Q4 2025 Earnings Call Transcript

Ladies and gentlemen, welcome to HCA Healthcare Fourth Quarter 2025 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. Frank Morgan.

Please go ahead, sir. Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Samuel Hazen, and CFO, Mike Hart. Sam and Mike will provide some prepared remarks and then we'll take questions.

Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, that are 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 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. Thank you for joining the call. We closed out the year with strong results that were mostly consistent with the previous quarters in 2025. We delivered our nineteenth straight quarter of volume growth reflecting continued solid demand across our markets. The benefit of network investments and improved results in capacity management, quality patient outcomes, and stakeholder engagement.

Revenue increased 6.7% compared to the prior year quarter. And with disciplined expense management, margins improved both sequentially and year over year. For the 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.

Reflecting on 2025, this was another successful year for HCA Healthcare. Throughout the year, our teams executed at a high level, we gained ground with our strategic agenda, and we stayed focused on the fundamentals. Additionally, we invested significantly in network expansion, workforce development, and clinical capabilities. These investments help deliver positive outcomes across the HCA Healthcare System.

As a result, our networks had approximately 47 million patient encounters during the year, representing a record level of patient care activity for the company. I want to thank my colleagues for their outstanding work, their dedication to our patients, and their unyielding commitment to our mission. Now let me transition to the policy environment. We continue to monitor several policy matters including the expired enhanced premium tax credits, the ongoing developments related to Medicaid supplemental payment programs, and the Rural Health Transformation Program.

These matters continue to evolve. As we learn more, we will provide updates at the appropriate times. That said, we believe our core business remains strong with forecasted volumes in our long-term 2% to 3% growth range. This past year, we strengthened the company's resiliency program in three important areas.

And this gives us confidence that we can navigate effectively through these policy dynamics. The first was organizational. In this area, we added new capabilities that were aligned around the company's operating imperatives. Next, we strengthened the management systems to enhance execution.

And lastly, we ramped up leadership development. The second area relates to competitive positioning. We increased hospital capacity, clinical service offerings, and outpatient facilities across our networks to create greater patient access and address the needs of our communities. The third was financial.

Here, we advanced our cost management agenda and improved our balance sheet with strong cash flow and disciplined capital allocation. These results allowed us to invest significantly in our networks, our people, and our AI and tech agenda. In closing, we are well positioned to move forward as we begin 2026. We continue to believe the HCA way of combining high-quality local provider networks with the distinct capabilities, talent, and scale of a national healthcare system creates sustained value for our stakeholders. It allows us to deliver more effectively on our mission.

With that, I will turn over the call to Mike for more details on the quarter and our outlook for 2026.

Thank you, Sam, and good morning, everyone. We were pleased with the results of 2025, which reflected strong operational performance combined with disciplined capital allocation. Let me note some same facility volume comparison to 2025 versus 2024. Admissions increased 2.4%, and equivalent admissions increased 2.5%, in line with our expectations of 2% to 3%. Inpatient surgeries were flat, outpatient surgical volume was down slightly.

ER visits increased 50 basis points. Overall respiratory volumes had no material impact on year-over-year volume. Regarding payer mix for the quarter, same facility total commercial equivalent admissions increased 1.1% over the prior year, with exchanges growing 2.5%, and commercial excluding exchanges increasing approximately 1%. Medicare increased 3.5%, and Medicaid increased 2.2%.

Same facility net revenue per equivalent admission increased 2.9% versus prior year quarter. The 80 basis point improvement in adjusted EBITDA margin in the quarter was driven primarily by solid revenue growth, good results in labor management, and improvements in other operating expenses. Adjusted EBITDA grew approximately 11% compared to the prior year quarter, primarily due to strong operating performance and an approximate $150 million increase in our hurricane markets. As we've said in the past, Medicaid supplemental payment programs are complex, variable in timing, and do not fully cover our cost to treat Medicaid patients.

Due to a retro payment from Virginia in the fourth quarter, the net impact of supplemental payments was approximately flat versus prior year quarter. Now let me discuss full year results for 2025, which reflected good demand growth in our markets. On a same facility basis, we posted growth in revenue of 6.6%, equivalent admissions of 2.4%, and net revenue per equivalent admission of 4.1% versus prior year. Consolidated adjusted EBITDA increased 12.1% over prior year, and we delivered a 90 basis point improvement in adjusted EBITDA margin.

