HCA Healthcare, Inc. (HCA) Q3 2012 Earnings Report, Transcript and Summary

10:03: HCA Holdings, Inc. (NYSE:HCA) Q3 2012 Earnings Call November 1 2012, 2012 10:00 am ET

Victor L. Campbell – Senior Vice President Richard M. Bracken – Chairman and Chief Executive Officer R. Milton Johnson – President and Chief Financial Officer Mark Kimbrough – Investor Relations David G. Anderson – Senior Vice President - Finance and Treasurer Samuel N. Hazen – President of Operations Dr. Jonathan B. Perlin – Chief Medical Officer

Good day everyone and welcome to the HCA Third Quarter 2012 Earnings Release Conference Call. As a reminder, today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to the Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.

All right, thank you very much and good morning everyone. Mark Kimbrough, our Chief Investor Relations Officer, and I would like to welcome all of you on today’s call, including those who are listening on the webcast. With me here this morning is our Chairman and CEO, Richard Bracken; our President and CFO, Milton Johnson; and Sam Hazen, President of Operations. And we have several other members of the senior management team here with us 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 and replay will be available later today. With that, I’d turn the call over to Richard Bracken.

Thank you, Vic and good morning to all. With Hurricane Sandy and the storms creating so much destruction and chaos in the Northeast, we do very much appreciate those of you who are able to join us on our call this morning. Our thoughts are with all of you as you are dealing with the aftermath of this horrible storm. Before Milton and Sam provide details on our third quarter performance, let me take a moment to provide a couple of thoughts. On balance, we were pleased with the results of the third quarter. Our volume trends continue to show stable growth, market share trends remain favorable, patient acuity or case mix continue to increase consistent with recent quarterly trends, expense management was aligned with expectations, and we were recognized for some success in our quality performance agenda. However, revenues per unit continue to be under pressure and to some extent, offset certain of these more favorable metrics. All-in-all, the quarter close within our general expectations and of course, we will talk about all of this in just a minute. Through the first nine months of 2012, the company has achieved adjusted EBITDA of $4.925 billion or growth of 11.4%, compared to the prior year. On a same facility basis, year-to-date admissions and equivalent admissions increased 2.6% and 3.8% respectively, slightly ahead of our expectations. We have now experienced 20 consecutive quarters of positive equivalent admissions growth. Year-to-date, same facility growth rate of emergency visits was robust at 7.2%. Importantly, we believe adjusted EBITDA performance is on track for our full-year and our reconfirming our previously stated guidance for 2012. On October 23, the company’s Board of Directors approved a special cash dividend of $2.50 per share. The record dates for this dividend is November 2, with a payment date…

Well, thank you Richard and good morning to all. I hope most of you have had a chance to review our third quarter earnings release, which was released this morning and is consistent with our previous earnings from October 16. As a remainder, we’ve again consolidating our Denver HealthONE venture in November of 2011. Therefore their results are included in our consolidated numbers, but not in our same facility results. To summarize our third quarter, we saw a solid volume growth, although somewhat less than recent trends. Our same facility case mix increased to all financial classes, compared to the prior year. And expenses management continued to be in line with recent trends, albeit against tough comps from last year’s third quarter. Same facility total case mix increased 0.4% in the third quarter, consistent with our second quarter result. Revenues in the third quarter increased 11.1% to $8.062 billion, primarily reflecting the consolidation of our HealthONE venture and increase patient volume. Same facility revenues increased 3.3% in the quarter, adjusted EBITDA totaled $1.533 billion, an increase of 8.6% in the prior year $1.412 billion. Same facility adjusted EBITDA increased 3% in the third quarter, compared to the prior year with our same facility adjusted EBITDA margin declining 10 basis points to 19.9%, as compared to the third quarter of 2011. Net income attributable to HCA Holdings, Inc. totaled $360 million or $0.78 per diluted share, compared to $61 million or $0.11 per diluted share in last year’s third quarter. The third quarter results for 2011 included pre-tax losses on retirement of debt of $406 million or $0.49 per diluted share. For the third quarter, volume trends were strong with same facility admissions increasing 2.1% and same facility equivalent machines increasing 2.6% against difficult volume comps last year’s third quarter when…

