HCA Healthcare, Inc. Q2 FY2026 earnings call

Payer Mix Impact from Expired Enhanced Premium Tax Credits

• The expiration of enhanced Affordable Care Act premium tax credits at the end of 2025 led to a larger-than-expected shift in payer mix, with 15% decline in adjusted admissions for patients previously covered by health insurance exchanges
• Contrary to management's original assumption that 80-85% of patients losing exchange coverage would shift to uninsured, nearly 100% (one-for-one) of these patients became uninsured, creating significant financial pressure
• 80% of the company's uninsured volume growth comes from this exchange migration, with the remaining 20% from a slowdown in Medicaid conversions concentrated in Texas, which has a modest financial impact
• Three divisions (Gulf Coast, North Florida, South Atlantic) accounted for 50% of the company's overall negative impact from the payer mix shift, with composite exchange adjusted admission declines of 25-28% year-to-date

Demand and Volume Trends

• Despite the payer shift, overall insured volume (excluding exchanges) grew 3.2% in the quarter and 2.2% year-to-date, with improving trends through the first half of the year
• Emergency room visits, cardiac procedures, and rehabilitation volumes drove volume improvements; emergency inpatient surgery (two-thirds of total inpatient surgeries) is up year-over-year
• Elective surgeries across inpatient and outpatient settings have declined: inpatient elective surgeries are down 6% year-to-date (after a 2% decline in 2025), with the exchange coverage loss a major contributing factor, alongside broader affordability pressures and Medicare regulatory shifts that moved cases to outpatient settings
• Uninsured volumes now represent just over 10% of total equivalent admissions, while exchanges represent 6.8% of total equivalent admissions; the combined share of exchanges and uninsured is unchanged year-over-year, confirming the one-for-one migration

Capital Investment and Growth Strategy

• The company has approved $7 billion in capital expenditures to be brought online over the next three years, including 1,000-1,200 new inpatient beds and 250-300 new outpatient facilities, which will add 10% to overall network capacity
• HCA has expanded inpatient capacity from 37,000 beds (2018) to 42,000 beds (2026), with occupancy growing from 71% to 75% over that period; total care sites have increased 5% year-over-year as of Q2 2026
• Management confirms competitive positioning is stable to improving overall, with market share gains in most markets, supported by favorable demographic growth trends in HCA's core southeastern and southwestern U.S. markets

Financial Resiliency Program

• The enterprise-wide financial resiliency program delivered solid cost results in the quarter, with same facility total cost per equivalent admission nearly flat year-over-year
• The program leverages digital transformation, global shared service capabilities, and workforce development to generate long-term efficiency improvements and bend the cost curve
• Professional fee growth moderated to 8.5% year-over-year in Q2 (flat sequentially), though anesthesia and radiology professional fees remain elevated above inflation, and the company is actively working to optimize these costs

The transcript does not break out financial performance by separate product or operating segments. Aggregate company performance for the second quarter of 2026 is as follows: Diluted earnings per share grew 11% year-over-year; same facility admissions increased 2.5%, equivalent admissions increased 2.7%, inpatient surgeries decreased 2.3%, outpatient surgeries decreased 3.4%, and emergency room visits increased 3.6%. Net revenue per equivalent admission grew 6.4% year-over-year. The unfavorable payer mix shift from expired enhanced premium tax credits for health insurance exchanges reduced adjusted EBITDA by approximately $400 million in the quarter, including a $75 million upward revision from first quarter estimates. The company recognized $400 million in incremental net benefit from Medicaid supplemental payment programs in the quarter, including a $540 million incremental benefit from the newly approved Florida program (covering October 1, 2024 to June 30, 2026), partially offset by prior year retroactive payments. Same facility cost per equivalent admission was flat year-over-year and improved 1.4% sequentially. Capital expenditures totaled $1.2 billion; the company repurchased $2.1 billion in outstanding shares and paid $171 million in dividends. Operating cash flow was $2.3 billion, a 45% decline year-over-year driven by timing of Florida Medicaid payments and 2025 federal income tax deferrals.

