HCA Healthcare, Inc. (HCA) Q2 2012 Earnings Report, Transcript and Summary

Welcome to the HCA Second Quarter 2012 Earnings Release conference call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.

Jennifer, thank you, and good morning everyone. Mark Kimbrough, our Chief Investor Relations Officer and I would like to welcome everyone on today’s call, as well as those of you listening to the webcast. With me here this morning as usual is our Chairman and CEO, Richard Bracken; our President and CFO, Milton Johnson; and Sam Hazen, President of Operations. Several other members of the senior management team are with us here as well to assist during the Q&A. Before I turn the call over to Richard, let me remind everyone that should today’s call contain any forward-looking statements, they 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. Many of these factors are listed in today’s press release and in our various SEC filings. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. In light of the significant uncertainties inherent in any forward-looking statements, you should not place undue reliance on these statements. The Company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future events. And as you heard, the call is being recorded with replay available later today. With that, let me turn the call over to Richard.

All right, thank you Vic and thanks to all for joining our call this morning. Let me just say at the outset that we were pleased with our overall performance in the second quarter. In general, we saw a continuation of trends that we’ve been reporting on in recent quarters; that is, favorable growth in patient volumes, effective expense management, and continued pressure on revenue rate growth. Regarding our revenue rate growth performance, patient acuity as measured by case mix index increased slightly, but we continued to see pressure from Medicaid revenue rate declines. For the quarter consolidated and reported adjusted EBITDA increased 10.5% to $1.569 billion from $1.42 billion in the prior year, and same facility adjusted EBITDA increased 5.2%. Our volumes continued to trend favorably to the prior period. On a same facility basis, admissions and equivalent admissions increased 2.5% and 3.9% respectively, and on an as-reported basis admissions increased 7.7%. And please recall that these as-reported numbers reflect the consolidation of the Health One acquisition last year. We believe that our comprehensive service line strategy continues to provide a very firm foundation for this composite growth. As an example, behavioral health and inpatient rehab admissions each increased approximately 14% during the quarter. We have now experienced 19 consecutive quarters of positive equivalent admissions growth. Additionally, we continue to experience favorable growth trends in emergency visit volumes. As reported, emergency visit growth was 13.4% and 8.8% on a same facility basis. This performance is important in driving our overall admission levels since approximately 65% of our admissions come through our emergency department. Also, Sam will update in his remarks market share information. The Company reported favorable cash flows from operations in the second quarter totaling 1.46 billion. For the first six months of 2012, cash flow from operations…

Thank you, Richard, and good morning to all. Hopefully most of you have had an opportunity to review our second quarter earnings release issued this morning. I believe most of the numbers are fairly straightforward, but as a reminder the Health One consolidation is included in our reported results for the quarter; however, it is not included in our same facility stats. As Richard mentioned, the second quarter results were once again driven by strong same facility volume growth and excellent expense management. As we anticipated, our case mix stabilized in the second quarter with all payors showing increases in their case mix, with the exception of Medicaid which declined 1.1% compared to the prior year. Same facility total case mix for the Company increased 0.4% in the second quarter and our same facility adjusted EBITDA margin increased 30 basis points to 20.5% as compared to the second quarter of last year. Revenues in the second quarter increased 11.9% to 8.112 billion, primarily driven by the consolidation of our Health One venture and increased patient volumes. Same facility revenues increased 3.8% in the second quarter compared to the prior year. Net income attributable to HCA Holdings Inc. totaled 391 million or $0.85 per diluted share in the second quarter compared to 229 million or $0.43 per diluted share in the second quarter of 2011. Last year’s results include losses on retirement of debt of 75 million or $0.08 per diluted share. For the second quarter, volume trends remain strong with same facility admissions increasing 2.5% and same facility equivalent admissions increasing 3.9%. Patient volume growth was primarily driven by increased same facility medical admissions of 4.1% while same facility surgical admissions declined 0.8% compared to the prior period. Total admissions, which include our Health One consolidation increased 7.7% and equivalent…