The net benefit from supplemental payments increased by $420 million. Hurricane impacted markets contributed approximately $125 million in adjusted EBITDA growth. Diluted earnings per share as adjusted increased 28.5%. Moving to capital allocation.

Capital expenditures totaled $1.5 billion in the quarter, and $4.9 billion for the year. Additionally, we purchased $2.6 billion of our outstanding shares during the quarter and $10 billion in the year. We paid $162 million in dividends for 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.

This represents a 20% increase in operating cash flow in 2025 over full year 2024. Our debt to adjusted EBITDA leverage remained at the low end of our target range. Given our strong balance sheet, we are well positioned for the future. So with that, let me speak to our 2026 guidance. Expect revenues to range between $76.5 billion and $80 billion.

We expect adjusted EBITDA to range between $15.55 billion and $16.45 billion. We expect net income attributable to HCA Healthcare to range between $6.5 billion and $7 billion. We expect diluted earnings per share to range between $29.01 and $31.50. Further, we continued to see opportunities to deploy capital and drive organic growth in our markets through investing in high acuity programs, increasing our network through new access points, and building new inpatient capacity. As a result of these opportunities, we have increased our capital spending range from $5 billion to $5.5 billion.

Our 2026 guidance includes the following assumptions. Growth in equivalent admissions between 2% to 3%, an adverse impact on adjusted EBITDA between $600 million and $900 million related to the health insurance exchange. This includes impact from administrative reforms enacted in 2025, the One Big Beautiful Bill Act, and the expiration of the enhanced premium tax credits. We expect an offset to this exchange headwind of approximately $400 million through resiliency initiatives, designed to generate efficiencies throughout the organization.

We anticipate a decline in supplemental payment programs net benefit between $250 million and $450 million. The expected decline in net benefit is driven primarily by Tennessee's program reverting back to four quarters of net benefit versus six quarters in 2025. A pause on one specific program in Texas and a one-time retro payment from Virginia. This guidance does not include any potential impact in 2026 from additional approvals of grandfathered applications. We do not anticipate any significant growth to adjusted EBITDA from our hurricane impacted markets over prior year.

We expect full year margins to be slightly above 20% consistent with 2025 and cash flow from operations to range between $12 billion and $13 billion. Lastly, we plan to continue investing in our technology and digital innovation strategy, which we expect will deliver long-term value and help position the company for future. Considering these factors, our overall 2026 adjusted EBITDA guidance reflects strength and momentum in operations. Increased investment in strategic initiatives, consistent business fundamentals, and a disciplined approach to capital allocation.

Given what we see today, including the demand in our markets, our resiliency program, and our digital transformation initiatives, we remain comfortable that we will perform within our long-term plan over time. As noted in our release this morning, our board of directors have authorized a new $10 billion share repurchase program. We currently anticipate completing a majority of the existing authorization in 2026, subject to market conditions and other factors. In addition, our board declared an increase in our quarterly dividend from 72¢ to 78¢ per share.

In conclusion, 2025 marked another year of solid operational performance for HCA, and we believe that we are well positioned for continued progress and success in 2026. With that, I will turn the call over to Frank for questions.

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

Thank you. We will now begin the question and answer session. You would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the queue. Simply press star one again. Your first question comes from the line of A.J. Rice with UBS. Your line is open.

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?

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.

Okay. In the contract labor and just general labor, that's steady year to year is the underlying assumption?

It is. I mean, the only thing I might mention is that contract labor as a percent of SWB we came in at about 4.2% for the fourth quarter. And that feels like, you know, kind of our run rate now as we come into 2026. But other than that, I mean, the resiliency plan is in our guidance, as I noted in my comments. And largely, the resiliency plan is there to help us offset much of the adverse impact of the exchange headwinds possible.

And you see that in our guidance as well. I think it reflects, you know, really strong cost and operating leverage as we head into 2026.

Okay. Great. Thanks so much.

Your next question comes from the line of Ann Hynes with Mizuho. Your line is open.

Great. Thank you. 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?

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.

Great. Thanks.

Your next question comes from the line of Pito Chickering with Deutsche Bank. Your line is open.

Hey, thanks, and good morning, guys. Thanks for taking my questions. A 2026 guidance question here, just are there any one-timers you should be adjusting out for 2025? But if you take the baseline of '25 and pull out I think, $450 million to $900 million from Hicks as supplemental payments, offset by the resiliency programs wanna make sure that I'm calculating the core growth of what each is doing at sort of 3% to 12% the 7% of the midpoint versus just your long-term guidance of four to 6%.