Good morning. I’ll begin my comments this morning with more detail on the company’s volume trends for the quarter and then provide an update on inpatient market share for the first quarter of 2012. Volume growth across the company’s 14 domestic divisions was very balanced again this quarter. On a year-over-year basis, 12 out for 14 domestic divisions had growth in same facility inpatient admissions. 13 out of 14 domestic divisions had growth same facility adjusted admissions. All divisions had growth in same facility emergency room against this quarter, reflecting continued success with our many initiatives to gain share in this service line. 11 out of our 14 divisions had growth in managed care emergency room visits, which were up 4.2%. And finally, EMS visits to our hospitals grew by 5.2%, all but one division had growth in this area. Surgical volumes were weak this quarter, but we believe most of this was due to the number of business days in the quarter. This year, we had one less business day in the quarter as compared to last year. Approximately 96% of all surgeries in our hospitals and ambulatory surgery centers are done on business days. When we look at same-facility total surgeries per business day, our volumes for the quarter were slightly up as compared to prior year. Our surgical growth initiative, which I highlighted on our first quarter call is progressing well for the company. Same-facility admissions into adult intensive care and neonatal intensive care units this quarter were up 3.8% and 3.4% respectively. The improvement in our neonatal volume is driven mostly by growth in obstetrics admissions, which grew by 1.7%. This rate of growth is an improvement over the rate in the first half of the year. Now, let me transition to some market share highlights…

All right, thank you, Sam. Thank you everyone for participating. We’ll now move to Q&A and as always encourage you to limit your calls to one, so we can give everyone an opportunity. Operator, do you want to pick up.

Certainly, sir. Today’s question-and-answer session will be conducted electronically (Operator Instructions) And we’ll first go to Frank Morgan with RBC Capital Markets. Frank Morgan – RBC Capital Markets: Good morning. Quick question, you referenced Florida and Texas with regard to Medicaid, but I was hoping you could go back and talk a little bit in detail about Texas, you mentioned the build-up in the Texas UPL AR. So, any color around that and how you see these programs playing out over the next 6 to 12 months? Thanks.

Thank you, Frank. Milt, you want that?

Sure. The Texas UPL program referenced the impact it had on our cash flow of about $100 million. We saw, basically in the third quarter, we did not receive our payment that we typically would receive and it’s just going to be a timing difference. So our receivable from the program increased by approximately $100 million during the quarter and I see that coming back to us in the fourth quarter. With respect to Medicaid, we anniversaried the significant cuts in Florida at the end of June. So at the end of the second quarter, if you look at our year-to-date, we’ve been where Medicaid is down almost a 11% on a rate basis for the company year-to-date through the nine months, of course, down just under 7% for this third quarter, and that’s what we expected. So what we are going through now primarily we do have still some small cuts in Florida that we are going through, a second round of cuts, but much less significant than what we went through last year or through June 30 of this year. And then we are going through the Texas cuts, which on an annualized basis, would probably be in the neighborhood of $80 million or so. And that should anniversary the end of, here at the end of the third quarter.

All right. Milt, either you or John have sort of any update, anything to say about Texas waiver and the status of that, or Sam?

Well, this is Sam. John is not available on the call. But we are still in the regulatory infernal, sort of documentation phase, if you will, for the UPL program or the waiver program. And all of those details still are not known at this particular point in time. It’s our belief through the process that changes that will be made should be more modest than what we’ve experienced this year as it relates to reduction. So there could be some reductions here and there, but it won’t be anything near as material as what it has been.

Frank, thank you. Frank Morgan – RBC Capital Markets: Thank you.

And next we’ll go to Tom Gallucci with Lazard Capital Markets. Colleen Elizabeth Lang – Lazard Capital Markets LLC: Hi, good morning. This is Colleen Lang on for Tom. Just on the pricing, I think that comp that eases significantly in Q4 particularly on the managed care front. Are you more optimistic that pricing will improve in the fourth quarter, or is mix still a headwind?

