HCA Healthcare, Inc. 2026 Q3 Earnings Call

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen, and our CFO, Mike Marks. Sam and Mike will provide some prepared remarks and then we'll take your questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they're 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 these 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, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling 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 available later today. With that, I'll now turn the call over to Sam.

Good morning, and thank you for joining the call. The company's results in the third quarter reflected improvement in key areas of our business. First, demand for our services continued to grow at a solid rate. Adjusted admissions on a same-facility basis grew 3% compared to 2.3% year to date. Inside this growth, insured volumes grew faster in the quarter than in the first half of the year. The third quarter reflected the 22nd consecutive quarter of volume growth for the company. Second, revenue per adjusted admission for our insured business, excluding supplemental payments, increased at a higher rate than in the first half of the year. This increase partially offset the payer mix pressure from continued volume declines for patients who were formerly covered in health insurance exchanges and are now uninsured.

Additionally, we had a modest incremental net benefit of $50 million in the quarter from Medicaid supplemental payment programs, primarily related to a recently approved Virginia program. These factors, coupled with improved cost results, contributed to solid financial performance in the quarter that slightly exceeded our expectations. Diluted earnings per share, as adjusted, increased almost 4%. I have often mentioned that HCA has strong staying power because of our scale, the important role we play in providing critical services to communities, and our disciplined culture. Despite the challenges this year brought about by federal policy changes, we have continued to move the company forward and believe we are positioned to end the year positively. As we look ahead to 2027, let me share a few preliminary observations around certain aspects of our business before we provide our full year guidance in January.

I will remind everyone we are still early in our planning process and there are several important areas that remain fluid, including the policy environment. First, we expect demand for services to remain strong with volume growth forecasted to be 2%-3%. This range is consistent with our long-term thinking. Within the demand environment, we believe it is reasonable to assume for 2027 that fewer people will lose their coverage on the health insurance exchanges than we experienced in 2026. However, we do expect that there still will be a meaningful impact on payer mix. We need to get through the fourth quarter before we can provide more details. Next, we expect to receive approximately $550 million-$650 million less in Medicaid supplemental payment net benefits due to various state programs that received grandfather approvals in 2026 and reimbursed us for services we provided in prior years.

Last, we anticipate favorable cost performance, primarily due to our ongoing enterprise-wide resiliency program and the operating leverage from the expected volume growth. When we aggregate these preliminary observations, we anticipate our earnings in 2027 will be generally consistent with 2026. Beyond 2027, we anticipate performance more in line with our long-term growth targets. This view makes three important assumptions. First, we move past the most significant effects on payer mix from the exchanges. Second, we assume no material policy changes beyond HR 1. Finally, we have a set of strategic initiatives, including digital transformation, network development, and ongoing resiliency programs that generate significant value. I will reiterate, it is still early, but we believe these preliminary perspectives provide context for how we currently see the company's growth prospects. Let me close with this. Our colleagues continue to provide high-quality care to our patients and execute our strategic plans.

I appreciate their efforts in delivering on our mission, and I want to thank them for their good work. As we get further into the execution of our plan, we believe it will enhance access for our patients with our capital spending, create a better work environment for our caregivers with our AI transformation initiatives, and deliver value for our shareholders with our enterprise-wide resiliency program and balanced capital allocation. As we look to the future, I am confident that HCA Healthcare has the right people, the right process, and the financial position to achieve our long-term objectives. With that, I will turn the call over to Mike for more details on the quarter.

Thank you, Sam, and good morning, everyone. As Sam noted, demand for our services continued to grow at a solid rate. Compared to the prior year quarter on the same facility basis, admissions increased 2.7%, equivalent admissions increased 3%, and ER visits increased 5.1%. Inpatient surgeries were down 1.4%. Outpatient surgeries were down 3.7%. Regarding surgical volumes, consistent with the second quarter, we continued to see solid growth in our emergent surgical volumes and pressure in elective. Same facility equivalent admissions in our insured population, excluding exchanges, increased approximately 3% in the third quarter versus prior year. Exchange equivalent admissions declined approximately 19% versus prior year quarter. For context, the third quarter of 2025 was our high water mark for exchange volume, making for a difficult comparison. However, we did see sequential improvement in exchange volume from Q2 to Q3 of 2026 of approximately 8%.

Like the second quarter, we continue to see patients who have lost coverage on the exchanges migrate almost one-for-one to uninsured. This one-for-one migration makes up approximately 80% of our uninsured volume growth, with the remaining 20% primarily related to a decrease in Medicaid conversions, and mostly in Texas. Our uninsured volume in third quarter 2026 represented approximately 10.5% of total equivalent admissions versus 8.5% in the prior year quarter. We estimate the payer mix shift from exchanges to uninsured resulted in an unfavorable impact on adjusted EBITDA of approximately $400 million in the quarter. We now expect the full year unfavorable impact on adjusted EBITDA from payer mix shifts to be at or slightly above the upper end of the range of our previously updated estimates. For Medicaid supplemental payment programs, the company recognized approximately $50 million of incremental net benefit during the third quarter.

We now expect the incremental net benefit from Medicaid supplemental payment programs to be between $600 million and $800 million for the full year of 2026. This increase in our estimated range was driven equally by the grandfathered application from Virginia and one-time payments from across our other programs. We were pleased with our cost results in the quarter. Same facility cost per equivalent admission, when excluding Medicaid supplemental payment programs, was essentially flat versus prior year quarter, and it improved 40 basis points sequentially. As we typically see an increase sequentially from second quarter to third quarter, this outcome reflects strong operating discipline from our teams. Moving to capital allocation and cash flow. Capital expenditures totaled approximately $1.36 billion in the quarter. Additionally, we purchased approximately $3 billion of our outstanding shares, and we paid $165 million in dividends for the quarter.

Cash flow from operations was approximately $4.5 billion in the quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet remains strong and well-positioned for the future. We currently expect to complete most of the existing authorized share repurchase program by year-end, subject to market conditions and other factors. As noted in our release, we are reaffirming our estimated guidance ranges for 2026. Given our third quarter performance, we currently expect to be in the upper half of our guidance ranges for the year. I will now hand the call back to Frank Morgan for questions.

Thank you, Mike. As a reminder, please limit yourself to one question so we might give as many as possible in the queue an opportunity to ask a question. Christine, you may now give instruction to those who would like to ask a question.