So you're still guiding core above your long-term guidance?

Let me say, I think from a range perspective, that I would just reiterate two or three of the moving parts for clarity. You know, we've noted the range of potential adverse impact from the exchanges of $600 million to $900 million. We've noted that we believe that the supplemental payments could have a $250 million to $450 million decline in net benefit. And that that decline in net benefit does not include any potential new approvals of grandfathered applications by CMS.

And lastly, resiliency. You know, we are confident that we'll be able to execute on our plans for 2026 given the $400 million target. So I think in taking those kind of swing factors into account, Pito, we do agree. We're pleased with the strength and the performance of the company and the momentum of the company as we go into 2026.

And then if you can size up the potential default approvals come through, how much they could add to '26 unit tops?

Yeah. We're not sizing the people approvals until we get a sense of the actual approval from CMS, and what changes, if any, they make through their review and approval process. So not quite sizing that yet.

Thanks so much, guys.

Your next question comes from the line of Justin Lake with Wolfe Research. Your line is open.

Hi. Thanks. This is Anna on for Justin. To ask the $400 million of resiliency benefit in '26 is impressive. Can you talk about how much of that comes from ramping AI initiatives and how we should think about further resiliency opportunities beyond 2026? Some of the Medicaid cuts begin in the out years. Thanks.

Yeah. And we've mentioned this before. But I think that the way to think about our resiliency program is that it's a multiyear program. The $400 million came from our assessment of implementation status of the long list of opportunities that we're working on.

And based on that assessment of our implementation status, it gave us confidence to include $400 million of savings in '26 versus '25 in our overall guidance. As we move forward, we continue to work on our plan. It's a program, and I mentioned on the previous question, components that we're working on, but we're really pleased with the depth and breadth of our resiliency program and believe that it gives us good support here as we move through the back half of the decade.

Your next question comes from the line of Whit Mayo with Leerink Partners. Line is open.

Hey, thanks. You guys have been working on some digital efforts with payers recently. I think at least some of the large national ones around data and disputes. Can you maybe talk about that and how it's manifesting into revenue cycle, yield, collections or pricing or maybe just reduce payer friction? Thanks.

Sure. Hey, Whit. Thank you. We have, over the last year, have launched a series of engagements with many of our major payers.

And these engagements kinda focus on digital integration. So think about electronic data exchange, think about the kinds of activities that HCA and our payers can partner on to produce administrative simplification. And I think they also include dispute resolution and trying to find better ways to resolve disputes between the parties. We're pleased with these engagements, and I think it gives us strength in our overall relationships with payers.

And frankly, we continue to work with our payers to find ways to make things better for their members and our patients. And to digitize the whole workflow between ourselves and our payer partners. So I think overall, these engagements have produced good progress with the relationship between us and our payers. And so we're excited as we head into 2026 to continue to work and with these with our payers on these initiatives.

And, Mike, speak to the working capital improvements this year, which are part and parcel to some of that, not entirely all of it, but I think that is reflected in the cash flow production that the company had and then our working capital improved this year.

For sure. And we had a nice reduction in net days in AR, especially in the fourth quarter. That really reflects the benefits of sharing data and exchanging data to payers digitally and certainly is a part of what's driving those enhancements. So I think the efforts here are clearly on administrative simplification.

I do think they have impacts on our revenue cycle, both in terms of getting claims paid more timely but also through potential mitigation of denials and disputes. Which is beneficial for both us and our payers.

And, Mike, let me add to the just the whole resiliency agenda. You know, this is not an episodic event for us. It just happens to be a maturation of what in my estimation is cultural within HCA, and that is being cost effective in finding ways to leverage scale, utilize best practices. Now we have tools, as Mike alluded to, that are in front of us as opportunities to create even more consistency, efficiencies, transparency in the company's overall cost.

And that's why the program is lining up in a well-timed manner with some of the enhanced premium tax credit challenges but we see this program continuing to mature. And as we get more capable at using these tools, it's gonna help us find even more opportunities. But this is not a one-time event. It's a cultural dynamic in our company around being cost effective.

Being high quality, and finding ways to improve from a process standpoint and a leverage standpoint with our overall scale.

Thanks. Your next question comes from the line of Brian Tanquilut with Jefferies. Your line is open.