Milton.

Sure. Well, on the Medicare front, we would expect it to improve as we receive, I think, it’s a 2.3% increase and so for the year. So that will be positive for pricing starting in the fourth quarter. With respect to managed care, I would remain a little more cautious there with respect to saying, increases year-to-date were up about 4.5% what we’ve been yielding on the managed care book. And that’s primarily due as you referenced to service mix issues. And so, I would not expect that to change drastically in the fourth quarter, but I do see the governmental fees from Medicare being an improvement for us.

Thanks, Colleen. Colleen Elizabeth Lang – Lazard Capital Markets LLC: Thanks.

Next, we’ll go to Josh Raskin with Barclays Barclays. Joshua Raskin – Barclays Capital: Hi, thanks. Good morning. Thanks for taking the question, guys. Just a question a little bit more about as you’re preparing for 2014, and I’m just curious what of efforts HCA is going to undertake around branding and maybe awareness around some of your quality outcomes, especially relative to the broader industry. And I don’t know if there is any way to quantify, any impact on what you’re seeing in terms of contracting for 2014, or just still too earlier to even have those conversations with payers, but just be curious on the adverse there?

All right, Josh. Thank you. Richard, you want to take a shot at the hammer?

I was hoping somebody would ask a question on quality. We include this in our remarks to this audience, because we think our efforts at systematically reducing negative and unnecessary clinical variation across our provider system is of the highest priority. And it’s not only the highest priority, because it’s the best thing to do for the patients and the care that they get. But it also aligned with more efficient care and given the changes that we focus on in this industry that is certainly paramount among them. In terms of branding, I wouldn’t look for us to really brand these activities at such. We are so proud of the many successes that we’ve achieved. We roll them out across our enterprise on all sorts of measures, whether it’s how we’ve been able to improve patient wait times in our EDs or our perinatal initiatives or our 39 week standard, reduction of MRSA like we commented on today. This is the fundamentals of providing good healthcare and they wouldn’t rise to sort of an external branding effort. We will and do talk to our payer communities and our provider communities about these efforts. We think they’re substantial. We think they add tremendous value and when we can pull this out, over a wide number of assets and physicians, we make a significant difference. So I guess the short answer is that this is an important part of our operating agenda. We think it’s going to create a lot of value going forward. Where we have put economics return in it tends to be more around the supply chain side of the equation whereby we just want to say or minimizing complications we’re able to save on supplies, and we quantify that and increasingly putting that in our projection. But really want this will build into our overall cost of care, and as they become more hardwired in our overall performance it will show up in our projection numbers going forward. That’s kind of how we think about it. We don’t want to get too far out there. We think there is a lot of future there. But we really don’t put it into our projections that we really can see very tangible evident. Joshua Raskin – Barclays Capital: 2014…

Mill, you want to add…?

Yeah, you mentioned where we’re contracting, if you’re referring just commercial contracting under our traditional contracts… Joshua Raskin – Barclays Capital: Yeah.

…60% to 65% of our revenues under contract for 2014. But if you’re referring to exchanges for 2014, there is really nothing material going on there. The states I think waiting largely on the elections to make any make or move with respect to exchanges. We are experimenting on a small scale with some ACOs, both Medicare Advantage and commercial ACOs are very, very small. But at least we’re starting there and starting to take look at some of those, and looking at clinical integrated network. Richmond is probably the most advanced for us there on that front, and looking at a few other markets. So we are starting to prepare for healthcare reform. But as of today, I would say these steps are relatively small and pilots at this point.

Josh, thank you.

And next we’ll go to A.J. Rice with UBS. A.J. Rice – UBS: Yes, hello everybody. I guess, I would just ask the ACA. In the last few months has been mentioned with a number of potential transactions out there and obviously we’re seeing the entire backdrop on consolidation activity heat up as we head to 2014. Can you just maybe comment on what you’re seeing in terms of activity level and the company’s capacity? I know you commented on the debt-to-EBITDA, but the company’s financial that manage your capacity to pursue transactions and your appetite for that?

