Good morning. Welcome to Oppenheimer's 35th Annual Healthcare Conference. I'm Mike Wiederhorn, the Healthcare Services Analyst. It's my pleasure to introduce HCA Healthcare and Chief Financial Officer Mike Marks and Vice President of Investor Relations, Frank Morgan. Today's going to be a fireside. First of all, thank you guys for attending. Appreciate it. We always appreciate your time. Let's just start. We'll kick right into it. Let's start with a broad question to begin with. You know, maybe just starting out, can you provide us an update on the business? How do you feel coming out of Q4 into the new year?
Yeah, if you think about 2024, it was really driven by really strong demand for healthcare services in our markets, as you know from our, excuse me, our 2024 results. Really strong volume, good net revenue per unit and pricing. For the balance, if I think about 2024, we had good margin maintenance, good margin profile as a company, which resulted in good economic performance if you think about our growth and adjusted EBITDA. As we then transitioned with our guidance into 2025, we saw the strength of our markets, we saw the strength of our strategic plan, and the execution of that strategic plan to the point where we were comfortable guiding our volume at 3-4% for 2025, which, you know, is above kind of our long-term guide.
Based on that strength, we felt like that was the appropriate guidance as we kind of bridged into 2025. You may recall that from a guidance perspective, we do believe that we'll be in the 2-3% range on net revenue per equivalent admission. So our net revenue rate equation continues to perform well based on both pricing, what we're seeing with payer mix, and what we're seeing with acuity. On the payer mix side, you know, one call out specifically would be the strength of the healthcare exchanges. In 2024, we had really significant enrollment growth in healthcare exchanges. Actually, as we kind of bridged into 2025, the enrollment growth in our states ended up being even a little better than we had originally planned for.
We're seeing, you know, somewhere between 13-15% enrollment growth across our states related to healthcare exchange enrollment in 2025. If I think about the cost, inflation, and margin profile as the company, we're in a pretty stable operating environment as we had, you know, from 2024 to 2025. That really led us to guide towards a bit of margin maintenance, at least margin maintenance. An adjusted EBITDA growth that reflects at the top end of our range, our long-term guide range of right at 6%. You know, there was a really strong year in 2024, and the momentum of the company is such that we felt comfortable giving the guidance we gave on our fourth quarter call for 2025.
Perfect. Let's pivot over here to the obvious question every investor is asking right now is, how should we think about the regulatory environment in Washington? Why don't we start with some high-level thoughts on how you think HCA and the hospital industry in totality is positioned from a lobbying effort specifically?
It's really important. I mean, we're in a point of time where the advocacy efforts of the company are really important. You know, we're facing the well-documented, well-known, we're facing, you know, a landscape of federal health policy changes that we've got to really advocate and not just HCA, we're active. We're active both in D.C. at the federal level and we're active in our states, our key states as well. You know, we're also connected to a broad coalition. The industry generally, in many of these topics, our coalition includes the health insurance plans, the vendors and suppliers, and a broad coalition of patient advocacy organizations to ensure that we support this really critical community infrastructure, which are hospitals in America that, you know, that we advocate for appropriate reimbursement for the care that we deliver to the communities we have the, you know, real privilege to serve.
When I think about our risk universe, Mike, I really kind of think about it in three broad areas, which are all a little bit different, and I know we can cover these in topics. The first one is really supporting the exchanges and the enhanced premium tax credits on the exchanges, which are, you know, so important now to 25 million people who get their coverage on the healthcare exchanges. These are working families. You know, we're advocating heavily that these tax credits continue to be extended and granted to working families across these states to support coverage in our markets. The other area that we hear a lot about is Medicaid reform, and I know you'll have some questions on that. We're advocating heavily on Medicaid reform. The third area from a risk standpoint in kind of in order would be Medicare reimbursement.
Broadly within Medicare would be site neutrality. I know there will be questions as we go through today, Michael, but we are heavily involved in advocating for this. We feel good that we are part of a big coalition advocating for this really important topic here as we go through the balance of this year.
Perfect. Let's, you know, go into Medicaid. Medicaid is obviously a lot of pressures, obviously, as we talked about, you know, as you stated before, lots of discussion around Medicaid cuts. If the budgets become tighter in the states, how do you think it impacts you? What would you do to offset it? The second part is, how should we be thinking about supplemental payments and provider taxes?