Hey, good morning guys and congrats on the quarterly guidance. Mike, as I think about the rural benefit from one big beautiful bill, curious if you have any updated thoughts they finalized some of that. The rules there. And then just any call outs in Q1 of think about other than sort of the tough comp that we should be contemplating? Thanks.

On the rural health transformation you know, under the One Big Beautiful Bill Act, you know, all 50 states have been allocated their program funding but these are largely state-driven programs, and most of the details have not yet been released. We do not yet know the timing structure of the size of any state-level awards or how much of the funding will be distributed within each state. So our approach, Brian, has been to stay actively engaged with our state and federal partners regarding both the program design and then our response to program design to ensure that once the applications are open, that we will participate in a way that's meaningful.

At this stage, we do view the Rural Health Transformation Fund as a potential opportunity but it's not something that we have reflected in our guidance given the remaining uncertainty. When I think about the quarter, you know, we had a strong You know, we noted that there's maybe one part of that that was a little different than we anticipated. When we gave our third quarter update, and that's the state settlement payments. You may recall that on our third quarter update, we thought we would finish the full year at a $300 million net benefit state supplemental payment programs for the quarter for the year of 2025. Because we were anticipating a year-over-year decline in fourth quarter given some known headwinds from the prior year.

We ended up getting a retro payment from Virginia. In the fourth quarter which kinda pushed us flat in the quarter and led us up to a $420 million net benefit for the full year. So that's about the only thing I can think of, Brian, that would be a little different than we when we gave our update for guidance in our third quarter call. Mean, volumes came in largely where we anticipated.

Our rates were stable, stable operating environment with rates. And our expense management, I thought, was really good. In the quarter. So overall, we deem our fourth quarter performance being strong.

Mike, let me add to the rural discussion just one minute here. Roughly 15% of our hospital, we believe, are rural hospitals of some sort. And so that's a large footprint that we have that's complementary to the networks across the company. So we have a number of assets in rural communities.

Secondly, we have a number of programs where our health systems from one community to the other provide services in rural communities, whether it's telemedicine transport systems, satellite clinic with our physicians, urgent care whatever. And so that's another vehicle. The third piece for us is workforce. Our graduate medical education programs, even our nursing rotations with our Galen College of Nursing programs, create opportunities for us to we believe, participate in the programs.

But as Mike said, we're having to work through roughly 20 different programs in our company to understand how those funds are going to be applied. So we do think we have elements of the company that are in rural America in a way that deserves funding through these programs.

Your next question comes from the line of Ben Hendrix with RBC Capital Markets. Line is open.

Great. Thank you very much. I was wondering if you could provide some thoughts on the potential for a transition to a health savings account construct for the enhanced subsidies. Assuming those funds go directly to customer HSAs, is there any initial thoughts you have on how that would impact your current assessment of the EPTC expiry headwinds?

And then how should we think about the impact on uncompensated care if some patients have access to the funds but need may not be purchasing insurance.

So, hey, Ben. Good morning. You know, I think if you think about President Trump's health care plan announcement, last week, I think the plan, as we understand it, was really aimed at improving affordable. The themes seem to be including insurance plan account and pharmaceutical prices increasing price transparency.

And to your point, potentially changing the way that the instead of exchanges with tax credits, maybe a little bit more related to cash coming into health care savings accounts. It's a little early to get a sense for what aspects of that plan will come to fruition. We're monitoring it, as you can imagine, closely as congress picks those up and decides how they will react. So at this point, it's a little early to try to size potential impacts related to those kinds of potential changes.

We're just gonna have to see how they flow through congress and see what comes. But, obviously, we're monitoring it just like you are, it's we'll update we know more.

Your next question comes from the line of Matthew Gillmor with KeyBanc. Your line is open.

Hey, thanks for the question. I want to follow-up on the exchange discussion for '26. Can you give us a sense for how the exchange reforms and the subsidy expirations will impact the volume outlook? I'm curious if there's a drag that's being absorbed within the 2% to 3% volume outlook from the exchange, expiration. And can you also give us a sense for how you're thinking about the decline in utilization from folks that moved to uninsured within your outlook?

Thanks.

Sure. So if you just think about the modeling, and, again, I think it's important to always start with context. Yeah. This model and these judgments are significant.

And they're early. So, you know, part of our work as we go through the next days, weeks, and months will be to test these assumptions against our actual experience. And so we're gonna know more, Matthew, at the end of first quarter, end of second quarter, and we will keep you updated as we learn more. But, yes, I do think that the overall volume of the company, although it's within that range of 2% to 3%, has an impact here on exchanges.