A.J., this is Richard. Let me just make a start at this. As I said in my comments today, we feel we have plenty capacity in our balance sheet to pursue any strategic acquisition that we choose to. I would also add that we are seeing more activity I mean whole industrial seeing it as various institutions and systems across America. Think about the future and how to achieve and scale it up in an increasingly difficult environment. We certainly see a lot of that. I would also add as I always add that we are disciplined in terms of what we want to do and how we want to, what we want to pay. We have seen a lot. We’re at the table for a lot, and we are pretty firm about what we think we should be spending and the value that we can bring to these assets. So it’s certainly an active part of our management team right now. I will also just remind all of you that we were thinking that this would be the trend in the business and several years ago really revamped our development program, added a lot of talent there, not only on the transactional side, but on the overall sort of development side. So we’re feeling that we’re appropriately positioned to respond to a changing M&A environment.

I don’t know Milton, if you want to add about the balance sheet in here.

Well, I mean, I think we’ve talked about our leverage ratios. I think that we have an opportunity to pursue acquisitions with our balance sheet and feel very comfortable with that.

A.J., thank you.

And next we’ll go to Sheryl Skolnick with CRT Capital Group. Sheryl Skolnick – CRT Capital Group: Good morning, gentlemen. Thank you so much for making the non-800 number available and for your kind thoughts and wishes about, both of us out here, still dealing with things. Almost makes me sorry, I’m going to ask you a question that you might don’t want to answer. Could you give us an update on a couple of things that are, we’ll call it compliance and/or reimbursement oversight related, such as New York Times/Miami U.S. Attorney’s Office inquiry and where that’s standing if there has been any local fallout that you can see, or any steps that you’ve taken? You want to talk about the incidents of the rack pilot beginning the Mac prepayments and other audits. And also as I understand that managed care is becoming an increasingly vigilant in oversight on observation cases in a caring is the new Interpol standards. I would be curious if you’ve seen any evidence of that either through managed care oversight activities or Medicare or investigative oversight activities. And thank you.

Sheryl, thank you, and we’re thinking about you guys up there. Milt, do you want to take that, Alan Yuspeh is not with us here today, but I know he and Milton have been talking about all of these issues?

Yeah, I’m not going to address the New York Times. I’ll say that to the lawyers that have got anything to add, but with respect to the rack audits and the observation and short stay sort of issues, let me say that we have been experiencing an increase in the amount of rack activity. And they have been emphasizing the sum that patients as either inpatient or outpatient, has been the area of focus. We have developed elaborate systems and with our shared service centers, Parallon, to respond to these request. We’ve had to add a significant number of people to handle some of the volumes. But we have found that almost all of the rack patient status denials merit an appeal and our shared service teams and our attorneys are appealing these denials. We’ve had substantial success with the cases reviewed by the administrative law judges, and we put in place the extensive measures to try to ensure the correct patient status assignments, and we feel that the rack denials in the space are generally incorrect. And we’ve had no experience, our rack experience at this point does not had any material effect on our financial performance, especially here in the third quarter, but again we’re seeing an increased amount of activity. With respect to the observation in short-stay, our observation rate, so it’s the observation as a percentage of observation plus short-stay, we continue to be around a 11% that’s been our percentage now for consistently for a couple of years. So we’re not seeing any, any increase in our observation. Also when you look at one-day stays, Medicare one-day stays, we’re seeing our Medicare one-day stays grow at approximately the same rates as our overall Medicare volumes. So nothing really to distinguish anything there.

All right. And Sheryl, I will be the lawyer here. I’ve already gotten the nod. There really is no update on anything as it relates to the New York Times and related investigation issue, and I might add in talking to Sam, and our Board of folks, we have seen no business impact at all operationally as a result of that story. Sheryl Skolnick – CRT Capital Group: That’s perfect. Thanks so much.

