, Matthew, but all of our markets are a little different, but we generally are in urban and suburban fast-growing markets. We have good competitors who also invest capital into their markets. It is not just an arms race on capital. It is that coupled with the execution capabilities of our plan and our approach that I think has allowed us to maintain our competitiveness.
Got it. Why do not we talk about one of those execution areas, which is on the labor agenda? It feels like things have pretty well stabilized here, particularly relative to where we were in 2022 and in 2023. If you could sort of update us in terms of what you are seeing or what you have been seeing from a wage growth and from a contract labor standpoint. I would also love for you to hit on kind of GALEN and the progress you have made there and the long-term potential that has come from that deal.
Yeah, absolutely. Yes, it definitely has stabilized a bit. If you go back to the height of COVID, call it maybe first quarter of 2022, we were upwards of almost 10% of our SWB coming from contract labor. As we finished the year last year, we were down to 4.5%, 4.6%. We basically cut it in half during that two-year run, which really reflects the marketplace. The contract labor rates have come way down during that time period. Frankly, just the supply and demand. We have been able to kind of recapture the supply of the clinical workforce. The demand for premium labor for travellers has moderated during this time period, as you noted. Definitely, wage inflation has moderated. There was a lot of wage inflation during that period.
If you think about 2020 to call it the end of 2022, it was a pretty inflationary environment with labor as so many nurses and other clinical staff left the marketplace and all of this wage pressure and the like took hold. I also want to kind of tell the story of our workforce development plan. Over this last four years, we've done a number of things to put ourselves in a better position. It really starts with retention. We have company-wide put a lot of focus and effort in retaining our staff and reducing the turnover levels of staff at all levels of management. That focus of high-impact practices and detailed and granular execution of our retention plans has paid off. I mean, our retention levels are back to almost right at pre-pandemic levels, which is great.
We have also added and invested heavily in recruiting so that we can be competitive for employees as we need to backfill our openings. That recruiting agenda really kind of fits two or three components, and one of which is GALEN that you mentioned. One, you have to be competitive for experienced hires. We have really tried to make sure we have the right recruiters, the right onboarding capabilities, the right preceptors in our hospitals, and have really a comprehensive plan to take new recruits into a hospital and get them onboarded and trained and ready for work the best that we can. The second thing would be our overall approach to new grads. In addition to GALEN, we have a long track record of working with not only nursing schools throughout our marketplaces, but other educational institutions that graduate clinical labor.
This focus on these academic institutions and being a great clinical partner for them and capturing their graduates and giving their graduates a great place to work is a really important part of this story. The third part, as you mentioned, is GALEN. When we acquired GALEN, it had four campuses. We're up to about 22 campuses. We will have, as you kind of get through the end of the decade, 28-29 campuses of GALEN throughout our system. We're at about 22,000 students enrolled now. Again, as you get to the end of the decade, it'll probably be closer to 30,000 students. It's a big part of our success plan in being able to attract and retain new graduate nurses for our hospitals and trying to create this integrated experience where they have a great experience in nursing school.
They can do their clinical rotations and their preceptorships in an HCA hospital. We try to provide a great opportunity for them to come to work at HCA. I think over time, it has given us the ability on the supply side of labor to deal with challenging environments. I think it has also been a great community investment. I mean, if you think about one of the biggest challenges American healthcare faces, there are way more people every year who want to go to nursing school than historically there have been nursing education spots available. Us working as a system with other nursing schools to add spots so that students who want to become nurses have the ability to go to nursing school is a key part of this strategy. I think it is good for HCA.
It's good for the students, and it's really good for our communities as well.
Yeah, it's a great point in that it's also just a great example of the scale that you guys bring to some of these issues. I did want to hit on technology, and then we'll get into some of the policy things that are really top of mind. There's sort of two areas that I wanted to ask about on technology. One is the Meditech upgrade that's occurring right now and the digital transformation efforts, particularly around the Timpani tool that you guys have talked about in terms of improving staffing. Maybe just first on Meditech, if you could update us sort of where you are with the Expanse rollout and what's the benefit to the company from having that in place across the company?
Sure. We'll be about 20% done by the end of this year. We'll have it pretty well done by the end of 2028. That's a bit of the rollout schedule. In terms of the company and why I think Expanse is the right fit for us, I mean, first, it was built cloud-native in the Google Cloud. Our clinical data does reside in the clinical cloud. Having a cloud-native EMR where your clinical data and the EMR data is co-located in the Google Cloud in our instance is a powerful thing. It allows us to have one version of Meditech in effect that allows us to kind of drive to standards.