And if you think about the walk through of the map, so I'll just go back through it because I think it's instructive. You know, we contemplate a 15% to 20% decline in our Hicks volumes, and 2026. And that this volume will migrate to either employee sponsored insurance or to uninsured. All the decline in our volume we assume approximately 15% to 20% of those people will end up with employee sponsored insurance coverage. Which does carry a benefit.

But the remaining will go to an insurer. And for the ones that go to uninsured, we do anticipate a decline in utilization from those individuals no longer having coverage. And we believe that that decline is somewhere in the 30% range. Compared to their utilization of health care services when they had health care insurance through the exchange.

The only other thing I might mention with the exchange population is we find that they tend to utilize the emergency room in a way that's heavier than our traditional managed care or commercial population. And so clearly, you know, that's the folks that would come uninsured even with this slight decline of utilization, that population is well almost entirely uses the emergency room. So those will be some additional comments on the impact of volume.

Your next question comes from the line of Andrew Mock with Barclays. Hi. Good morning. Outpatient surgery declined year over year on a negative comp and moderated from the previous quarter. Can you elaborate on what you saw there? And if there are any payer categories you would call out driving some of that volume pressure? Thanks.

Hey, Andrew. Absolutely. You know, if I pull up out of just outpatient surgery, let me just talk about outpatient in general first, and then we'll touch surgery. But overall, the outpatient side, we were pleased with our outpatient revenue growth.

Which actually grew at a rate higher than our inpatient revenue growth. As a reminder, we kinda characterize our outpatient revenue into four Emergency services, outpatient surgery, which includes both hospital-based and ASC. Our ambulatory platforms, which include physician clinics and urgent care clinics, and other hospital-based outpatient services, including cardiology, diagnostics, and the like. All four categories experienced solid revenue growth over prior year in the quarter.

A couple of notes on outpatient surgery specifically. Our same facility cases were down about 50 basis points in fourth quarter over prior year. With hospitals being about flat and ASCs down about 1.5%. Payer mix, though, continued to be soft with declines to prior year primarily driven by Medicaid.

In addition to the payer mix environment, we saw a decline in lowering intensity cases like ENT. As a result, we had good growth in net revenue and earnings in our outpatient surgery overall, inclusive of both the hospitals and the ambulatory surgery center platform.

And, Mike, let me just add to just the whole outpatient discussion. We continue to invest significantly in outpatient facility development just as past year, we added roughly a 100 business units to our outpatient footprint across the company, and we find ourselves heading into 2026 and 2027 with significant capital in the pipeline that's geared toward yes, some inpatient capacity and inpatient capabilities, but also quite a bit of outpatient development. Moreover, I would suggest that we have a better pipeline for acquisition opportunities inside of our outpatient footprint than we've seen in a few years.

Again, allowing us to complement the existing networks that we have. And so when we look at overall revenue production of the company, I think, Mike, in the fourth quarter, our outpatient revenue as a percent of total was actually up on a year-over-year basis. Some of that is due to the components that Mike laid out, but it's also due to the fact that we're adding units at a greater pace than we are, obviously, our inpatient hospitals. And so the combination of that we think is important to our overall resiliency.

And by that, we mean creating an environment where patients have easier access into the HCA Healthcare system and our payers actually have better price points for their members such that they can get into the system with urgent care or physician clinic an ambulatory surgery center in a manner that is most productive for them as a patient, but also for their insurance company. So we're pretty excited about the overall construct that's evolving for our company. I think today, we have about 2,700 outpatient facilities or so that continues to grow. And we see that, pushing toward our target of 18 to 20 outpatient facilities per hospital as we finish out this decade, and that, again, will come through capital development in Greenfield projects, but also acquisitions that make sense for us strategically.

Your next question comes from the line of Sarah James with Cantor Fitzgerald. Your line is open.

Hey, everyone. It's Gabby on for Sarah. I just wanted to double click on the payer mix and if you can share any color on how it played out. Compared to your internal expectations, specifically Medicaid inflecting positively for the first time in 2025, and if that's something you expect to persist? Thank you.

Yeah. Good question. So when I think about fourth quarter volume, and the composition, and I mentioned this in Paul, you know, I think on the exchange side, the we had a 2.5% growth. We were actually down a little bit smidge sequentially from third quarter to fourth quarter.