Thanks, Sheryl.

(Operator Instructions) We’ll next go to John Ransom with Raymond James. John Ransom – Raymond James: Hi, just a couple of things, you guys over the past two years have obviously given investors a nice dividend. Do you think that’s kind of one of these recurring, non-recurring things or do you think it’s subject to tax law changes in your current ownership structure, which is majority private equity?

Milt, do you want that?

When the decisions for a special dividend versus other alternatives for use of capital, really we take into account all of that market factors. And you mentioned a few of them could be tax rate impact for dividends, if that changes drastically maybe that would indicate that a share repurchase might be more attractive. The cost of debt capital is a major factor. The timing of certain cash needed for acquisitions would be a factor. The cash that we would need, if we want to step up investment in our existing markets for example, would be a consideration. So there is a number of factors that we look at as we think about special dividend. Here over recent months of course, we’ve been an environment where we’ve been generating substantial cash flow. We haven’t had a substantial need of cash for a new acquisition outside of HealthONE. And credit markets continue to be very favorable with the cost of debt capital. And at the same time, we believe that our shareholders appreciate the opportunity to have a cash yield on their investment. So all those factors have let us to use our capital for special dividends, but going forward we’re not going to try to predict how we’re going to continue that, it would be continuing to consider all those factors from time-to-time and making up decisions. John Ransom – Raymond James: Okay. And then secondly, as we think about 2013, I know you’re not giving guidance. But could you give us your best guess as to first half of the year, second half of the year, net Medicaid pricing? I mean obviously there is a substantial headwind this year, but what is that look like next year? Also factoring in which thing might be happening with Texas UPL? Thanks.

Yeah, I think at this point. John, we’re not going to address that. The Medicaid will be part of the pricing, discussion it will have, when we give our guidance going forward. But obviously we can’t address lot of these things. We’re sitting here with a sequester on the books that some people say are going way, so we just sort of draw the line here and say let’s just as Mil remained you a couple things that you and many others are aware of that our big non-recurring items in terms of the rural floor settlement and the difference in the high-tech income or things that are known and we can tell you now. But the other issues, we’re going to wait until to do our four quarter call.

Okay. Next we’ll go to Kevin Fischbeck with Bank of America/Merrill Lynch. Kevin Fischbeck – Bank of America/Merrill Lynch: Great, thanks. I appreciate the color on the volume number, which seems like it’s probably going to be the best volume number we see from the group again this quarter. But I was wondering, in the past I didn’t hear some of the same color or commentary about some of things that were maybe weak. This quarter as far as volume, I think in the past obviously you talked about the in patient, in sight volume growth, can you just flush out again kind of little more about what about headwinds of volume and other two items.

All right, Kevin. Sam, do you want to…

Yeah, let me just color some service lines volumes here. Our Behavioral Health initiative continues to produce strong volume for the company. We were up 6% in the quarter on a year-over-year basis. A rehab initiative, which is following our behavioral initiative, it’s not as far down the road with very strong at 13.5%. As we said, the weakness in our volume was primarily surgery, which we attribute mostly to the business day mix that we had in the quarter. On the cardiology side, we were flattish on our cardiology volume on the procedural side. We were up on the medical side as we have been. When you look at the surgical components, the one service line that continues to really out phase all service lines as orthopedics, orthopedics surgical volumes are growing nicely and then we had some softness in the others. But again, when you normalize it for the business day mix, nothing sticks out as dramatically down. I will tell you that on our market share metrics, the two service lines at a very granular level where we had some deterioration that we’re trying to study and understand a little more is on cardiovascular surgery itself, open heart and valve procedures were actually up, we think on value. But we’re down on open heart. That was one area that was softer than we had anticipated. And so we have to study that a little bit further to understand the reasons for that. But pretty good volume metrics like I mentioned before across the Board on the other things.

Sam, like we saw deliveries up, and NICU activity up in the quarter.

