HCA Healthcare, Inc.

Welcome to the HCA Healthcare First Quarter 2020 Earnings Conference Call. Today's call is being recorded. After the speaker's remarks, there will be a question and answer session. Please press star 1 on your telephone to queue up for a question. At this time, for opening remarks and instructions, I would like to turn the call over to Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead.

All right. Thank you, Marcella. Good morning and welcome to all of you on today's call on our webcast. With me this morning is our CEO, Sam Hazen, and CFO Bill Rutherford. And also joining us this morning is Dr. John Perlin, our Chief Medical Officer. Sam and Bill will provide comments on the company's first quarter results and also the company's response to COVID-19, then we'll open up for questions. Before I turn the call over to Sam, let me remind everyone, that should today's call contain any forward-looking statements that 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. More information on forward-looking statements and those factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc., excluding losses or gains on the sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. through adjusted EBITDA is included in today's first quarter earnings release. This warnings call is being recorded and a replay of the call will be available. later today. I will now turn the call over to Sam.

Good morning and thank you for joining the call. I will focus my comments this morning on the COVID-19 pandemic and direct you to our earnings release for the financial results for the first quarter. In general, the first 80% of the quarter was very similar to the growth we had experienced over the past two years and was a reflection of the momentum we had heading into the year. Then the effects of the pandemic begin to hit us in mid-March. We will answer any questions you have about the first quarter's results following our comments. The early planning and preparations we did for COVID-19 involved updating clinical policies and operational guidance, preparing supply chain with added inventory levels for key personal protective equipment, drugs, and ventilator equipment. It also included testing building approaches to add capacity for a potential surge in patient volumes, leveraging data, initiating our emergency operations center, and refining our management structure to execute. Like most things in our company, the basic approach was to find ways to maximize unique enterprise capabilities, leverage financial resources, and further develop corporate relationships with others to support our hospitals. HGA Healthcare has a storied history of responding well to disasters, such as natural disasters like hurricanes and floods, as well as mass casualty events like the concert shooting in Las Vegas. We used these past experiences to guide and inform the planning and response during the crisis, which was the first one we would face at enterprise scale. This event has required us to respond differently with a structure that included a more balanced approach between corporate support, division coordination, and facility execution. As part of our plan, we developed five guiding principles that established a framework for decision making and actions through the crisis. These principles are simple, yet extremely powerful, and they endure today. They are as follows. First, protect our employees and physicians. Second, be there for patients. Third, partner with others. Next, be a resource for communities and government. And last, accelerate the company through the crisis. We started this effort and we still remain focused on protecting the safety and health of our employees and physicians as the first principle. We enhanced training, established better PPE acquisition, distribution, and control systems, implemented a universal masking policy, and improved lab testing turnaround times as part of this endeavor. We have cared for approximately 5,500 positive COVID-19 inpatients so far across the company. We were early to implement universal masking of care providers, and to date, we have had limited exposures to employees and doctors. A strong corporate culture is the bedrock of HCA Healthcare. This event has reinforced its importance and provided us with an opportunity to see it in action every day. Our dedicated and caring employees are the lifeblood of the company To date, we have not laid off or furloughed one employee as a result of the pandemic. Instead, we adopted a pandemic pay program that supports approximately 80,000 employees who are not getting their normal hours as a result of reduced overall volumes. Almost 11,000 corporate and division colleagues graciously took a salary cut of 10% to 30% for April and May, depending upon their compensation level, as a show of solidarity for our caregivers in the hospitals. Additionally, over 90% of our support staff are working productively from home. This remote work model has provided insight into operational efficiencies for the future and is but one example of organizational learning from this event. To further support our colleagues, many within the organization have contributed to the HCA Hope Fund, which is a 501c3 charity that is exclusively focused on providing support to fellow colleagues when they experience hardships in their lives. In less than one month, the fund has received unprecedented levels of contributions from employees, board members, and the Frist Foundation. A true testament to our culture, mission, and values. Already, the Hope Fund has over $1.3 million in grant applications that have either been paid or pending approval for more than 1,200 employees. It is times like these that test whether we honor our mission or not. We choose to honor it. For affiliated physicians, we have implemented a COVID-19 response model that includes partnering with other technical experts to assist them with navigating the CARES Act and accessing certain benefits available to them. Also, HCA Healthcare is a large medical office building landlord, and we took a leadership position, and many of our third-party developers have followed in implementing a rent deferral program which addresses medical practice or business disruption and maintains availability of medical care and related services for patients and the community. This program, which is allowed through federal waivers, provides relief for our tenants over the next few months. We have also provided similar relief to physician partners in our ambulatory surgery centers We have great relationships with our physicians, and we wanted to help them through this difficult period. The second guiding principle was to be there for our patients, and we have been. Our employees have shown up. Our physicians have shown up. They have been on the front line, and they have not wavered during this pandemic crisis in meeting their responsibilities of placing patients first. We've had ample capacity across our system to serve community needs. We have used the logistical capabilities of our supply chain to move supplies and ventilator equipment to needed hospitals. We have increased significantly telemedicine capabilities to keep patients in touch with their physicians. We have numerous research projects underway with our Sarah Cannon Research Institute as we continue to find ways to improve critical care medicine protocols for COVID-19 patients, lab testing methods, drug therapies, and much more. And lastly, we have used our internal supplemental staffing