HCA Healthcare, Inc. Q4 FY2025 earnings call

• Closed out the year with strong results, having the nineteenth straight quarter of volume growth due to solid demand across markets. - Revenue increased 6.7% compared to prior year quarter, margins improved both sequentially and year over year. - 2025 was a successful year with teams executing at a high level, gaining ground on strategic agenda, and staying focused on fundamentals. - Invested significantly in network expansion, workforce development, and clinical capabilities. - Monitored policy matters such as expired enhanced premium tax credits, Medicaid supplemental payment programs, and Rural Health Transformation Program. - Strengthened resiliency program in three areas: organizational (added new capabilities aligned with operating imperatives), competitive positioning (increased hospital capacity, clinical service offerings, and outpatient facilities), and financial (advanced cost management agenda and improved balance sheet). - Capital expenditures totaled $1.5 billion in the quarter and $4.9 billion for the year. Purchased $2.6 billion of outstanding shares in the quarter and $10 billion for the year. Paid $162 million in dividends in the quarter and $679 million for the year. Cash flow from operations was $2.4 billion in the quarter and $12.6 billion for the year.

In the fourth quarter, HCA Healthcare saw revenue increase 6.7% compared to the prior year quarter. Net income attributable to HCA Healthcare increased almost 31%, diluted earnings per share as adjusted increased 29%, and adjusted EBITDA increased around 11% versus the prior year period. Same facility volume: Admissions increased 2.4%, equivalent admissions 2.5%, inpatient surgeries were flat, outpatient surgical volume was down slightly, and ER visits increased 50 basis points. Payer mix: Same facility total commercial equivalent admissions increased 1.1% over the prior year, with exchanges growing 2.5%, commercial excluding exchanges increasing approximately 1%, Medicare increasing 3.5%, and Medicaid increasing 2.2%. Same facility net revenue per equivalent admission increased 2.9% versus prior year quarter. For full year 2025, on a same facility basis, revenue grew 6.6%, equivalent admissions 2.4%, and net revenue per equivalent admission 4.1% versus prior year. Consolidated adjusted EBITDA increased 12.1% over prior year, and adjusted EBITDA margin improved by 90 basis points. The net benefit from supplemental payments increased by $420 million, and hurricane impacted markets contributed approximately $125 million in adjusted EBITDA growth. Diluted earnings per share as adjusted increased 28.5%.

2026 guidance: Revenues are expected to range between $76.5 billion and $80 billion. Adjusted EBITDA is expected to range between $15.55 billion and $16.45 billion. Net income attributable to HCA Healthcare is expected to range between $6.5 billion and $7 billion. Diluted earnings per share is expected to range between $29.01 and $31.50. Capital spending range is increased from $5 billion to $5.5 billion. There is an adverse impact on adjusted EBITDA between $600 million and $900 million related to the health insurance exchange, offset by approximately $400 million through resiliency initiatives. Anticipate a decline in supplemental payment programs net benefit between $250 million and $450 million. Do not anticipate significant growth to adjusted EBITDA from hurricane impacted markets over prior year. Full year margins are expected to be slightly above 20% consistent with 2025, and cash flow from operations is expected to range between $12 billion and $13 billion. Board of directors authorized a new $10 billion share repurchase program and declared an increase in the quarterly dividend from 72¢ to 78¢ per share.

• Policy uncertainties including expired enhanced premium tax credits, ongoing developments related to Medicaid supplemental payment programs, and the Rural Health Transformation Program. - Exchange headwinds: Potential volume decline in health insurance exchange, migration of volume to other coverage types, and uncertainty around the impact on utilization and collectability. - Supplemental payment program changes: Decline in net benefit from Tennessee's program reverting to four quarters from six, a pause on a specific program in Texas, and a one-time retro payment from Virginia. - Uncertainty around the details and implementation of the Rural Health Transformation Program as it is largely state-driven with remaining uncertainty on funding allocation and timing.