Right, I mentioned that in the call. That’s right. And so that was a little bit of trend change actually on the Neonatal side, we had length of stay improvement this quarter as compared to the first half of the year. We had length of stay compression on Neonatal activity. Kevin Fischbeck – Bank of America Merrill Lynch: All right, got it. Thank you.

Next we’ll go to Gary Taylor with Citi. Gary Taylor – Citigroup: I’m Gary, it sounds like I’m Barry today. I like that. I have one clarification and one question. So I hope I can slip both past Vic’s firewall he’s got up there.

I’ll listen to him first. Gary Taylor – Citigroup: Okay. The clarification is so you expect 2012 EBITDA, the midpoint of your previous range, which I believe midpoint would be about $695 billion. I just want to make sure we should be using that year-to-date EBITDA $4,925 billion in terms of calculating what the stub guidance would essentially be for the fourth quarter? But there’s no other adjustments there?

Yeah, Gary, this is Milton. And of course you’re doing the math and you should be using our year-to-date EBITDA all-in GAAP numbers. I know you’re backing into the fourth quarter number… Gary Taylor – Citigroup: Yeah.

And I hate to take it to an absolute point estimate, but if you think about probably from $1.550 billion to $1.6 billion for the fourth quarter in that landing zone. Gary Taylor – Citigroup: Yeah.

And the midpoint of that range would put you pretty much on $6.5 billion. Gary Taylor – Citigroup: And HIT should drop sequentially right, we have around $80 million, is that ballpark?

The total for the year, we gave it.

No, I think it’s more than that. I think what we are looking at for the full-year be $334 billion.

Right.

And we’ve got a $195 billion through three quarters, Gary…

This is Mark. We’ve talked about healthcare HIT, 40% of our expected revenue recognition would be in the third quarter and I believe we’re expecting about 25% of the annualized number in the fourth quarter.

We’ve got year-to-date, so now we’re at $252 million

It’s right. You’re right. I was looking at the impact on EBITDA net of expenses that’s right. Just looking at the income number, it’s about $80 million.

All right, that would work. What’s your other question? Gary Taylor – Citigroup: Sam or maybe for Richard, on the topic of exchanges, I get this question from investors a lot and I have my own view. But I thought if you guys want to talk about your view. Obviously, substantial unknown isn’t just how many people actually end up in these exchanges or the timing of that. But what payment rates, your hospitals are going to see from subsidized plans in those exchanges. And I guess in the absence of any rate caps or public plans with mandated government rates, the view is I would think that these are plans run by commercial companies are going to have to sit down and negotiate with you just like they do for your existing plans and their ability to just dictate a Medicaid or Medicare type rate doesn’t really existing in that in a negotiation. Is that how you’re thinking about it and expecting that it falls out somewhere closer to commercial rates?

I think a lot of the dynamics will unfold as depending on the election and who’s in and how it shape. But I think generally they will be competitively negotiated rates and that’s the way that we’re thinking about it. Obviously, we would like them to be a lot closer to the commercial book, but who knows exactly where all that’s going to shake out. But that would be a sort of I guess how we are thinking about it.

The process you described accurately.

Yeah.

Don’t know where it’s going to land when we go through the process, but the process would be negotiation with…

Right.

With commercial players. Gary Taylor – Citigroup: Great, thank you.

Thanks, Gary.

And next we’ll go to Darren Lehrich with Deutsche Bank. Darren Lehrich – Deutsche Bank Securities: Thanks. Good morning, everybody. I wanted to just ask about expense growth. And I wanted to just get a little bit more thought from you about how, you are looking at expense growth in light on what could be a tougher year with sequestration for 2013. How are you planning for that? And I wouldn’t like to just get some additional comments about physician employment costs and how you are thinking about the growth of that?