Think that really reflects a couple of things. One, and this also impacted Medicaid, is just the timing of the Medicaid redetermination process in the prior year. So we think we have fully sunsetted that timeline in prior year. And so you saw you know, less exchange growth, and you also saw a bit more Medicaid volume.

And Medicaid is 2.2% growth over prior year. Know, seems to be now back to kind of a normal growth rate, more consistent with our overall volume. Growth rate for Medicaid. The health care exchanges, you know, clearly, we did not see a pull forward of demand as people were anticipating premium increases.

But yeah, the 2.5% growth, we do believe, reflects that timing of pending of the Medicaid redetermination process prior year. Otherwise, I think, you know, we were generally pleased with our payer mix in the quarter. And our overall volume growth. Mean, Medicare up 3.5%.

In total, equivalent admissions up 2.5%. I think you know, really reflects a solid demand for the company as we finish the year.

Your next question comes from the line of Ryan Langston with TD Cowen. Your line is open.

Good morning. I guess with the balance sheet, a pretty good place and maybe fair to expect smaller hospitals and health systems, seeing more detrimental impact from subsidy expiration and impacts from the one BBB. I guess now that subsidies are expired, can you give us a sense on your M and A opportunities, if that pipeline is bigger, smaller, size of the assets? And then maybe kind of touch on capital budget priorities for 2026?

Thanks.

So as I just mentioned, this is Sam. We have seen some acceleration in the outpatient space in our pipeline through acquisitions is a little greater than it's been in past years, and we continue to execute on those appropriately. Assuming we can get to a reasonable deal and we've been able to accomplish that. In certain circumstances.

So from that standpoint, that's been what we've seen mostly in the market is in market type transactions that are complementary to the network and, again, create a better patient offering for us overall. With respect to hospitals and tax-exempt hospitals, specifically, you know, we just haven't seen it yet. That there is a significant opportunity for the company that makes sense from a financial standpoint. We continue to be well positioned as you just mentioned with our balance sheet being in a great position the capabilities of the company as a scaled player allows us to assimilate individual hospitals or hospital systems synergistically, but we haven't seen it.

And then so we obviously are open to those type of transactions if and when they present themselves. We're fortunate, as we've in the past, that we do have great markets within HCA's portfolio overall. And the opportunities to invest in those markets organically is compelling. And we've been able to do that, again, in our outpatient space, but also with our hospitals.

Our hospitals are running 73%, 74% occupancy. We have many strategic positioned hospitals that need capital. I think our capital is at an all-time high for approved projects that will come online in '26, '27, maybe early '28. It's almost $7 billion of capital that's in the pipeline. Mike alluded to the fact that we're lifting our capital spending because of those circumstances to somewhere between $5 and $5.5 billion.

We will continue to evaluate that. So we're finding ways to invest productively as well as use our assets productively with acquisitions where appropriate, investing in our networks, and then looking for out in market opportunities if in fact they do present themselves in an appropriate way.

Your next question comes from the line of Scott Fidel with Goldman Sachs. Your line is open.

Curious if you could talk a bit about your expectations for growth in terms of specialties and procedures in 2026. Maybe talk about some of the areas where you're expecting outsized procedure growth around some of the categories that, you know, we've certainly seen, the company investing in and, and then also also just just underlying growth due to due to know, different trends that we're seeing in the in the market. Thanks.

So this is Sam. You know, we've said this in the past and, you know, we have geography that's diversified in a sense that no one division in HCA generates more than 10% of the profits of the company. We also have similar diversification, if you will, in services, in that no specific service line generates any more than 15% of the revenue the company. So given that, we haven't seen anything that's disproportionate vis a vis one other service line.

I will tell you that we've seen reasonable demand for cardiac services. Some of that's technology driven in electrophysiology. We continue to believe that that pattern will persist into 2026. Obviously, within our emergency room, we continue to believe that our emergency room services are a very important component to community health and at the same time to our networks, and so we're investing in our emergency rooms both from patient care standpoint, an operational throughput standpoint, as well as a supply standpoint to make sure we have sufficient resources in that particular area. And then within surgeries, I mean, do have specific efforts afoot but they're more generic, if you will.

They're not necessarily specialty oriented. I will tell you that our case mix continues to grow. And that growth is driven, we believe, by the acuity of the patients in many instances in our medical space. So we see a lot of patients who have intense medical needs creating more acute care requirements, whether it's intensive care or deeper med surg capabilities, and that's part of what is going on in the communities that we serve as well.