Good morning. I’ll begin my comments this morning with more detail on our volume trends for the quarter and then wrap up with a review of our market share data for year ending 2011. The performance across the Company’s 15 divisions was very balanced again this quarter, indicating broad-based execution of the Company’s growth strategy. Ten out of 15 divisions had growth in same facility inpatient admits on a year-over-year basis. Our Denver market, which is not included in same facility admits, had year-over-year growth in inpatient admissions also. All but two divisions had growth in same facility adjusted admits. All divisions had growth in emergency room visits again this quarter. Also, same facility managed care emergency room visits increased 6.1% for the quarter, reflecting improved outreach and greater access in this segment of the market. The emergency room continues to drive strong inpatient admits for the Company. Admissions through our emergency room were up 6.1%. EMS drop-offs to our emergency rooms were up 6.5%. We believe this growth in EMS volume is a function of program development such as trauma and stroke, plus more efficient turnaround capabilities for our ambulance partners. Although surgical volumes were flat for the quarter, we continue to be encouraged by the results of our surgical growth plan. Seven divisions had growth in same facility surgical volumes for the quarter. Four of the divisions that had declines were only down by less than 1%. Orthopedic and neurosciences were the two areas that continued to show solid growth. Cardiovascular services and general surgery were essentially flat while women’s and urological services were down. Critical care admits in both our adult and neonatal units grew 4.7% in total; length of stay, however, was down by 3%. Now let me transition to 2011 year-end market share. As a…

All right. Sam, thank you, Milton, Richard. Let me say this before I turn the call back to Jennifer. In the interest of time, I would like to ask that everyone keep their questions this morning focused on the quarter and our business overall rather than get into any speculation about the potential article that Richard discussed. I think between Richard’s comments and also the website posting which he mentioned, that’s all we really can and have to say about that matter this morning, and I appreciate your understanding. And I might just note that that website is hcahealthcare.com, and it’s on the home page; but we hope you listen to the Q&A here because I think we had an excellent quarter that you probably have some interest in. So with that, Jennifer, you want to poll for questions? Again, try to hold to one because I know we have a lot of people on today’s call.

Thank you. Today’s question and answer session will be conducted electronically. [Operator instructions] And we’ll go first to Ralph Giacobbe with Credit Suisse. Ralph Giacobbe – Credit Suisse: Thanks, good morning.

Hi Ralph. Ralph Giacobbe – Credit Suisse: Hi. So the 8.8% ER increase was particularly strong, especially in a non-flu quarter. Maybe just remind us your initiatives there, and maybe have there been any closures of competing hospitals or EDs that can help explain some of that increase? And then just along those lines, bad debt was up a fair amount, so is that also a function of the increase in ED, and then just related to that, the use of ACEP that you talked about. I think that’s been in place for a while. Maybe just some context there. Thanks.

I’ll start with the—this is Sam. I’ll start with the emergency room growth. I think the emergency room growth that we are seeing is a function of a significant effort that the Company has made over many, many years to improve our emergency room operations, and that effort, I think, if I could categorically answer it would really come down to four or five major efforts. One is clearly improving our operations and how we take care of our patients when they enter the emergency room, and I think we’ve done an incredible job at dropping our time to see a patient from maybe 45 to 50 minutes to somewhere around 22 minutes on average across the company, and that’s clearly enhancing the service level and the satisfaction that we are seeing in the emergency room. The second thing that I would add that I think is having a tremendous impact is the fact that we’re adding a lot of program capability, and by program capability – I mentioned that in my comments earlier – we’ve added a number of trauma programs where it adds a level of sophistication to our emergency rooms, creates a better destination point for EMS services and so forth, and on top of that trauma development. We’ve developed sophisticated stroke capabilities in a number of our emergency rooms as well as cardiac capabilities, and I think, again, the combination of those program developments are adding volume as well. And then the third piece – and there’s one more after this one – that I would point to that I think is having a positive impact is capacity. I mean, we have clearly added capacity in our emergency rooms where we have had compression. We monitor our utilization per bed on a routine basis, and where we start to see capacity constraints we add capital either on our campus or in some cases off our campus in locations that need emergency capabilities. And then finally, marketing – I think we’ve marketed our emergency rooms in a way that showcases the performance and the capabilities, and the combination of those four things, I think are really driving the activity in our markets. We have not seen any particular closures that have yielded market share gains or anything of that nature in the emergency services, so that’s really not a factor in what we’re seeing in our markets.

Milt, you want to do the bad debt question?