I think about all of this in context of Medicaid broadly. Medicaid is super important to the, you know, to the provider systems across America. One note that I always like to say is it's important to context Medicaid. When you think about the historic reimbursement levels of Medicaid funding to hospitals, historically they're very low. The states over the last many years have been enhancing their Medicaid funding through Medicaid state supplemental payments, which are just one component of overall Medicaid funding. Even after several years of good enhancements through state supplemental payments, we are still not covering the full cost of care when you take into account not only the cost of care, but the cost and expenses associated with participating in state supplemental payments.
Medicaid in total, including state supplemental payments, are a really important part of the funding for hospitals across America. Not just for HCA, but for the broad industry. If you think about the not-for-profit community and the government-owned hospitals across America, Medicaid funding is essential. We are advocating heavily to support Medicaid across the, you know, across the states. In terms of the impact on HCA, it really depends on what specific elements of reform happen. Very different impacts if they go after things like FMAP changes or per capita caps versus do they start thinking about specific elements of Medicaid state supplemental payment program adjustments. At the end of the day, you know, substantive Medicaid reform is something I do think will be hard. I'm not saying it's impossible.
There's certainly risk here, but I do think it's going to be hard. One, because of the impact on the industry, but two, because of the legislative process of getting really substantive Medicaid reform passed by the House and the Senate and then through the executive branch. You know, we've got to work through this. To the second part of your question, we are working diligently and have been for a long time to ensure that we have a resiliency program that can navigate potential challenges here as we go through this new administration and the new Congress and deal with the challenges that come our way. I think for those of you who have followed HCA over many years, you know that this is an area of strength for HCA.
We navigated COVID, and we actually came out of COVID with more momentum than we had going into it. We navigated the 2008 financial crisis. If you think about the company and our ability to operate at scale, our ability to leverage efficiencies and take advantage of our scale and our management capabilities, we are doing everything in our power to get ready to deal with whatever challenges come our way. That is how we think about this. We are also working hard to advocate to try to minimize those impacts to the very best of our ability.
That's great. You touched earlier on the marketplace, and obviously that's been a growing area, and it's important to both the blue and the red states. You know, what are your thoughts about the phase-out of the subsidies and the potential impact to HCA, the industry? You know, where would that population go in your opinion?
Just as a reminder, if I think about the full year of 2024, we ended with the healthcare exchanges at about 7.5% of our volume and about 9% of our net revenue. Just a note for baseline. As I think about the critical nature of the healthcare exchanges as a form and a function of coverage in our markets, and maybe especially in those states that did not expand Medicaid, there are 25 million enrollees now across America. These are really important programs, including the enhanced premium tax credits to support working families and their ability to afford health insurance coverage in our markets. We are carefully advocating for the extension of these premium tax credits, either in their current form or in some modified form to protect these constituents.
I think from a pure political standpoint as well, you know, keeping in mind that, you know, taking away tax credits from working families, you know, in the year before midterms has a political dynamic as well that we are, you know, carefully advocating for to ensure that people understand that from a cost of living standpoint, one of the best ways to protect working families across America is to extend these enhanced premium tax credits so that they can afford coverage. Depending on what happens here, the way to think about sizing this is we've got to figure out, you know, and this is collective decision-making across these 25 million people, we've got to figure out how many people stay on the exchanges if these enhanced premium tax credits do sunset, how many people stay on the exchanges and maybe drop down a metal tier.
There will be a component of this population that will have the opportunity to go back to employer-sponsored insurance. There will be a chunk of these folks that if enhanced premium tax credits are not extended, will become uninsured. That's the risk. We're not quite ready to size in more specificity on the potential impacts until we have a better sense, Michael, of what comes out of the policy work here and whether or not the enhanced premium tax credits get extended, A, and then B, a little better sense of how this population of people who are currently benefiting from these tax credits and, you know, what kind of collective decision-making they make. That's the way we think about it.
Perfect. Let's move over to site neutrality. That's another area of concern with investors. Can you discuss, you know, your thoughts around that in different scenarios and how should investors be thinking about it?
