Please standby, we’re about to begin. Welcome to the HCA Healthcare First Quarter 2019 Earnings 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 Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead, sir.

Okay. Thank you, Cody. Good morning, and welcome to all of you on today’s call and our webcast. With me this morning is our CEO, Sam Hazen and Bill Rutherford, our CFO, which will provide comments on the company’s results for the first quarter. Before I turn the call over to Sam, 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. Several 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. Now the company undertakes no obligations to revise or update any forward-looking statements whether as a result of new information or future events. On this morning’s call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc., excluding losses and gains on sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. to adjusted EBITDA is included in today’s first quarter earnings release. This morning’s call is being recorded and a replay will be available later on today. With that, I’ll now turn the call over to Sam.

All right. Thank you, Mark. Good morning to everyone and thank you for joining us today. Earlier today, we reported a great start to 2019. The results for the quarter were driven by strong revenue growth and improvements in operating margin. Revenue grew by almost $1.1 billion, close to 10% in the quarter. This growth was driven by volume growth in commercial business, volume growth in more complex services and new acquisitions. On the same-facilities basis, revenue grew by $700,000, or 6.3%. Inpatient admissions and equivalent admission on a same-facilities basis grew 0.9% and 1.8%, respectively in the quarter. We estimate the flu volumes from last year had an approximate 1% unfavorable impact on our volume growth this year. Volume growth was broad-based across most service categories and balanced across our markets. The growth in revenue translated into solid earnings in the quarter, with diluted earnings per share of $2.97. Adjusted EBITDA grew by 20% to over $2.5 billion, with adjusted EBITDA margin at 20.3%. As a result of this quarter’s results, we are raising our guidance for the year. Bill will provide more details on our metrics and updated 2019 guidance in his comments. The first quarter continued the positive momentum we have seen over the past six quarters. Commercial adjusted admissions grew in each of these quarters. Also, we have now grown our same-facilities inpatient admissions in 20 consecutive quarters. The strategic investments in our business to expand our networks and improve our clinical capabilities are making it easier for patients to get high-quality convenient patient care in an HCA Healthcare facility. The most recently available inpatient market share data showed good growth for the company. We grew by over 50 basis points to an all-time high of 25.3%. We have almost $4.3 billion of capital spending in the pipeline that we expect to come online over the next few years. These investments will create additional inpatient and outpatient capacity within our local healthcare systems. We believe that fundamentals in our markets remain strong with growing demand for healthcare services. We also believe we are well-positioned for growth, as we continue to execute our operational initiatives, improve the overall competitive positioning of our local healthcare systems and integrate our acquired hospitals. During the quarter, we announced the acquisition of a majority interest in the Galen College of Nursing. We are excited about this pending deal. HCA Healthcare has been investing heavily in nursing over the past few years, so our nurses can be successful and provide the best possible patient care. This investment creates new opportunities for Galen to expand programs into more of our markets. And finally, I want to thank our employees and physicians for their great work in delivering high-quality care to our patients. With that, let me turn the call over to Bill.

Great. Thank you, Sam, and good morning, everyone. I will cover some additional information relating to the first quarter results, then we will open the call for questions. As Sam mentioned, we are pleased with the first quarter results. For the quarter, adjusted EBITDA increased 20% to $2.541 billion, up from $2.118 billion last year. As noted in our release, the first quarter of 2019 results include an $86 million increase to our revenues as a result of finalizing an arbitration related to past out-of-network claims. So let me cover some volume steps. During the first quarter, same facility Medicare admissions and equivalent admissions increased 0.4% and 2%, respectively. This includes both traditional and managed Medicare. Same facility Medicaid admissions increased 2.5% and equivalent admissions increased 0.3% in the quarter. Our commercial admissions increased 1.3% and equivalent admissions increased 2.5% on a same-facility basis in the first quarter compared to the prior year. Same facility self pay and charity admissions were unchanged in the first quarter compared to the prior year. Same facility emergency room visits declined 2.3% in the first quarter compared to the prior year. We attribute about 130 basis points to this year’s weakened flu season. Additionally, when we look at the changes by acuity level, all of the first quarter declines are in our level one through level three visits, which declined 7%. Our higher acuity level four and five visits grew 2.2% over the prior year. In addition, admissions to the emergency room increased by 1.7% over the prior year. Same facility revenue per equivalent admission increased 4.4% in the quarter. The arbitration settlement accounted for 80 basis points of this increase. We are pleased with the overall rate trends we experienced in the first quarter, as we saw continued growth in acuity, good payer…

All right. Thank you, Bill. As a reminder, please limit yourself to one question, so that we might give as many as possible in the queue today an opportunity to ask a question. Cody, you can now give instructions to those who may want to ask questions.

Absolutely. Thank you. Today’s question-and-answer session will be conducted electronically. [Operator Instructions] And we’ll take our first question from Gary Taylor with JPMorgan.

Hey, good morning. I had a few quantitative questions, but I guess, I’ll just ask the biggest one after such a really strong quarter, at least, dramatically stronger than the Street was expecting. You only raised the annual guidance by $100 million or slightly more than the extent of the arbitration gain. So is there just an abundance of conservatism in the forward guidance, does the Street really have the first quarter just mis-modeled, or is there anything else in the year that gives you a little bit of caution at this point in terms of raising the guidance further?

Okay, Gary. I’ll let Bill take this one.

