HCA Healthcare, Inc.

Welcome to the HCA Healthcare Third Quarter 2020 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 Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead, sir.

Okay. Thank you, Julianne, and good morning. Welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen, our CFO, Bill Rutherford, along with our CMO, Dr. John Perlin. Sam and Bill will provide some prepared remarks and then we'll take questions. Bill will start with some comments on the quarter and then Sam will provide some broader commentary around some observations that we're making today. Before I turn the call over to Bill and Sam, let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations. Numerous risks and 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 these factors are listed in today's press release and our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded, and a replay of the call will be made available later today. With that, I'll now turn the call over to Bill. Great. Thank you, Mark. And good morning, everyone. I'll provide some additional information on the quarter. You will know in our earnings release this morning, our reported adjusted EBITDA was slightly better than our preview. So let me highlight some volume indicators and trends. Our same facility admissions declined 3.8% in the quarter. Within this, our Medicare admissions declined 7.6% from the prior year period, and our managed care admissions declined 0.7% from the prior year period. Our same facility emissions declined 3.7% in July, 5.2% in August, and 2.6% in September. Thus far in October, we have seen continued improvement in our emissions ramp. The COVID increases we saw in the quarter began in July and stayed elevated through most of August. Due to this, and as we have mentioned in previous settings, the voluntarily suspended elective procedures in over 100 of our hospitals for some period of time during the July and August surgeries. And this impacted our surgical volume statistics. Same facility inpatient surgeries declined 6.8% in the quarter from the prior year period. They were down about 11% in July, down about 9% in August, and were within 1% of prior year levels in September. Same facility hospital-based outpatient surgeries declined 7.5% in the quarter from the prior year period, with about a 12% decline in both July and August, but September saw some growth over prior year. Our ambulatory surgery center volume had a similar result, with a decline of 4.7% for the quarter, which occurred primarily in July and August, while September's volume was about 1% over prior year. The surgical volume results were influenced by business or surgical days in any given month, and September did have one more surgical day than the prior year. But we wanted to share some of the results we saw throughout the quarter to highlight the impact of our voluntary suspension of elective procedures. Emergency room visits trends were consistent throughout the quarter, which declined 20.3% from the prior year period. Our level one and three visits declined about 29%, and our level four and five visits declined about 14%. Admissions through the emergency room were down about 2.5%. The higher acuity and revenue intensity results we saw in the quarter offset the impact of these volume declines. Our same facility net revenue per adjusted admission increased 14.8% in the quarter compared to the prior year period. There were three factors that contributed to this result. One is the level of COVID-19 patients we served in the quarter. As we previously mentioned, we served close to 40,000 inpatient COVID cases in the quarter, or about 8% of our total admissions. These patients have a higher acuity than average and a longer length of stay, which resulted in a higher consumption of resources. Due to this, the revenue per admission is a little bit higher than our average. Second, within our non-COVID patients, we saw a higher acuity patient as those patients presenting for service have been in higher acuity areas such as neurology, cardiology, and oncology. And the lower acute services were slower to return. Our non-COVID case mix index increased approximately 5% over the prior year. Lastly, as we mentioned earlier, our managed care mix of inpatients grew as our Medicare volume was slightly slower to recover. Our teams continue to do an excellent job managing our cost structure during these pandemic cycles, which benefited our performance in the quarter and our labor, supply, and other operating costs as a percent of revenue all showed improvement as compared to the prior year periods. Before I conclude, let me speak briefly to some cash flow balance sheet and liquidity metrics. As we mentioned in our earlier calls, the company took a number of measures early in this pandemic to enhance our operational and financial flexibility. Because of these actions and other factors, we were able to announce that we will return or repay early $6 billion of CARES Act funding, including $4.4 billion of accelerated Medicare payments and $1.6 billion of provider relief funds we have received. We are working with various government agencies to execute these payments. We expect to fund the entire amount from available cash and future cash flow from operations. As of September 30, 2020, the company had approximately $6.6 billion of cash on the balance sheet and $7.7 billion of capacity under our credit facilities. Our debt to EBITDA leverage was 2.67 times as of September 30, 2020, after netting out available cash. Cash flow from operations was $2.7 billion for the quarter, which includes the effect of approximately $300 million of stimulus payments that will be part of our repayment. Year-to-date, cash flow from operations was $12.8 billion, which includes approximately $6.1 billion of government stimulus funds. Also, as mentioned in last quarter's call, we have reduced the company's planned capital expenditures and anticipate our full-year 2020 capital spending to be about $3 billion. In short, we believe even after considering the planned return of $6 billion of CARES Act funding, the cash flow, liquidity, and balance sheet position of the company provides us the financial capability and flexibility to navigate these unprecedented times and we will continue to look for opportunities to create long-term value for our shareholders. With that, let me turn the call over to Sam.