If you just think about having 190 hospitals over time on the same system in the cloud with the ability to maintain standards and then use those standards to really drive data standardization and normalization, it really sets us up to allow for our digital agenda. There's nothing more important for AI and machine learning than data. If you just think about 44 million patient encounters and being able to kind of create a cloud environment where that data is standardized and consistent, that is a powerful accelerant to an organization's ability to use that data for digital transformation. That is one of the key elements of Meditech for us. Largely, the rollout, I think, is going really well. Now I'll switch to Timpani. I'm happy to take any additional questions on Expanse.
Timpani is an early example of a digital product that we're building that's part of our digital transformation strategy. We have an organization in the company called Digital Transformation and Innovation. DT&I has really three pillars of work that we are focused on generally related to AI, machine learning, and automation. The first area is really clinical, which is the holy grail for HCA. Over time, you're going to see us working to use big data and digital transformation products to really provide better care, more consistent care, safer care in a way that I think will be great for doctors and nurses and take the massive amount of data and bring artificial intelligence in to help human intelligence to find patterns in that data and provide really strong decision support to our clinical teams over time in our clinical domain. The second area is Operations.
Timpani really fits in Operations. If you just think about, call it 10 million visits, 2.5 million admissions a year in our system, just the operational process of admission, taking care of patients, getting through the continuum of care, and getting a patient ready for discharge, the amount of opportunity to leverage AI machine learning to make our operations more effective and more efficient are really immense. Timpani is a great example of this. Timpani is our scheduling and staffing tool that uses machine learning to really do first a really good job of volume forecasting so that we can forecast the demand on a shift and department basis for each of our hospitals so that we can schedule against a much more accurately forecasted demand.
Create a much more balanced and robust schedule so that we have the right care team in place for the demand or the patient load that's going to be in that unit. The ability to use big data tools for that will lead to more effective schedules and schedules that our employees over time, we believe, will find preferences and will find that they have the right team around them to take care of patients. They get their scheduled preferences. We get a really balanced schedule that will help us over time on expense management as well. Timpani right now is in 50 hospitals. We'll be at 80 here in about next month. The rollout is going well and will largely be complete by the end of 2026. It's our first kind of foray into a rollout of a digital product.
We're learning a lot, but we're very encouraged about what we're seeing.
That's great. It seems like something that really kind of doubles down on some of the resiliency that just is inherent in the business. Why don't we try to spend the last 10 minutes on policy? I'm sure you've been sort of talking all day about some of these topics. I thought we might sort of start off sort of higher level in terms of there's just uncertainty around obviously what's going to happen. Investors are obviously worried that there'll be some form of reductions in healthcare funding, whether that comes through Medicaid or exchanges or a combination thereof. I thought we might just start off with how are you guys sort of potentially planning for that and how might the industry react? The industry's maybe got some pattern recognition with how they had to respond to COVID.
Just in terms of environmentally, how you guys are sort of thinking about the posture you should be in and what we might see with the industry writ large if there's some pressure on funding in whatever form it may take.
Sure. I mean, the first responsibility of the company is advocacy. We are spending a lot of time both federally and in our key states to advocate for the key policy continuations that we want to see. It really starts for us with the enhanced premium tax credits on the exchanges. We believe that these are essential for working families. We believe that they really fit in the tax credit mindset of the Republican Party and of President Trump. We are very hopeful and we're pushing hard to advocate for the extension of the enhanced premium tax credits on the exchanges. We think it's really good for working families. There's almost 25 million people in America now who get their healthcare coverage on the Affordable Care Act exchanges.
If you think about where those lives are located, a lot of those lives are located in Republican-dominated states that did not expand Medicaid. We think from a public policy standpoint and as a political matter, raising taxes by eliminating tax credits right before a midterm on things as essential to the common worker as access to health coverage is an area that deserves to be advocated for that these enhanced premium tax credits get extended. That is the first thing we are doing. We have a very strong advocacy model as well for Medicaid broadly as an essential reimbursement and coverage dynamic for a ton of people across America, including a lot of folks in our key states. Advocacy is a big part of what we are doing, as you can imagine.