Q: Hi, everybody. Thanks for the comments and the detailed commentary on the guidance. I wondered maybe because the focus is on the top line, of course, in your comments, can you talk about the expense items SWB, supplies, other operating expenses, professional fees, etcetera. What are your underlying assumptions there that are embedded in the guidance? Is there margin improvement opportunities on any of those lines in '26?

A: Good morning, AJ. When I look at the margin and I noted this in my comments, but, you know, the midpoint of our revenue and adjusted EBITDA guidance range suggest expectations for pretty stable margins in 2026 compared to 2025. As we noted on our third quarter call, we continue to assess mostly stable trends in our operating costs consistent with the last couple of years. I might note that we do see and would expect continued physician cost pressures and believe that those could even be maybe in the high single digits of growth in '26 versus '25. So those would be kind of some comments on the cost side of our guidance.

Q: Great. Thanks. So it sounds like the net negative headwind from ACA subsidies is in the $200 to $500 million range. Can you just go into more of the resiliency programs, provide some more detail on what's up that $400 million and obviously, the confidence and executing throughout the year just from a timing perspective and when you expect to lose potential volume?

A: Sure. I'll start with resiliency, and I'll pick up the second part in your question related to the exchanges. But, you know, as we've talked about over the last really, year plus, we have been implementing steps to try to mitigate the impact of this health insurance exchange headwind. We've been working to both enhance and accelerate our financial resiliency program. I would make a couple of contextual notes related to our program. The first is that our program has four key areas of focus: revenue integrity, variable and fixed cost efficiencies, and capacity management. We are leveraging three primary capabilities in driving our financial program. First, internal and external benchmarking and advanced analytics. Second, digital transformation with AI and automation. And third, expanding and leveraging our shared service platforms. 2026 plan includes significant efforts at corporate, in our large shared service platforms, and in our hospital operations. We have planned elements to drive better capacity management, including managing throughput and length of stay in our inpatient settings, in our emergency rooms, and our operating rooms. On the cost side, we have robust plans to drive labor efficiency, supply cost actions, and operating costs covering both variable and fixed costs. We're proud of our teams, and I think they've done a wonderful job embracing resiliency as a strategic imperative. And, we have confidence that, we'll be able to on this $400 million of incremental cost savings in '26 versus '25. A little bit more on your question related to to Hicks. And let me just say this. You know, our estimated range as I noted in my comments, of $600 to $900 million adverse impact to EBITDA, includes the potential impact from administrative reforms, that were passed as part of the One Big Beautiful Bill Act, and enacted through rulemaking as well as the expiration of the EPTC. And so as a reminder, our health exchange volumes represent approximately 8% of admissions and 10% of revenue in 2025. And the estimate impact centers around some key variables. That are included in our calculations. First, you know, how many people lose exchange coverage? What form of coverage, if any, do those lives migrate to? And for those retaining coverage, is there a change in middle tier or utilization? As you can imagine, assumptions around the variables are informed through our own data and experience as well as in incorporating external studies and analysis. These variables are difficult to predict and require significant judgments. Our model contemplates a 15% to 20% decline in our Hicks volumes for 2026. We assume this volume will migrate to either employee sponsored insurance or to uninsured. Of the decline in our HICS volumes, we assume approximately 15% to 20% will move to employee sponsored coverage, which carries a benefit with the remaining migrating to uninsured which includes a decline in utilization from those individuals no longer having coverage. From a timing perspective, we are, you know, watching the enrollment figures carefully. As you know, they were released recently by CMS. But these recently released enrollment data include a couple of key areas that will dictate the timing of the impact. And the first one is whether people can pay and sustain their premiums. Given the significant increase they are facing from EPTC expiration. The second one is if there will be a metal tier shift from silver to bronze, and the impact on utilization and collectability of our patient due balances. So we're watching these trends carefully as we go through the opening days, weeks, and months of 2026. And we will keep you informed as they play out during 2026 on our quarterly calls.