So that's a bit of an over I don't have any other specifics for 2026 around different categories of growth that we expect, but we can try to get that to you if that's something that would be helpful.

Your next question comes from the line of Raj Kumar with Stephens. Your line is open.

Maybe just to in line to kinda recent winter storm, maybe any operational disruptions to call out and maybe kind of any considerations for the one q relative to annual guidance that we should be kinda thinking about related to any potential impacts there.

Well, it looks like Armageddon out here in Nashville right now. So to say that we are aware of what the impacts are going to be at point, we're not. I mean, we've had snow storms before. We had a massive storm in Texas a few years ago.

And we were able to navigate through that. My sense is as we close out January, we'll have some sense of the impact of the storm here in Nashville as well as a few other markets for the company. But I don't think it's as significant in most other markets as we maybe are experiencing here. Having said that, we have plenty of opportunity, I think, to recover some of the challenges that, you know, are typical for these type of storms.

Your next question comes from the line of Steve Baxter with Wells Fargo. Your line is open.

Yes. Hi. Thank you. Could you expand a little bit on the pause Texas Medicaid supplemental payment that was mentioned during the guidance color. I guess, what exactly is happening there? And what needs to happen for that payment to come back online in 2026? And how much, I guess, of the year-over-year impact is that driving? Thank you.

So the pause program is called Atlas. Stands for aligning technology by linking interop systems. There was a commissioner that issued a termination notice on that program on their way out as they were leaving office. The new executive commissioner that has is now in place has agreed to review that program, effectively putting it on pause versus terminate.

We don't know yet the timeline for this review. But we are encouraged that the department is willing to review the program consider a potential reinstatement. From a sizing standpoint, you know, when I think about the overall guidance for '26, we've highlighted a $250 million to $450 million decline in net benefit from state central payments. This Texas pause is about a third of that decline.

The other two that we noted that are the other two-thirds of that decline. One would be the retro payment from Virginia that we received in 2025. And then the second is the Tennessee program where we had a six quarters of benefit in '25 and only four quarters of benefit in '26. So that's the they're each of those three items. About a third of that decline of $250 to $450 million.

Your next question comes from the line of Joshua Raskin with Nephron Research. Your line is open.

Thanks. Good morning. I know that came up a little bit, but can you speak to your technology agenda and where you think the greatest opportunities are for HCA and specifically interested in areas where you think AI can help already looking at both the administrative cost, but also as well as the revenue enhancement opportunities.

So we are investing, as Mike said, heavily in our tech agenda, and it's got multiple components to it. We're investing in our electronic health record transition from one system to another, and we're accelerating into that platform. That a very important foundational piece for our company and that we're gonna be able to standardize datasets across all of our hospitals. Heretofore, our hospitals had a variable dataset that created for us, we believe, is the next some challenges for us when we were using the big data, and big data scalable asset inside of HCA to produce three domains.

Better performance broadly. So we've organized ourselves into and we are extremely energized by the possibilities here in each of the domains. The first domain is administrative, and you alluded to that. That is an area that's focused on revenue cycle, human resources, IT supply chain in many instances, and a few other areas.

That we think we can accelerate into because we're more consolidated in our operations. And so we're implementing as we speak in our revenue cycle, in supply chain, and other areas to move, through some transitions into artificial intelligence supporting better functioning, more efficiencies, better interaction with payers and vendors and so forth. And we should start to see some value, and that's part of what Mike alluded to again in our resiliency agenda in 2026. The second domain for us is what we're calling operational, and that's where we're delegating operational responsibilities to each of our hospitals and facilities.

Here again, we have areas of focus that we think are going to create incremental value for the company and allow us to be better at throughput, asset productivity, scheduling, and staffing our hospitals scheduling and running our ORs, and so forth. And so, again, a lot of good ideas and a lot of tools that we think AI can bring to the operations of our hospital. Allowing us to be a little bit more standardized, allowing us to be a little bit more consistent in performance, and then giving our management teams greater tools to run their business even better than they do today, and they run it incredibly well.

Currently. The third area is what we've called the holy grail. And the holy grail for us is really centered around clinical. And what we can do to support our doctors with insights that come from the patterns that we know exist in the services that we offer because of our volume.