• Full year 2026 revenue guidance is set between $77 billion and $79.5 billion; adjusted EBITDA guidance is between $15.4 billion and $16.1 billion, net income between $6.3 billion and $6.7 billion, and diluted EPS between $28.70 and $30.50. The revised guidance aligns with HCA's long-term target of 4-6% adjusted EBITDA growth, down from initial 2026 guidance above this long-term range.
• The updated estimated full-year unfavorable impact on adjusted EBITDA from the health insurance exchange payer mix shift is between negative $1 billion and negative $1.2 billion, an upward revision of $350 million from prior estimates, driven by the higher-than-expected one-for-one shift to uninsured.
• Expected full-year incremental net benefit from Medicaid supplemental payment programs is between $300 million and $500 million, implying a $100 million to $300 million headwind in the second half of 2026 due to prior year retroactive payments exceeding incremental new Florida program benefits in the back half.
• Capital expenditure guidance is maintained at $5 billion to $5.5 billion for the full year. The company expects to complete nearly all of its existing authorized share repurchase program by the end of the year, subject to market conditions.
• Management expects fourth quarter 2026 adjusted EBITDA growth to be higher than third quarter growth, due to easier year-over-year comparisons for exchange volumes and timing of Medicaid supplemental payment benefits.
• Management estimates that coverage losses from the expiration of enhanced premium tax credits will be substantially lower in 2027 than in 2026, assuming no new enhanced premium support is enacted, returning to a more normal attrition trajectory.

• Uncertainty around the size of remaining exchange coverage attrition and the magnitude of the corresponding financial impact, as patient coverage trends after the expiration of enhanced premium tax credits are difficult to predict accurately.
• Potential future coverage leakage from proposed Medicaid work requirements, which are expected to have a larger impact in non-expansion states (which represent 60% of HCA's Medicaid revenue), though management notes it is preparing patient support teams to assist with enrollment and expects to manage the impact reasonably.
• Elective surgery volume weakness driven by broader consumer affordability pressures in the U.S. economy, which could persist longer than expected.
• Legal and regulatory uncertainty around the implementation of Medicaid work requirements, with ongoing litigation delaying final implementation, creating planning uncertainty.
• Ongoing cost pressure from elevated anesthesia and radiology professional fees, which remain above inflation despite moderating overall cost growth.
• Potential industry-wide reimbursement pressure from payers seeking to offset increased costs from the No Surprises Act independent dispute resolution (IDR) process, though HCA notes it participates in in-network contracts for ~85% of exchange and commercial business and has very low volume of IDR claims, limiting direct exposure.

Q: What drove the increase in the estimated full-year exchange headwind to $1-$1.2 billion, and what can we expect for the pace of impact in the second half of 2026?

A: Original exchange volume decline estimates of 15% were accurate. The key change was that nearly 100% of patients losing exchange coverage shifted to uninsured, versus the original assumption of 80-85%. The full-year estimate incorporates first half learning, historical attrition data, and external market data. Fourth quarter will have an easier year-over-year comparison because exchange growth slowed unexpectedly in Q4 2025 after late-year policy changes, so headwind pressure will ease sequentially.

Q: What factors are driving the decline in surgical volumes, and do you expect deferred elective procedures to recover in the back half of 2026 as patients meet deductibles?

A: Emergency inpatient surgeries (two-thirds of total inpatient surgeries) continue to grow 2% year-over-year. The entire decline is concentrated in elective surgeries, which are down 6% year-to-date after a 2% decline in 2025. The loss of exchange coverage is a major driver of lower elective demand on both inpatient and outpatient, alongside broader consumer affordability pressures and Medicare regulatory shifts that moved some cases to the outpatient setting. Management is investing in OR optimization and physician alignment to support a future recovery, but did not commit to a specific back half rebound timeline.

Q: How does the $7 billion three-year capital plan align with current market trends, and what is HCA's current competitive positioning relative to peer hospitals?

A: The capital plan includes both inpatient capacity expansion (1,000-1,200 new beds) and major outpatient network growth (250-300 new facilities, adding 10% total network capacity) to respond to ongoing regulatory shifts moving care from inpatient to outpatient settings. HCA's overall competitive positioning is stable to improving, with market share gains in most of its markets. Favorable long-term demographic growth in HCA's core southeastern and southwestern markets supports continued investment, as population growth drives underlying demand for healthcare services.

Q: How is HCA's financial resiliency program progressing, and what cost offsets can we expect from the program in the back half of 2026 and beyond?

A: After adjusting for Medicaid program impacts, total cost per equivalent admission was nearly flat year-over-year in Q2 2026, reflecting strong progress from the resiliency program. Professional fee growth moderated to 8.5% year-over-year (flat sequentially), though anesthesia and radiology professional fees remain elevated above inflation. The maturing program, supported by new digital transformation and global shared service capabilities, is expected to deliver improved cost trends in the second half of 2026 and produce multi-year efficiency benefits through 2027 and beyond.

Q: What is HCA's exposure to the No Surprises Act IDR process, and what do you think about the current industry dynamic around IDR claims?

A: HCA is an in-network provider for nearly all commercial and exchange plans, so the company has very low IDR volume. After acquiring controlling interest in most hospital-based services, HCA has integrated these services into its in-network contracts, so very few claims end up in the IDR process. HCA does not use the aggressive claim filing methodology that has driven industry-wide cost increases, and management notes that the IDR regulatory framework will likely require refinement to balance market dynamics, but this will have little direct impact on HCA.