Yeah, I’d be happy to. The primary reason for the increase in bad debt expense relates to increase in uninsured revenues, so we basically have reserved for that. The remaining bad debt increase is really related to co-pay and deductibles, and there we’re up about—bad debt is up about 10%, or roughly about $25 million, and that’s related to higher managed care volumes that we’ve reported. Sam mentioned the new trauma programs in the ED. Those trauma programs do result in some higher co-pays and so that’s contributing to a piece of that, and then just the normal plan increases that we’re seeing in co-pay and deductibles to our patients driving the remaining part. So it’s not any one thing, but it primarily is the uninsured revenue growth that’s driving bad debt.

All right. Ralph, thank you. I’m sorry – Sam?

Yeah. And I wanted to add, Ralph, one thing to the discussion. I think, again, HCA’s portfolio of markets, when you look at the demographics and you look at the population trends and some of those dynamics that we’ve talked about in the past, it’s having an impact on emergency services demand within our markets as well. So that’s another component that I think is driving growth that maybe is different than what you’re seeing across the industry.

All right, thank you. Ralph Giacobbe – Credit Suisse: Thank you.

We’ll go next to Darren Lehrich with Deutsche Bank. Darren Lehrich – Deutsche Bank: Good morning everybody. Wanted to ask here a question about just volumes, and specifically as it relates to the growth you’ve seen in psychiatric and inpatient within the units in your hospitals. Thanks for giving us the growth of 14% from those units. Can you maybe just update us a little bit on the strategy there and also if you could help us just put into perspective the growth that you’re seeing in those services on the overall admission trend number? How much have we seen that contribute, say, over the year-to-date and this quarter specifically?

All right, thanks Darren. I think, Sam, you’re up again.

I couldn’t hear the first part, but I think you were asking, Darren, about behavioral health and rehab with the growth of 14%. Let me just give you some sense of what we saw as an opportunity, again, a few years back. In certain hospitals and within certain markets, we had idle capacity that we felt was not being used effectively, and in a number of those markets we did not have a full complement of services around rehabilitation capability as well as behavioral health capability. And so we saw two opportunities at a macro level with this initiative, one being, again, using idle capacity and then secondly adding network capability to really service our overall complement of hospitals in a particular market. And over the past number of years, we have invested a little heavier in behavioral health, and rehabilitation services is catching up as far as overall investment. I think at this particular point in time, we have north of 50 units in both services across the Company where we have capabilities, and we’ve seen growth in both of those fairly consistent this year around 15% year-to-date on psychiatric and behavioral health admissions, so the quarter is consistent with year-to-date growth. And then on the rehabilitation side, again, we’ve seen growth at 13% year-to-date, very comparable to the second quarter. The behavioral health capability has enhanced our ability, again, in the emergency room and that has freed up capacity for us to take care of emergent patients and then network and transfer behavioral health patients that access our emergency rooms and need behavioral health services. So it’s really played a big part in an overall comprehensive market strategy, and as we look forward we still have opportunities with capacity and we are investing in those in both services lines; and again, rehabilitation is not as far along in its progression as behavioral health is.

All right. Thanks, Darren. Darren Lehrich – Deutsche Bank: That’s helpful. Thanks.

We’ll go next to AJ Rice with UBS. AJ Rice – UBS: Hello everybody. Maybe I’ll just switch gears and ask you about the cash flow trends and use of cash going forward. You look like you’re now at a point where you’re probably running ahead of where you thought you would be year-to-date, and maybe that means that you’ll beat the cash flow guidance for the year. Maybe comment on that, and then also give us some flavor for use of cash flow going forward, I guess particularly in the context of all the refinancings that have already been done and where the debt levels are now. Does that give you flexibility to look at other uses for free cash flow?

All right, Milton, that one’s yours.

Sure. Yes, we’re certainly pleased with the cash flow performance for the first half of the year and it is ahead of our expectations. Of course, one reason would be the rural floor settlement of about $270 million that we didn’t have in our guidance at the beginning of the year, and that certainly is a piece of it; but overall, our cash flow has been very strong. Our cash flow guidance that we gave, I think was 3.4 to about 3.6 billion as we started the year, and I would say now that that’s probably closer to 3.8 to 4 billion cash flow from operations as we look at the rest of the year. We will see, I think, higher tax payments in the second half of the year that typically happens, so that, I think, will slow down the rate of free cash flow from operations compared to what we reported year halfway through the year. With respect to use of cash, we continue to look for acquisition opportunities. Our pipeline, as the other companies have mentioned as well, remains very strong. We see some good opportunities there. It’s too early to tell how all those will play out, but we think there will be good opportunities to invest our cash in some acquisitions. Following that, we’ll continue to repay debt as we have so far this year. As you noticed here at the second quarter, our debt levels on an absolute basis were basically flat with where we started the year. We have covered the leverage from the dividend that we paid in February of this year. So again—also for the second half of this year, I think our CAPEX run rate will be higher than the first half of the year. We still expect CAPEX to be somewhere around 1.8 to 1.9 billion, and so we’ll have a little bit of acceleration in the second half of the year to hit that target. Absent acquisitions and debt repayment, again from time to time as we have in the past, we would consider a special dividend opportunity depending on the market; and again, those decisions are made based on market conditions at the time that we’re reviewing those decisions. AJ Rice – UBS: Okay, thanks a lot.

