HCA Healthcare, Inc. Q1 FY2026 earnings call

The start of the year presented a dynamic environment. There was no typical lift from seasonal respiratory conditions; respiratory-related admissions and ER visits were down. A storm in some markets also impacted volumes. However, there was a greater net benefit from state supplemental programs than expected, offsetting some volume shortfalls. The underlying shifts in payer mix from health insurance exchanges were generally in line with expectations. The company's resiliency plan focused on generating cost savings, enhancing network execution, and strengthening organizational capabilities. Volumes rebounded nicely in February and March. The digital transformation and AI agenda progressed with key initiatives rolled out to more facilities. The company continued to invest in network development, with capital spending and selective outpatient facility acquisitions, expanding overall sites of care, increasing hospital beds, and emergency room capacity.

Revenue increased 4.3% compared to the first quarter of the previous year. Adjusted EBITDA increased almost 2%, and diluted earnings per share (as adjusted) increased approximately 11% compared to the prior year period. Respiratory-related admissions were down 42% and respiratory-related emergency room visits were down 32% compared to the first quarter of the previous year. The net benefit from state supplemental programs was greater than anticipated, which mostly offset the impact from the shortfall in volumes.

The respiratory-related volume shortfall and the increase in supplemental payment net benefits are considered first-quarter events, and the assumptions regarding volumes, payer mix, and costs for the remainder of the year continue to be in line with the original guidance. The full-year range for Medicaid state supplemental program net benefit has been adjusted to reflect a decline of $50 million to $250 million compared to the prior year. The impact of the exchange environment on adjusted EBITDA is still expected to be in the range of $600 million to $900 million for the full year. The estimated guidance raises for 2026 are reaffirmed, and the volume growth assumption of 2%-3% for the full year remains reasonable.

The respiratory season and winter storm had an impact on volumes, which is a temporal risk but still affected results. There is uncertainty around Medicaid state supplemental programs, including potential changes in net benefits. The exchange environment is dynamic and has an uncertain impact on adjusted EBITDA. There has been an increase in payer denials and underpayments, impacting earnings. Hurricane-impacted markets have higher costs to serve due to workforce deficits, affecting the bottom line.

And our first question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open. Thank you very much. I appreciate the color on the respiratory, STP, and other components. Maybe you could just give us a rundown broadly of how your results compared to your internal expectations for the quarter. Thanks, Ben. This is Mike. I mean, our results were a bit short in terms of adjusted EBITDA to our internal expectations. You know, I would size our internal expectations as being pretty consistent with the midpoint of our guidance in terms of growth, pretty consistent actually with consensus coming into the call. Really two main drivers in terms of the shortfall to internal expectations. The first one is this, you know, kind of shortfall in the seasonal volume uplift from respiratory in the winter storms, which was mostly offset by the net benefit from the supplemental payment programs. A little detail here on seasonal volume for fall. I've already kind of quantified the volume side of that. So let me talk about the expense side. As we were coming into January, our respiratory season was actually strong at the beginning of the year. However, later in January, it became apparent that the respiratory season was actually ending abruptly. And we were then hit with a significant January winter storm across several of our states. But the quick ramp down of the respiratory volume, as well as the winter storm, delayed our ability to flex down our seasonal costs in the quarter. We were ultimately able to do so as we moved through the quarter, but there was a delay. So let me switch now to the supplemental payment program activity. As noted, you know, Medicaid supplemental payments net benefits was better than expected. As we came into the quarter, we did anticipate an increase in the supplemental payment net benefit in Q1 of $80 million. Largely did the increase in the Tennessee program that was approved in in Q3 of 2025. So the the $200 million in net benefit in the first quarter was about $120 million higher than our internal expectations in the quarter, and again resulted from the approval of the Grandfather Georgia program. as well as the reinstatement of the Atlas program in Texas. So in summary, Ben, when I think about first quarter, you know, largely we were just a bit short in total. But when you take the temporal factors of the lack of the seasonal volume uplift and the pickup in net benefit supplemental payments, those are really the main drivers in the quarter. Thanks. Appreciate that color. And then kind of as a quick follow-up, can you just give us an update on the moving pieces that kind of get you back to the initial guide? You know, maybe walk us through the components of the EBITDA bridge as you see them today after such a dynamic first quarter. Thanks. Sure. You know, if you go back to the release, you know, the really only change to our key assumptions We estimate that the Georgia approval and the reinstated Atlas program previously discussed will provide approximately $200 million of incremental net benefit for the full year that was not originally included in our guidance. I would note that the $120 million for Georgia and Texas that we talked about for first quarter had a prior period impact in it. you know, the component that applied the first quarter for the full year of 26 really makes up that $200 million. And so, you know, that's why we're adjusting our assumption for full year net benefit to now be a decline of $50 million to $250 million. And just to note, that assumption does not include any additional approvals of grandfathered applications. When I think about the rest of our assumptions, Ben, if you think about the impact of the exchanges, We still believe that that $600 to $900 million range is appropriate based on what we've learned in first quarter. Our resiliency assumptions that were in guidance also, we believe, are still reasonable and appropriate. And so, you know, at the end of the day, we just felt like that it was appropriate not to change our total guidance ranges. even with the $200 million improvement in first quarter. You know, a chunk of that really goes back to this temporal nature of the headwinds that we saw in first quarter being related to the seasonal volume impacts in the winter storm and the related cost impacts. And so, as we think about how we progress through the quarter, you know, Sam mentioned that, you know, as we exited the quarter in March, there are volumes We're improving largely back to our original plan. We also saw the same thing in our cost structure. As we got through March, our cost trends really reflected good performance in March, and we're largely on plan. And so that's the walkthrough on guidance. Thank you very much. And our next question comes from the line of AJ Rice with UBS. Your line is open. Hi, everybody. Just to put a fine point on what we're just going on numbers flying back and forth. Is the right way, am I hearing you say you basically had 180 million of negative impact from flu and weather in the first quarter. You picked up 120 million of benefit from DPPs in the first quarter that was not expected. So the net was a 60 million drag net of the unusual items or weather and flu. And then on the 180 million versus the 200 million of DPP in the full year impact. So you're ending up roughly 20 million if you maintain your guidance for Q2, Q3, Q4 better because of the incremental impact of DPP over the course of the year. I just want to make sure that's the right take. from what you're saying. Yeah, I think that's, you're generally in the zone. I mean, you know, we view the $180 million headline in the quarter as being temporal and not structural, so we don't think that repeats. You know, the $200 million improvement for the full year 26 from, you know, supplemental payment benefits you know, reflect Georgia and Texas. And then, you know, just broadly, we're not changing our four-year guidance on earnings. And I think, you know, that's the way to read that. You know, I think I would acknowledge there's a little bit of softness, you know, midst of this consensus that may be not fully explained, but it's pretty close from the moving factors in the first quarter. And then, AJ, when we look at the rest of the year, you know, we think about the demand that we're seeing in the marketplace. We believe that we will be able to run between 2% to 3% volume growth in the next three quarters of prior year. Our original assumption around the exchanges, around revenue, and our cost trends, you know, we think that the balance of the year is another way of saying it's largely back on our original plan. Okay. And maybe follow up. Go ahead. No, I didn't say them. I mean, we do,我会继续完整组织问答部分，但由于内容较多，这里简单示例部分，完整的问答部分需要将所有问答对话按照Q:A的形式罗列，例如：{