organization to enhance personnel needs when and where necessary across the enterprise. HCA Healthcare is a nation of heroes. I want to thank our colleagues and physicians for their unwavering commitment to patients their tremendous sacrifice and hard work, and their remarkable teamwork and dedication to each other. I salute them, and I know their communities salute them as well. The third principle was to partner with others and forge new relationships. We have evolved existing relationships with other companies in the industry to collaborate and solve problems. We have developed new relationships that allowed us to accelerate protocols and for inpatient COVID-19 testing that have become the norm for many health systems. We have partnered with a technology company to advance monitoring of community resources and illnesses. We believe these relationships and others will benefit us in the future as we see many opportunities for further enhancing our shared commitment and creating more value for patients and the communities we serve. I want to thank the leadership of these organizations for their collaboration and commitment to support our hospitals. The fourth guiding principle was to be a resource for the community and for government, both local and federal. We have collaborated with local health systems, health agencies, first responders and many more. Our teams are working directly with FEMA, CDC, And recently, we took a leadership position in developing with the federal government and the American Hospital Association a dynamic ventilator response network that will utilize excess inventory across the country to support needs in COVID-19 hotspots as they arise. We believe these type of public-private sector partnerships are necessary and valuable in responding to a public health emergency of this type and in creating channels of understanding between sectors. And the last guiding principle was to accelerate HCA Healthcare through this crisis and position the company for success in the future. This principle means that we are focused on using this pandemic to learn more and to learn faster. It demonstrates also our capacity for improving and becoming more agile at planning, executing, communicating, and processing solutions more effectively. And finally, this principle means that we as a company take steps to navigate appropriately through this difficult and uncertain period for the benefit of all stakeholders. We view our networks as part of and fundamental to community infrastructure. Across the 43 communities we serve, Our local health systems have a sacred responsibility to always be there when needed. To meet this promise, we must take prudent and necessary actions. As part of our planning, we took a number of steps which we believe are appropriate to protect the company and be there for the people we serve. The culture of HCA healthcare is laser focused on the patient. Our strategy, our decisions, and our resource allocation revolve around that. We also have a strong track record when it comes to making decisions that benefit our shareholders. The philosophy we have with respect to shareholder value remains. We continue to believe that a capital allocation strategy of reinvesting in our business and repurchasing stock will generate long-term value for the company. These strategies in the past dividends have benefited our shareholders. But given the uncertainty around this unprecedented pandemic, we felt it prudent to adjust the company's current capital allocation strategy. First, we reduced capital spending by delaying certain projects and postponing various initiatives. Second, we suspended share buybacks under existing programs. And third, Out of an abundance of caution, we suspended the dividend. We will continue to review the capital allocation strategy as we always do and plan to determine the appropriate adjustments as we get better visibility into our business. As we look ahead to the next phases of this pandemic, which starts with the reboot of core operations, We have developed various scenarios to inform the ranges of management actions necessary to respond appropriately to them. These scenarios are built around three major variables. First, understanding the impact of the recently unemployed on payer mix is important, including how many people either maintain existing employer-sponsored insurance coverage through COBRA programs, move to coverage from products sold in the exchanges, enroll in Medicaid, or become uninsured. Obviously, the timing of the economic recovery and government program support will determine the outcome of this variable. The second variable relates to the rebound in volume. As directed by federal and state governments, we have suspended certain operations, especially elective business. which is mostly surgical and generally more profitable than medical business. Additionally, emergency room visits have declined significantly during this event because of general concerns with COVID-19 and sheltering at home policies. Our modeling includes different levels and different timelines for their rebound. We are focused on a reboot plan that places us in the best possible position for success in resuming suspended operations. The reboot will require us to work with the governors on social distancing policies, which we believe will vary by market. We have to understand what physicians need to restart their practices. And finally, we have to respond to patients in a way that reassures them that we have the safe, and protected care environment they deserve. We expect to bring on capacity in a conservative manner as markets allow and in the most efficient way possible during the reboot. At this point, we believe the reboot phase will be accomplished across most of the companies by the end of the second quarter. The third variable is our cost reduction plan. We have developed three stages of cost reductions, with each one being more significant should there be a longer time to recovery. We have already executed on most of the first stage items, and now we are implementing aspects of the second stage as we look to enter the reboot phase. The third stage of our plan includes a response to a situation where we see structural changes to revenues. We will be vigilant about determining if this happens, but at this point we believe it is too early to implement the measures in this third stage. We have demonstrated over the years the ability to respond and adjust operations to various conditions. I have faith in our teams and believe they will once again prove it in the face of this ongoing challenge. As I've said many times in the past, I believe HCA Healthcare is incredibly resilient because of our dedicated people, the scale we have, and the ability to leverage it uniquely to capitalize on business opportunities or address challenges. We believe our resiliency is further enhanced by our diversification of markets diversification of services, and a strong asset base which can provide a certain level of strategic optionality and flexibility. We have seen it demonstrated over a 50 plus year existence, and I believe we will see it again. In closing, I say with confidence that we will get back to normal in time, but we realize it may be a new normal. Fortunately, I see HCA Healthcare as uniquely positioned to help define the new normal and capitalize on new opportunities. I want to thank our shareholders again for their support of HCA Healthcare. And now I will turn the call over to Bill for a few more comments.