Sure. When I think about site neutrality, you know, when I mentioned earlier kind of what we view as our risk universe, we put Medicare reimbursement cuts and site neutrality is nothing but a potential reimbursement cut to hospitals on Medicare. I mean, that's what that is. It's targeting Medicare payments. And frankly, you know, kind of fits within this context of protecting seniors. We think of it clearly in that way. It's on a spectrum. You know, the challenge is that we're not quite sure what specific type of proposal may come out related to site neutrality. In the past, over the last several years, we've seen two or three different draft potential proposals over time. I think about them on a spectrum.
On one side of the spectrum, if the site neutrality proposal is focused on physician clinics, hospital-based physician clinic visits and outpatient infusion centers, then the impact to HCA would be really immaterial. Largely because we do not really set up our employee physician clinics in that way. We do not set them up as hospital-based physician clinics. We have less exposure to that element. Other parts of the industry, however, would have significant exposure to hospital-based physician clinics going through a site neutrality cut. A lot of academic medical centers, a lot of big, large not-for-profit regional systems do set up their physician practices in that way. They would have more exposure. As the idea of site neutrality maybe expands deeper into other procedures like imaging, other types of procedures, then the impact to HCA would become a bit more notable.
Largely still a distant third on our overall risk universe is the way we think about it. From a context perspective, I do think it's important to note. I mean, from a policy standpoint, we don't believe that paying hospitals that have to operate 24 by 7, 365 with advanced capabilities where we have clinical staff, physician coverage, very advanced technologies, paying a hospital with that set of capacities the same as you pay an outpatient facility that operates, say, 8 to 5 Monday through Friday makes a lot of sense. We don't think it's good policy. From a pure financial impact to HCA perspective, that's how you would think about it.
Perfect. Let's, you know, let's hit on one last thing from a regulatory standpoint. You know, the new administration continues the initiative of pushing for price transparency from hospitals and insurers. What are your thoughts on incremental steps and how might it impact you competitively?
You know, it's really interesting. I mean, just again, a little bit of baseline and context. HCA is, we believe, fully compliant with the transparency rules as they stand today, including the updates that happened in 2024. That data is available. People have the opportunity to go to the transparency websites and understand our pricing and our contracts in that way. The new administration, the Trump administration, has proposed new rules or has issued, as you know, an executive order. We will be adopting, and as always, our intention will be to be fully compliant with rules as they're promulgated as new transparency programs and applications become mandated, and we'll do that. As I think about the impact to the company, there's both, you know, it's like a lot of these things, there's both risk and opportunity.
We feel very comfortable with where we are currently with transparency. As more and more transparency comes into view, it gives us the opportunity to understand where we have potential pricing opportunities in marketplaces. You have an opportunity to understand, you know, and take action where you have risk. We have not seen any material impact to the company from the existing applications of transparency. I do not anticipate any material impact in the future other than to say we will fully support and be compliant with the rules that are promulgated.
Perfect. Let's pivot away from Washington and let's now focus back on the fundamentals of the business. You know, like you said earlier, admission trends have been very robust. You know, can you talk about that and what is driving your 3-4% expected, you know, just of the admission growth outlook? And then secondarily, just in your term, how should we be thinking about the impact of the flu this past quarter?
Overall, you know, this really comes back to our markets. We're in 43 markets in 20 states domestically. What we see in these markets are markets with above-average population growth, strong economics, and good coverage. That coverage environment is important to hospitals. I couple that with these really good markets that we have the real privilege to serve with the HCA plan. If you think about this long string of capital investments that we have made organically to drive growth in our marketplaces, you know, we're going to spend, call it $5 billion-$5.2 billion again in 2025 to drive, to make sure that we have the capacity on the acute space to service the elevated demand and take those patients in and then add to our network.
We're sitting here today with, you know, call it 26, 2,700 sites of care, almost 2,500 of which are outpatient. We continue to invest in our networks and add and expand our outpatient footprint to support our overall network approach to our markets. We believe that the combination of our investments and our strategic plan with our service lines and our network expansion and optimization allows us to capture the demand growth we see and continue to take market share. As we saw the bridge coming into 2025 and the momentum that we had through 2024, that's what led us to drive to that 3-4% growth in volume that was part of our 2025 guide.