Thanks AJ.

We’ll go next to Kevin Campbell with Avondale Partners. Kevin Campbell – Avondale Partners: Good morning. Thanks for taking my question. I did want to ask just one follow-up about the American College of Emergency Physicians. Was hoping maybe you could just give us some color on—remind us why you switched to that methodology a couple years back?

Yeah, we could barely hear you, but you were just asking why we did it. Okay, thinking going back, we changed to ACEP a number of years ago.

Yeah, in 2009 we made that change, and primarily we felt like it was a better system, a system that resulted in a higher level or higher quality coding result for our patient assignment under the emergency room evaluation and management guidelines. So it was done to improve, again, our assignment of those patients in the ER.

Yeah, and remember as we’ve described the ACEP or how this happens in emergency departments, there are different systems out there and what we had been using before was a point system, and what that meant is that people would look at the services provided in emergency services, apply certain points according to a scale, total those points up and establish the classification for the visits. What the ACEP system does, and to understand how that works, is it looks for proxies to establish levels of care, and so it’s a much more accurate system and efficient system to put in place, so that’s why we went to it.

Thanks for your question and welcome to the call. Kevin Campbell – Avondale Partners: Thank you.

Thank you. We’ll go next to Frank Morgan with RBC Capital Markets. Frank Morgan – RBC Capital Markets: Good morning. Good quarter. Just a question in light of the changes in the assumptions surrounding HCIT – I’m just curious, are you kind of maintaining some conservatism by not raising your estimates, and maybe you can give us an update on how you see Florida and Texas playing out. Thanks.

Milton, you want--?

Yeah. Well, no we did not raise our guidance. We are halfway through the year, and if you look at although we—our performance has been very solid relative to our guidance. If you look at the pieces of it, volume’s been better, about 1% better than we had projected in our guidance for the first half of the year, but our revenue rate is below what we had projected for the first half of the year by about 1% as well. We’ve made it up with better expense management of about almost 1.5% better than we thought on our expense management. So net-net, we’re doing well relative to our guidance. But at halfway through the year, again, our expectation is still within that range. We gave a $250 million range for EBITDA for this year and we feel like that is still the range that we would like to keep at this point in time of the year.

All right. One of you want to address Texas and Florida Medicaid? I think that was the second half of your question, Frank? Frank Morgan – RBC Capital Markets: Yes.

Okay.

Well, in Texas—let me start there. The anniversary date of the cuts that we’ve experienced this year, I think, is 9/30, so 10/1 we’ll anniversary last year’s budget cuts. The two outstanding items that we are yet to get final rules on are the disproportionate share funding requirements in Texas as well as the Texas waiver. Both of those components are yet to be finalized. We still are working with the State and others on that process, and so there’s uncertainty still around that particular resolution on those items. With respect to Florida, there are some remaining cuts that we will experience in the second half of this year, although they are less than what we experienced in the previous year. We anniversaried last year’s cuts on June 30, and then next year’s cuts are forecasted to be around 5%, and I think the annualized effect on those is about $25 million or something like that, that we’ve estimated at this particular point in time. So that’s sort of the status of those two states.

All right. Frank, thank you.

We’ll go next to Sheryl Skolnick with CRT Capital Markets. Sheryl Skolnick – CRT Capital Markets: Hi there.

Good morning, Sheryl. Sheryl Skolnick – CRT Capital Markets: It’s such a simple name! Okay.