All right, good morning. The disciplined operating culture of HCA Healthcare and the ability to take full advantage of what our size and enterprise capabilities have to offer have produced remarkable performance for the company this year. These attributes, along with the great people we have in our organization and the steadfast commitment we have to our mission, have allowed us to deliver value consistently and at high levels for all of our stakeholders. As demonstrated again in this quarter's results, we continue to show resiliency, both operationally and financially, while also enhancing our overall position across the communities we serve. For the past couple of years, we've used the third quarter's earning call to provide some early thoughts about the upcoming year. In those years, we obviously had a more stable environment, economically, politically, and operationally. While always difficult to predict our business with precision, today's environment, with all of its uncertainty, makes it particularly challenging. We plan to provide you with more details in January when we complete our planning process for 2021. By that time, we will have a few more months of experience that we can hopefully use to give a better indication of our thoughts regarding certain components of our business. With that being said, we are beginning to formulate some preliminary perspectives around a few aspects of our business, and I want to share those with you this morning. With respect to volume, Given the unusual volatility we have seen in 2020 with COVID-19 surges, mandatory and voluntary suspension of elective business, and intermittent recovery periods, we currently plan to use 2019 volumes as a starting reference point for early 2021 planning purposes. Since the pandemic began, we have had very few months mainly September and October, that we believe are indicative of somewhat stable activity. Notwithstanding, we have some observations from these two months, and we are using them to inform our current thinking. First, we believe we will continue to treat COVID-19 patients throughout 2021. Over the last two quarters, COVID-19 patients have represented approximately 6% of our admissions. Recognizing that there are many variables that could affect next year, at this point, we believe it is reasonable to estimate around 4 to 5% of our 2021 admissions could be related to the virus. This factor suggests continued high levels of acuity in our overall mix of inpatient business, which should provide some support for current inpatient revenue trends. It is difficult, however, to know if the various governmental reimbursement programs for providing care to COVID-19 patients will continue through 2021. Overall, we believe demand for inpatient admissions next year will be down from 2019 approximately 2% to 3%, but again, with the mix being more acute. On the outpatient side, as compared to 2019, we anticipate emergency room visits will be down in 2021, similar to this year, but like our inpatient business, we expect it to be more acute, which should drive higher revenue per visit, offsetting some of the volume decline. For outpatient surgeries, we are expecting some recovery over current levels, but we expect volumes to be down slightly. With respect to managing operating costs, which has been a key part of our solid results this year, we have continued confidence in our team's ability to hold many of the gains they have made across the different expense categories. In those areas where we anticipate some pressure, we believe we have future resiliency actions that can help offset some of these challenges. Collectively, these factors lead us to think that our preliminary expectations for adjusted EBITDA for 2021 could look similar to the company's original 2020 guidance, but likely with a slightly wider range of results. Clearly, there are additional factors that could influence these perspectives and expectations, including but not limited to the economy could worsen and impact payer myths, The election result could bring adverse changes to healthcare policies, and the pandemic could fluctuate or affect our results in ways that we cannot anticipate. We will evolve our thinking accordingly as we gain a better understanding of these factors. We believe, as I stated in my comments a few weeks ago, that we have proven we can meet the challenge of this pandemic. We also believe the company will be able to navigate successfully through future challenges as well. Since the onset of this historic event, we have improved many clinical, operational, technology, and organizational capabilities. We believe these improvements, coupled with the financial flexibility we possess, should provide us with a platform to drive long-term growth and shareholder value. Once again, I want to thank our colleagues and our physicians for their incredible work during this year We are fortunate to have such capable people in our organization. And with that, I'll turn the call over to Mark for questions. Thank you.