As it relates to respiratory season, you know, as I think as the folks on the call who have watched not only HCA, but hospitals in general over many years, every year respiratory season can be different. If you think about this year, we had a little bit of a later start, and we talked about that on our fourth quarter call. In past years, you know, sometimes they start early and go all the way through. Sometimes they start a little bit later. Sometimes they end earlier. It is just a little bit of a dynamic every year. When I think back to the prior year's respiratory season, you know, as we communicated on our fourth quarter call, you know, fourth quarter of 2023 was pretty strong from a respiratory standpoint. Frankly, you know, first quarter of 2024 was pretty strong too.
You know, it's a little early to talk about our first quarter of 2025 results. Stay tuned for our first quarter call, and we'll update everyone on respiratory season. That's how we think about it in general, Michael.
Perfect. You mentioned mix shift, payer mix, acuity trends. What are you seeing in terms of the mix shift, acuity trends? How should we view those items going forward and what is driving the change?
Sure. Let's start with acuity, and then we'll get to mix shift. On the acuity side, as we talked about in our investor day back at the end of 2023, one of the key strategic plan elements we've had over the last really decade plus of our work is to both deepen and broaden our service lines in our markets, including more acute service lines. If you think about cardiology, if you think about cancer, if you think about key and advanced surgical capabilities, including things like trauma programs, over the last decade, we have invested heavily as part of our overall capital investment plan, but also as part of our strategic service line development plan with physicians and clinical staff of really advancing our capabilities in our marketplaces.
A result of that has really been an increase in our case mix index or our acuity over time. You know, part of that is our work. Part of that is what we see in the broad population. As the population continues to age and as the population continues to deal with chronic diseases, I think there's been a general tend to more acuity over the last decade. You know, 2024 was no exception to that. I think that's the trends that we have seen and have communicated on our public comments over the last several years. On mix shift, you know, really the biggest mix shift that we've seen, and I'm speaking specifically to inpatient to outpatient over the last really several years, has been on total joint replacement.
If you go back to, you know, kind of pre-pandemic levels, there was a fairly large percentage of joint replacement that would have been done in an inpatient setting. Now more and more of joint replacement is being done in the outpatient setting, some of which happens in our hospitals as hospital-based outpatient surgery, and then some of which happens in our ambulatory surgery centers. That's been the biggest shift. I mean, I think, again, for those who've watched healthcare for a long period of time, there's always movement from inpatient to outpatient that happens over time. It's pretty incremental. What we see is that, you know, with the acuity trends that I mentioned earlier, you see that inpatient side then backfill with more acute cases. That general trend over time, I think, will continue.
I don't think it accelerates in any significant way beyond just the normal movement we have seen over time. I mean, you've seen that over the last several years. We do anticipate that to continue.
Let's, you know, talk about managed care contracting. What are you seeing in terms of contracting? Has the rates been impacted by the inflation in the system at this point?
In terms of contracting, let me give a quick update on just kind of the status. You know, we are largely contracted now for 2025, call it, you know, high 80s-low 90s % of our commercial book is now, you know, contracted, no surprise. We are about 60% contracted for 2026 and maybe just 25%, just a short of a third contracted for 2027. Again, a reminder, we tend to sign two to three-year deals with our commercial payers. There is a bit of a renewal cycle that happens every year that drives those contracting profiles. Our contract renewals continue to go well. We are continuing to largely hit our mid-single digits target that we have on our commercial book. I would say we are in a bit of a steady point in time here on the commercial side.
Perfect. Are you seeing any change on the denial front? Obviously, the insurers' denial, they're under a challenging environment right now from both, you know, the government and from also the perceptions of the media. Anything, you know, kind of any follow-through on your end, on your side of the hospital front?
You know, what I would say, let me kind of context this in two ways. I mean, the big change to the environment was really the adoption of the Two-M idnight Rule with Medicare Advantage in January of 2024. We have been working very carefully with our Medicare Advantage payer partners as we have adopted this rule and worked through that. What we talked about as we went through 2024 is that we did see a modest decline in prior authorization denials with the adoption of the Two-M idnight Rule in 2024. Now, from our perspective, and everyone has their own perspective based on what organization they lead, from our perspective, denials in Medicare Advantage are still too high, even with a modest decline.
We continue to work very diligently through our revenue cycle, through our payer contracting teams, through our case management and utilization management teams to try to really respond to the denial environment to the very best of our ability and work with our payer partners to ensure that we do our best to collect the revenue that we have earned with the services we provide under the contracts we sign. I think from an environmental standpoint, that would be the biggest change that we saw was the adoption of the Two-M idnight Rule. When I think at the broader level, including commercial and managed Medicaid and all forms of payers, you know, we're still seeing fairly robust denial activity. We're set up from an internal standpoint to work through that, again, with our payer partners. We generally have good relationships with our payers.