We know who you are! Sheryl Skolnick – CRT Capital Markets: Yeah, I’m hard to miss. Okay, well first of all, thank you for the very good explanation of the pricing. That’s very, very helpful. I’m going to not ask you about the investigation for the article by not asking you about it, but I’m going to ask you about something else that’s somewhat related because your stock is under pressure and it is of concern. So you all have had—our environment is now one that’s very focused on not only controlling revenues but also controlling waste and fraudulent spending in healthcare – that’s a blanket statement. So what are you all doing in your compliance programs to beef up what presumably is already a robust program, especially now that it seems that this focus is more on the physician decision-making capabilities and outcomes as well as related to, in quotes, quality of care issues as much as it is just billing. How are you managing through that, especially given how many physicians you employ as well as contract with or are related to or affiliated with in your markets? So an update on compliance, if you would.

Let me take a first shot at that. This is Richard speaking. Well first of all—and as you mentioned, we do have a robust compliance program in place and it’s been out there, as you know, since the late 90’s. And as you mentioned, we have extensive policies and procedures, training protocols, ethic lines, vehicles for people to raise questions in place. We follow it up with ambitious monitoring and reviewing and surveys, so all that’s been in place. We think it’s a very important and effective program. You bring up new issues that the industry is experiencing and how do we think about it. I would say fundamentally the first thing we’re thinking about is putting in physician leadership at various levels in our organization that have the job to sit on top of all the existing activities that are underway. Throughout the course of the last 12 months, we’ve put in addition to physician leadership that might exist in the hospitals, additional physician leadership at every one of our divisions who can sit on top and look at broad trends that might be occurring in a marketplace. We’ve added significant physician leadership in the management of our physician practices. We have moved our physician practices into a wholly-owned organization with significant physician leadership and councils to help sort out these questions. So we—and in addition to other issues, we bring in specialty councils to help us decide issues of care that we can move across the enterprise, and I think fundamentally and foundationally probably one of the most important things in addition to all of this is that we’re investing big time in the EHR. And of course, the EHR is out there to be more accurate but it also creates a database to mine issues, to understand how care is being provided not only efficiently but compliantly, and we have been on a quest to develop a system-wide EHR for years before the stimulus, the high tech program was put in. We think it’s foundational to the Company and we are continuing to execute that as fast and as efficiently as we possibly can. So I think it’s a combination of all these areas, not only the monitoring, not only the policies and procedures, but the leadership, the organization and the infrastructure to make it happen.

Sheryl, thank you. Sheryl Skolnick – CRT Capital Markets: Thank you.

We’ll go next to Kevin Fischbeck with Bank of America Merrill Lynch. Kevin Fischbeck – Bank of America Merrill Lynch: Thanks, hello. I appreciate not wanting to talk about the New York Times investigation, but I’d really like to see if there’s any color we can get on the Florida investigation because there we have some disclosures that you could potentially respond to. I mean, the investigation into interventional cardiology services, is that just a continuation of what we saw at the end of last year as far as some of these RAC things? I guess the fact that you’re calling it interventional cardiology is something different than the ICD scrutiny. It implies things like stents and balloon angioplasty, so I was just wondering if there’s any detail that you can flesh out there.

Okay, Kevin. I’ll do that, and I guess if you have not—I mean, obviously we had disclosed in our 10-Q this morning that we did receive an inquiry from civil division in Miami U.S. Attorney’s Office, and it came in July so it is new. And it’s requested information on any reviews that were assessing the medical necessity of interventional cardiology services at any of our facilities. I think principally as we’re looking now, we’re trying to review to determine exactly which hospitals have had such reviews. At this point, we’re early in our analysis but we have identified about 10 facilities, a majority of those in Florida but there are, I think, two or three in some other states. So we’re gathering that. Again, we’ve just gotten the request, preliminary stages, and so really responding beyond that or trying to identify beyond what we’ve put in our disclosure would be premature at this point. So we’ve sort of given you everything we’ve got and can tell you at this point in time. Kevin Fischbeck – Bank of America Merrill Lynch: Okay, thanks.

We’ll go next to Gary Taylor with Citi. Gary Taylor – Citi: Hey, good morning guys. The first is just a clarification, so I’m hoping it won’t count as a question. You had mentioned some new information on the website – were you saying that was already available, because I was just kind of perusing it and not seeing it. So maybe if you could direct us where that would be?