We believe with HCA's proprietary database that we have a wonderful opportunity to use those patterns to help our physicians in the moment make better decisions more informed decisions potentially for their patients in a way that will improve care. The second thing on the clinical side is nursing. The opportunity to support our nurses with tools that make it easier for them to do shift change, to have a safety net underneath their day-to-day activities so they can make the patient environment safer and more efficient is in front of us. Again, we have some solutions that we're implementing this year.

Our leadership challenge and our leadership responsibility is to help our facilities manage this change, get to the other side of it, so that we can create value for our patients, value for our facilities, and ultimately, for the organization. We are all in on the possibilities with artificial intelligence, merging with what I call the human intelligence that exists within our facilities. And if we can put that together in an way, and we think we can, we see a lot of value potential across quality, efficiency, and just management effectiveness.

Great. Thank you. Your next question comes from the line of Jason Cassorla with Guggenheim. Your line is open.

Great. Thanks. Good morning, and thanks for taking my question. Maybe asking the payer mix questions in a little bit of a different way.

I know you've talked, with the exchange enrollment kinda transitioning into uninsured. But can you give us a sense, in terms of what 2026 guidance assumes for overall bad debt and uncompensated care? And how that compares to 2025 levels. And perhaps if there's offsets at the external level in terms of state uncompensated care pools or programs, that you could tap into as offsets there.

Thanks.

Well, you know, I would say that our assumptions in our guidance certainly include this movement for the people who lose the exchange coverage. You know? The ones who don't go to employee sponsored insurance will likely become immature. And, you know, for the you just think about kind of that component, when someone enters our hospital, this and they're uninsured, we do anticipate, it's inherent in our guidance, that, you know, we'll see an increase in the amount of people who are entering our facilities with no insurance to 26 versus 25. And that is part of the math that I walked through earlier.

As you know, when someone without insurance comes into the hospital, you largely those patients are reserved right away. Right? So that growth kind of immediately transitions into a comp safe care. The other component that we're studying carefully is the amount that patients owe when they do have insurance.

And so within the exchanges, you know, I think the potential impact here is when someone goes from silver to bronze. And if we see know, a significant movement in metal tiers from silver I do think there is a potential for there to be a bit more due from patients. That's our past experience is that, you know, that the folks on the exchanges owe a bit more than people with traditional managed care. Then when we think about collectability, the collectability of patient balances within the metal tiers on the exchanges, the bronze enrollees have a lower collection rate.

Than the silver. In our modeling and based on our past experience, with silver and bronze, though, I would say that our belief is that the impact to patient balance collections appear to be relatively immature. And so, overall, I think the bigger impact will be just the growth in the uninsured versus the uncollectibility of patient balances due as people go from silver to bronze. Again, a lot of modeling assumptions in that, a lot of judgments in that, and we're gonna have to test as we go through the first, you know, weeks, days, and months of 2026, but that's our current thing.

Toby, let's take one more question. We're almost at an hour.

Okay. Your last question will come from Kevin Fischbeck with Bank of America. Your line is open.

Great. Thanks. Maybe just one clarification on that last point. And then so what is the what do you what is the collection rate on, like, a bronze versus a silver just so that we can think about it?

But then guess, more importantly, you know, you guys have been over 20% margin last year, this year, even though you've got these headwinds coming in. Kind of think about 20% margin as kind of the high end for you guys, but you're out competing that even with pressure. So how do you think about what kind of margin HCA can to? You tend to be bullish about cost savings going forward.

Should we be thinking about something north of 20% as a sustainable margin for HCA?

Well, let's start with 26. I mean, I think given the headwinds from the exchanges and from supplemental payments, and the fact that, you know, we've been able to develop and implement a resiliency program that has allowed us to offset as much of that as we can. We're really pleased with the guidance around margin, which we've been able to get pretty consistent with where we've been in 2025. That obviously reflects a ton of hard work in our resiliency plan, our ability to drive operating leverage through our volume growth, and our overall cost management activities as a company. It's a little premature to talk about what could happen in future other than to just point you back to my comments, Kevin, where we noted that, you know, given the demand in our marketplaces, our resiliency programs, and the digital transformation that Sam just talked about that, you know, we are comfortable that we will be able to, you know, maintain the long-term plan over time.

And so you know, I think that's a good sense of the confidence we have in the company in our form. I think we'll end there. Frank?

Okay. Thank you, Colby, for your help today, and thanks to everyone for joining us on the call. We hope you have a good earning season. We're around this afternoon if we can answer any of your questions. Thank you.

This concludes today's conference call. You may now disconnect.