The second part, and we've been working on this for a while, is just getting ready to do everything we can from a resiliency standpoint to manage our way through challenges. You noted this when you mentioned COVID, but we have a long track record of this. I mean, you can talk about our response to COVID. You can think about our response in 2008 to the financial crisis. HCA, because we operate at scale, because we have really strong capabilities, if you think about our shared service enterprises, if you think about our hospitals and our management teams, to weather storms and to navigate through challenges. We're working hard through our resiliency agenda to make sure that we're ready and to offset all that we can depending on what happens here.
It is really the combination, Matthew, of doing everything we can to advocate for these federal health policies and programs. We think they're essential. The second would be to get ready for whatever comes and get ready to navigate those challenges. The third thing I would say, and you mentioned this, but I think it's important to note, is that the kind of changes that we're talking about here, especially if they end up being substantive, are going to impact not just HCA. They're going to impact the whole industry. This industry of hospital systems, over 80% of hospitals are not-for-profit or government-owned hospitals. If you look at where they're operating on margins, their ability to withstand really substantive cuts is tough.
We do believe that there's a bit of a safety net and an understanding in Washington and in the states that there needs to be some protection for hospitals. They're an essential community asset. The rest of the industry would mightily struggle with really substantive reimbursement cuts or coverage losses. We would too, but we can navigate it. We've got the balance sheet. We've got the margin profile. We have the capabilities to try to navigate those kinds of challenges. We've done it before. Certainly, the rest of the industry will do everything they can. I do think it's a different landscape.
Yeah. No, you brought up some great points. I think one of the things we learned through COVID is that hospitals in particular, they are sort of essential infrastructure to the U.S. Certainly, the efficiency you guys bring is really kind of important to keep in mind. It certainly, I would think, kind of gives you a substantial advantage no matter what comes down the pike. Why do I not ask one follow-up on supplemental payments and provider taxes? This has been sort of a top-of-mind issue, I think. Maybe just mechanically, if you're willing to sort of entertain this question in terms of if the safe harbor threshold went from six to five, is that just a proportional sort of reduction or is it so kind of I appreciate your comments about sort of how complicated it is state by state, program by program.
Just as folks externally are trying to weigh the risks of different proposals, if we get some change in the safe harbor threshold, sort of how would we think about the implications? If you had any comments, that'd be great.
Sure. I mean, I think the way to think about this is, as you noted, we have 18 of our 20 states that have programs. Most of our states have multiple programs. And really, if you think about the constructs of those, it's a little bit like Baskin-Robbins. I mean, there's a bunch of different flavors of how these programs are funded and then how these programs are allocated in terms of funding. It is not proportionate to say that you would have an exact proportionate percentage decline if you went from six to five, for example, on a provider tax cap. It is way more complicated than that. What we try to do is just articulate broadly on an annual basis what they're worth to us.
As you know, every quarter, as we kind of go through a year, we're going to keep everyone updated on DPPs. We're watching all this just like you guys are. There are so many different points of communications that you see out there. We're not going to be in a position to try to answer each potential item. It's not productive. As soon as we would answer one question, there would be a different communication coming out of Washington that would change it. We're watching it just like you are. You know kind of roughly what the Medicaid supplemental payments mean to HCA. We're all just like you guys. We're just going to have to wait and see what comes out of this. I think it's important to always take this in context of Medicaid. Supplemental payments are not separate from Medicaid.
They're just part of Medicaid. I always try to remind people that when you look at Medicaid, historically, it has been significantly underfunded. Even over the last several years, as states have tried to enhance Medicaid through supplemental payment programs, even as we finish 2024, our revenues are still short of the total cost of care for Medicaid. These supplemental payment programs, just two more comments, and then I know you have other questions, but one, remember that providers fund a big chunk of the supplemental payment programs. We have expenses that we record in other operating expenses that are a funding component to draw down these funds. The provider community is a big funder of the exchanges, sorry, the state supplemental payment programs, which, by the way, the states like. That's helpful. That's number one.
Number two, when I think about the rest of the industry, Medicaid in total, and then state supplemental payment programs as an enhancement to the base Medicaid program, this is a really essential part of supporting hospitals all throughout America these days. It is another example of where the risk to the industry of really substantive Medicaid reform or Medicaid reimbursement reductions is pretty significant. We would weather those storms, but again, the rest of the industry would deal with some pretty big challenges. State supplemental payment programs are really important to hospitals across America.
Yeah. I appreciate that perspective. I think, unfortunately, we're out of time. We could go on. I had a softball for Frank, but it'll have to wait for another day. Frank and Mike, we really do appreciate you guys spending the day with us. Thanks for the update.