Yeah, I’m being told there is a blue bar across the top of the home website, and it’s on the home page. It was put on, I think as we started our call; so yes, it is new and should be there. Gary Taylor – Citi: Maybe I just need to update then. Okay, we’ll look for that. I guess the question I wanted to ask for Milt—actually I refreshed and it’s there now, so you’re right – blue bar on the top of the home page.

You are a techie! Way to go, Gary. Gary Taylor – Citi: A question for Milt, just going back to the pressure that the Medicaid rate has had on your consolidated same store revenue per adjusted admission. I guess it looks like that’s contributed about at least 150 basis points of year-over-year pressure on that metric. Is there a range, I guess, you have in mind as we move into the back half of the year? I mean, should we see at least or approximately 100 basis points of that coming back in your favor in the back half? Is that about the magnitude of what you expect?

Well Gary, maybe let me help with it a little bit. First of all, the impact on our Medicaid rate has been more than we thought it would be, primarily in Florida. We had estimated that in the first half of this year, it would probably be about a $35 million impact. I’d say it’s probably close to double that impact on our rate in the first half of the year, so the second half of the year—you know, Sam just mentioned that we will see an additional cut in Florida starting July 1 of this year, but that cut will be, we think, substantially less. So if you think about a negative run rate of, call it 60 to 70 million in the first half of this year on Florida Medicaid, in the second half of the year I’d say it would be more like maybe 15 million is what we’re thinking as far as drag. So we will get some relief on the Florida impact. With respect to Texas, the cuts we’re taking there are about 7 to 8 million a month on reductions in Texas Medicaid, and that anniversaries, I believe, at the end of September. And as of now, we don’t see any additional Texas cuts and don’t expect that. So again, in the fourth quarter, a little bit of help from Texas as well in the Medicaid rate. So that’s kind of how I see the second half of the year relative to those two states. Gary Taylor – Citi: Okay, thanks Milt.

Thanks, Gary.

We’ll go next to Gary Lieberman with Wells Fargo Securities. Gary Lieberman – Wells Fargo Securities: Good morning. Thanks for taking my question. It looks like your tax rate was down a little bit sequentially. Milton, can you just maybe give us some guidance in terms of where you would expect it to be in the second half of the year, and maybe for the full year?

Yeah, it was down a little bit in this quarter. We did—we settled some disputes with the IRS and as a result, tax exempt interest expense, which is part of the tax rate, we had a reduction of 11 million in the quarter and that reduced the rate. The normalized rate, I would expect would be somewhere around 37 to 38%. I think it was about 35 or so in this quarter. So 37 to 38 sort of zone would be a normalized rate. Gary Lieberman – Wells Fargo Securities: Okay, great. Thanks a lot.

Thanks Gary.

We’ll go next to Whit Mayo with Robert Baird. Whit Mayo – Robert W. Baird: Hey, thanks. Good morning. I guess really just a question for maybe Richard or Sam. We’ve recently seen sort of a number of deals in the physician area, medical group management, whatever you really want to call this sector. I’m just kind of curious on your perspective for what this trend may mean to you. You’ve obviously seen a lot of cycles with this in the past and have been pretty aggressive in a lot of your markets organizing docs in the last few years. So just kind of curious on your broader thoughts.

Well in terms of the sort of transactions for large physician groups that you mentioned, and the ones that I’m aware of were focused in areas where they have a concentration of physicians really were not in our markets. And so they really don’t apply to sort of our strategy. We look at physician integration on a range of fronts and local market by local market, so again, we think about how to integrate with physicians not only in sort of an employment model that you’re referencing through some of these acquisitions perhaps, but lots of other ways as well in terms of service and connectivity and ITS connectivity and the like. And so we’re careful about that. The price on the one transaction I think you’re referring to in southern California was very, very high, and that’s not really sort of our model. We look at physician integration market by market and we look at a range of options other than just full employment.

Yeah and Richard, if I could add, when we look at the active number of physicians at HCA’s medical staff this year compared to where it was at the end of last year, we have grown the number of physicians who have active privileges at HCA facilities by approximately 1,000 on a base of about 34,000, so pretty significant growth. Some of that has come through employment where we have added employment numbers to our base from last year and then clearly recruitment, and at the same time in supporting some of our service line strategies we’ve added physician capability either through recruitment locally or other methods to enhance the number of physicians that practice at our facilities. So from that standpoint, it really had to fit into the overall growth strategy within our markets, as Richard mentioned, and that’s sort of how we’re thinking about it. But I don’t see it as necessarily slowing down. We are getting better at making decisions on the front end, and we are getting much better at managing the practices on the back end, and the combination of that is allowing us to really execute this strategy more effectively than we were in previous years, we believe. Whit Mayo – Robert W. Baird: Okay, thanks for the thoughts.