All right. Well, I don’t want to get in, again, too much into 2013. I think that we want to cover that in our thinking and assumptions next quarter when we do the fourth quarter call. But on a big picture we expect that we are going to continue to be a low inflationary environment and we are going to continue to see that impact on wage rates, on supply costs and other operating expenses. With respect to things like our physician cost and physician employment, I think that that will be an area where again, depending on the market we’ll probably see some growth. But I think the growth much like you are seeing now would be at a more moderate growth rate than what we’ve experienced a year ago, or 18 months ago from just a big picture outlook. Darren Lehrich – Deutsche Bank Securities: And on the physician piece itself just, I know you gave us the actual growth rate and expenditure which I think you said was 4.3%. Can you just may be update us briefly on your employed physician base and, any comments on physician practice losses running through the P&L?

This is Sam, Darren. We have approximately 3,200 physicians that we employ across HCA’s markets. That’s up from the previous year, I don’t have the exact growth rate in front of me, but it’s up 150 to 200 physicians thereabouts. What we have done is we have learned a lot from the decisions that we have made over the previous years and have been able to refine our thinking around how to deploy this component of our strategy in a way that accomplishes our strategic objectives accomplishes our clinical objectives and puts us in a position where we accomplish our economic objectives to be perfectly candid. And we’ve done that by being, I think more selective in the processing of these decisions, number one, we’ve also been able to assimilate these practices more effectively as we’ve established systems and capabilities within our physician practice management arm. Do we see more of it going forward, yes, is it going to be at a rapid pace. I don’t think so not across all of HCA’s markets. Some markets faster than others clearly, but across the portfolio, I don’t see any more rapid movement. For HCA, about 10% to 12% of our activity is from employed physicians. We still depend on our affiliated physicians in a very significant way. We have added probably a 1,000 to 1,200 new active staff physicians to our hospitals this year on a base of about 35,000. That’s come through recruitment. It’s come through employment. It’s come through relocating physicians in a market to our campus. So there’s a host of things that go on in our medical staff development initiative, employment just being one piece, but that’s where we stand with the, sort of that component of our business. Darren Lehrich – Deutsche Bank Securities: That’s great. Thanks.

Thanks, Darren.

And next we’ll go to Kevin Campbell with Avondale Partners. Kevin Campbell – Avondale Partners LLC: Good morning. Thanks for taking my question. I was curious if you guys could just maybe just some color about what you are doing to address the hospital readmission penalties and specifically what you are doing to lower readmission?

All right. You want to take a shot at that one? Jon Perlin, our Chief Medical Director.

Thanks. First, I appreciate the question. We do perform better than the industry a large, but there is obviously room for improvement. We’re working with our case management function to better coordinate the care between our inpatient and outpatient settings. The fact that we have the number of employed physicians that Sam mentioned, as well as very tight relationships with affiliated physicians, eases the hands off and our implementation of electronic health records assures the continuity of information to make sure the patients’ needs are met as effectively as possible.

This is Sam. Let me just add what Jon said. We have probably 20 hospitals that we’ve targeted very selectively with more aggressive initiatives to see what impact we can have around some of these tactics that Jon just mentioned. And we’re studying those and really engaged in those very intently. And I think, from there, we will learn, and as we learn, we start to transport those learnings across the company. And so those 20 are getting a significant amount of scrutiny and support from the corporate office to understand what work and what doesn’t work with impacting this particular issue. Kevin Campbell – Avondale Partners LLC: Can you give any color on what those initiatives might be at those 20 hospitals?

It varies. It depends on some of the service lines and so forth. We could probably do that better off-line, because there is a host of things we are working on. We’ve got nurse navigation, we have discharge planning, we have follow-up with certain pharmacy, okay. I mean, there is a litany of things that we’re trying to do that to have an impact. Kevin Campbell – Avondale Partners LLC: Okay, I will follow up off-line. Thank you.

Thank you.

All right. Thanks, Kevin.

And next we’ll go to Jake Hindelong with Imperial Capital.

Jake, are you there? Jake Hindelong – Imperial Capital, LLC: Yes, hey, good morning, everyone.

Good morning. Jake Hindelong – Imperial Capital, LLC: Guys, another fourth quarter reporting question. Will the HealthONE number be in or not included in the same-facility numbers?