We attempt to work through that. I feel like we're in a good spot here. We're not seeing, and maybe this is the best way to answer this, and we said this as we went through 2024, we did not experience in 2024 a material financial impact from growth in denials as a company. That's the best way to measure that financially.
Perfect. Let's move over to cost labor, specifically labor kind of. What are you seeing on the front there in terms of trends and in terms of inflation going forward? I guess as part two, update on contract labor, number three, any color on retention and turnover as well. Those three parts.
Yeah. I mean, I think, and as we've talked about this over the last several years, we definitely have seen the labor environment stabilize. You know, one way that we measure this would be in our use of contract labor as a company. If you go back to maybe the height of COVID in the first quarter of 2022, you know, almost 10% of our total salary, wages, and benefit costs were consumed with contract labor at the height of the pandemic. As we finished, you know, 2024, it was more in the 4.5-4.6% of our SWB was consumed with contract labor. That reflects really two things in my view. First, it reflects that the market itself has stabilized, the overall supply and demand of labor.
Number two, it's a reflection of the really hard work that the company has really worked on for the last several years on workforce development. We, through our management teams, through our human resources teams, and frankly, through our nursing structure, have worked really hard on retention. We have high-impact practices and a lot of focused and granular effort to drive retention throughout our workforce in the company. We've seen our turnover levels really come down as we've come out of the pandemic and we're bridged through to 2024. Frankly, you know, very close, if not at pre-pandemic levels, which has been great. Number two is we've invested heavily on the supply side of labor, both through our recruiting efforts and resources and then through our approach towards workforce development. I would articulate that in a couple of ways.
One would be the work we do with our academic partners. We tend to work really hard with all of the academic institutions in our markets, the nursing schools, the allied health schools, to be a great healthcare partner for them, to help them to do placements, to help them to do rotations, and to be a great employer as their students graduate. Number two is the investment in Galen. I think the investment in Galen has allowed us to expand the spots that are available for people who want to become nurses across our marketplace and integrate Galen with HCA so that they have a great placement opportunity. Our job is to provide for the graduates in nursing generally and other clinical programs a great place to work.
I think the sum of all that has put us in a really good position from a workforce development standpoint, Michael.
Perfect. We're running out of time. So one last question that we've been asking everyone. You know, AI is obviously becoming a very important, you know, piece of backbone of the industry going forward. What are you seeing as the role of AI in your business model? And where do you see the biggest opportunity for the hospital system?
We're investing heavily in our digital transformation strategy that would include AI, machine learning, and process automation. We really break this into three main categories of work. The first one is in our administrative platforms, our revenue cycle, our supply chain, our human resources and IT organizations. We've got a string of use cases where we're not only doing process automation, but we're investing in generative AI and machine learning operations to become more efficient and more effective. There's a world of opportunity in healthcare and the pure administrative functions of the company. The second area that we're working on is operations.
If you just think about processing 11 million, 10 million visits a year, two and a half million admissions a year, there is a lot of opportunity to use automation and AI machine learning to become both more effective and more efficient in our operating routines. We have several products on the operations domain that are already being rolled out and in flight and several more in development for digital products that we think will make us even more operationally excellent. Lastly, which is really the holy grail for HCA Healthcare, is clinical. If you just think about the patterns of what we do every day in our hospitals, you know, we deliver 250,000 babies a year, do 250,000 total joint replacements a year.
There is so much patterns in that data that the ability to use artificial intelligence to mine that data, produce advanced signals and really help our clinicians, our physicians, our nurses with clinical decision support. There is a powerful world of opportunity here in healthcare to advance what we do every day, which is take care of patients through the use of these digital technologies. We're just scratching the surface on the clinical side, but the opportunity is immense. We're really excited about the ability to leverage these tools as we move forward as a company.
Fortunately, we're out of time. I really appreciate it. You know, we have a few more questions to go, but unfortunately, like I said, we hit the clock. Thank you very much. Thank you for your participation and have a great day. Thank you.
Thank you, Michael.
Thank you, Mike. Take care.