Thanks Whit.

We’ll go next to Tom Gallucci with Lazard Capital Markets. Tom Gallucci – Lazard Capital Markets: Thanks, good morning. Just a follow-up on the Medicaid in Florida and then a question about managed care. You mentioned that the Medicaid hit in Florida was bigger than you thought it was going to be. Could you just give us a little bit of color how you got that wrong and why you sort of can identify the incremental cuts that are coming a little bit more accurately? And then on managed care, not only were you seeing on sort of absolute rates as you’re negotiating but are there any changes in terms of the terms, risk-taking, et cetera? Thanks.

All right. We’re pointing the finger at Mike Marks since he’s our CFO of that group.

So one concept would be length of stay. In Florida with Medicaid, you’re paid a per diem. Our length of stay is down a couple of points, so that’s one reason why it was worse than we expected. The second thing, and I think has been described previously on other calls, is there’s movement between self-paying Medicaid to eligibility processes, and we’ve seen that movement hurt us in the first half of this year. That moves around as you go through timing between as self-pays come in, you try to get them converted to Medicaid through the eligibility processes. So between those movements and a little drop in length of stay would be the primary differences between what we expected and our actual results.

Yeah, it’s just not as simple as taking a prior year number and taking the haircut on it. It’s a pretty complicated, as Mike just described, calculation to try to estimate that, and some things moved on us that we didn’t expect – that’s the short story. With respect to managed care, I think your question was around we’re seeing any structural differences, and we’re not. We’ve got virtually all of our 2012 managed care revenue under contract, like 95, 96%. We’ve got 70% of next year’s managed care revenue under contract and about 40% of the following year; so again, as we typically have this time of the year, good visibility with respect to our managed care revenue and we continue to see rates similar to what we historically have been reporting in the 5 to 6% sort of zone, and at this time no real structural changes to those contracts.

Thanks, Tom.

We’ll go next to John Ransom with Raymond James. John Ransom – Raymond James: Hi, good morning. With respect to the Florida and Texas Medicaid programs, I know that it’s not just about rate but they’re also trying to manage utilization. Have you seen any utilization changes as a result of that?

This is Sam. Not materially. There may be some adjustments on the fringes in those states as certain programs migrate to managed care, but our volumes in both of those states are way up. Now, some of that could be enrollees – I don’t have enrollee participation in each of those states, but we’re not seeing anything material at this particular point. John Ransom – Raymond James: Okay, and thanks. As a follow-up, what are your latest thoughts on separate reporting and more disclosure on Parallon? Thanks.

Sure. Milton?

Yeah, this is Milton. We continue to analyze that at the end of each year as we think about the coming year, so our team will go through that process at the end of this year as we think about reporting for 2013. At this point in time, I think still from a materiality standpoint, we’re not there; but as we continue to see growth in Parallon, that can change. So it’s a process we review at the end of each year. John Ransom – Raymond James: Okay, thanks a lot.

Thank you, John. Jennifer, I think we’ve got time for one last question.

We’ll go next to Vicki Bryan with Gimme Credit. Vicki Bryan – Gimme Credit: Along the lines of the previous question, can you tell us what percentage of the total admissions and equivalent admissions this quarter that you saw with the behavioral health and rehab? Can you break that out for us?

This quarter behavioral health and rehab, the percent of admissions?

Yeah, the answer is one-third of our overall growth is related to those two services lines; and keep in mind that behavioral health and rehab represent approximately 7 or 8% of our total admissions approximately, and that was a pretty consistent metric for year-to-date as well. Vicki Bryan – Gimme Credit: And that’s for equivalent admissions as well?

Well, it’s more on the inpatient side. The outpatient activity in both of those service lines is not nearly as material as our acute service line. I don’t know that I have it on an adjusted admission basis, but I can have somebody get that back to you. Vicki Bryan – Gimme Credit: Thank you.

You’re welcome.

All right. Vicki, thank you, and I want to thank everyone for your questions this morning and your patience. Mark and I are around all day. You all have a great day.

That does conclude today’s conference. Thank you for your participation.