Not. It would be next year, starting in January.

As we quoted that in November, as I recall, so it wasn’t a full quarter Jake, correct. Jake Hindelong – Imperial Capital, LLC: Right. Got it, great. And then bigger picture just as you think about more activity in consolidation as you move towards the big changes in 2014, is the appropriate leverage target probably in the in the low fours or you comfortable with that 4.5 times level that you ended last year?

Jake, we view our range, I would say, from 3.5 times to 4.5 times and that would be based upon the development activities and the like. But I would say 3.5 times to 4.5 times is the zone. And as you know, we were at 4.1 before the dividend, so almost at the midpoint of that. Jake Hindelong – Imperial Capital, LLC: Perfect. Thank you.

Jake, thank you.

And next we’ll go to Gary Lieberman with Wells Fargo. Gary Lieberman – Wells Fargo Securities, LLC: Thanks, good morning. I was wondering if you could tell us what the percent of the inpatient and the adjusted admission growth came from the growth in Behavioral and Rehab?

Well, I’ll have to do some math here, but just let me give you some top line color on that. This is Sam. Behavioral and Rehab only account for about 7% of HCA’s total admissions. And if you look at the percentage of our growth associated with that, it’s less than 20%. Gary Lieberman – Wells Fargo Securities, LLC: Okay. And so, I guess, the fall would be at some point you run into more difficult comps there, or is that so small, but it’s going to be quite a while?

Well, again, I think we are starting to see the Behavioral slowdown, so that comp is getting more difficult. But in the overall composite rate of good for the company, it’s still such a small weighted impact that it doesn’t really move the needle that match. And then as Rehab continues to accelerate which we think it will, that will compensate a little bit for the Behavioral slowdown. And again, the Behavioral slowdown as we call it was 6%. We were up 12% year-to-date through the third quarter, 6% in the second quarter. And so it has slowed and we knew it was going to slow, but it’s not going to have a material impact on our composite rate.

Sam, I think, our emergency room service line is the key for the growth feed going forward.

That’s right, yeah. Gary Lieberman – Wells Fargo Securities, LLC: Okay, great. Thanks a lot.

Thanks, Gary.

(Operator Instructions) We’ll next go to Ralph Giacobbe with Credit Suisse. Ralph Giacobbe – Credit Suisse: Thanks, good morning.

Good morning, Ralph. Ralph Giacobbe – Credit Suisse: Can you give us the percentage of revenue that’s Medicare advantage and maybe separately managed Medicaid, and then along those lines just the minus, are those rates negotiated or do you just paid the Medicare and Medicaid price?

Well, I would say, the rates were negotiated, but obviously we have an anchor there that’s very public in terms of what Medicare and Medicaid fee-for-service pricing would be in a particular market. But we do negotiate with the payers around then. I don’t have, well Medicaid, in total, absent the UPL program is about 9% or so of our total net revenue. Let’s see if I got it broken out here. So, okay, managed Medicare is 9% of our net revenue and Ralph Giacobbe – Credit Suisse: Managed Medicare, I’m sorry?

Managed Medicare and Managed Medicaid is about 5%. Ralph Giacobbe – Credit Suisse: Okay, all right. And just in terms of your first comment on the negotiation, so there is an anchor understandably obviously, are you able to get rates above that, or not and then I guess, I asked the question in some ways. related to the coming exchanges and your ability to negotiate pricing manner or do you think that’s totally apples and oranges?

Well, markets vary and so we are going to have different experiences relative to fee-for-service pricing in different markets. So it’s not a uniformed across the company, sort of, response there.

As you would imagine different strengths in different markets.

Thanks, Ralph. I would say we’ve got time for one last question if anybody is out there.

Okay. (Operator Instructions)

All right. I think we got everybody covered. I want to thank everybody for being on the call. Mark and I are here all day. So give us a call if you need any follow-ups and have a good day. And again, condolences to some of you, I know, have had direct hits on Sandy and I hope things get better for you and your families.