Hey, Gary, this is Bill. I’ll start and Sam can add in. So, we typically don’t address guidance after just one quarter, but given our performance, we believe it was appropriate. And as you said, one way to look at it is the raise is due to the payer arbitration, which wasn’t in our original guidance. We continue to see momentum as we saw when we turned the calendar in the core operations and acquisitions improving. As I think about it, if you look at the remaining nine months of the year and after considering that last year we booked some Harvey insurance proceeds in a professional liability, our new reflected guidance has about a 6% growth at the midpoint and almost 9% growth at the high-point. So at this point, we think that’s appropriate. We’ll continue to evaluate it as the year goes on. But I do think we continue to see momentum in the core operating of the business.

All right. Thanks, Gary.

Okay. Thank you.

Okay.

Thank you. We’ll now take our next question from Pito Chickering with Deutsche Bank.

Good morning, guys. Nice quarter and thanks for taking my question. First quarter same-store revenue was obviously sort of very strong, and we saw some nice SG&A leverage as expected. Excluding sort of the $86 million from the out-of-network revenue, do you look to see any leverage on the OpEx line? And I’m just curious if you could walk us through if that was due to acquisitions or how we should think about OpEx leverage with same-store revenues on this front?

Well, I guess, we look – there was operating expense leverage. We had a nice margin expansion for the year. If you look at almost any line item, especially on the same-facility basis, we had 200 basis points margin expansion even on a same-facility basis. So, as we’ve talked about in the past, we’re on the top side of our revenue guidance. We do expect to see margin expansion and indeed, we saw that for the quarter.

Yes. And let me just add a couple of things here, Bill. I mean, we did $700 million at same-stores revenue growth…

Yes.

…and we cleared about 54% of it to the EBITDA line. So our same-stores EBITDA margin jumped almost 200 basis points, which really is above sort of our expectation on an incremental revenue clearance standpoint. So we’re not seeing the same thing there, Pito that you are seeing. Our overall operating expense per adjusted admission was only up 1.7% on a same-stores basis, again, well underneath our revenue per unit. And so we were pretty pleased and actually quite pleased with the expense metrics for the company.

Okay, fair enough. Thanks, guys.

All right. Thanks, Pito.

Thank you. We’ll hear now from A.J. Rice with Credit Suisse.

Hi. Maybe just – I was actually going to pursue that in a different way. It look like relative to us that your salary and benefits and supply expense, I know you’ve got leverage from outperforming the revenue line, but they look particularly strong in terms of the ratios. Is there any particular initiatives that you’re pursuing that would be worth highlighting there? And I know specifically on the supply side, I think, you announced a – I don’t know if you’ve announced it. But I think there’s a new PBM contract that you have. What – is that going to move the needle for you in any significant way?

Thanks, A.J.

This is Sam, A.J., thank you for that. I think, HCA Healthcare in general is in a constant pursuit of trying to find ways to gain efficiencies and improve profitability. And so I wouldn’t say anything is necessarily that new in our mindset. I mean, we’re constantly finding opportunities. We believe across the company as we get better analytics, as we do better benchmarking and as we come up with technology solutions that we believe can yield value. And so we do have a number of initiatives connected to those three categories. With respect to the PBM relationship, there was an announcement about a transition that will take effect in 2020, and we’ve had a great relationship with CBS in the past. We had a compelling offer put in front of us by Optum and we chose to pursue that, so we’ll transition to that relationship next year. But that’s just part of our ongoing renewal process inside of our supply chain efforts and they do a great job of evaluating different opportunities and different approaches as contracts come up for renewal. But I think our teams are very disciplined in their day-to-day activities. They do a great job of managing variable expenses and then the company is doing a good job in trying to find ways to reduce fixed costs and create a platform that allows revenue growth to really clear to the bottom line appropriately. So we just continue on sort of the same pathway is what I would tell you. Obviously, there’s questions about wages and so forth. We’ve been able to maintain wages around our expectations were slightly under 3%, and we’ve been able to find ways to improve productivity in the face of what I would call decent volume growth and not great volume growth, so that was encouraging. And then we continue to execute on our nursing and human resource initiatives, which are yielding reduced turnover reductions in contract labor, and all that played a part in the performance in the quarter.

Okay, great. Thanks a lot.

Thanks, A.J.

Thank you. We’ll take our next question from Frank Morgan with RBC Capital Markets.

Good morning. You referenced recent acquisitions in terms of its contribution to your results. Just curious if you could give us a little update on a couple of those recent wins be it Mission or Savannah, Houston. And I noticed that you also talked about a higher-level of CapEx investment, I think, $0.3 billion now, up from $3.5 billion last quarter. Anymore color around where that’s going to be allocated? Is that more into recent acquisitions, just any color there? Thanks.

Yes. Hey, Frank, this is Bill. Let me start with the acquisition performance and we’re very pleased with the performance of the acquisitions. They’re on plan. First, as you mentioned, Mission is going very well. We’re just two months into it, obviously, but we’re excited for Mission Health to join the HCA network. We’re pleased with how the integration is going and their performance is on plan at this point. Memorial on Savannah had a good quarter, continue to operate on their plan, so very solid performance from Savannah. We’re also very pleased with our performance of our North Cypress facility in Houston. This is also on our plan. So overall, we’re right where we anticipated to be. If you recall, as we had our year-end call, we anticipated the acquisitions to contribute roughly 3% of EBITDA growth in 2019 and they achieved that level in the first quarter. So very pleased with the performance and seem to be on track with what our expectations were. On the capital increase, yes, there is some increased capital related to Mission and then as we continue to see opportunities in the market. But our capital spend and trends are online with what we originally guided.

Yes, but most of that step up, Bill, is related to sort of existing markets. The $3.5 billion, Frank, to the $4.3 billion, there are a few projects that are related to our acquisitions. But most of that is the continuing investments in our existing markets, where we believe we have significant opportunity to improve our network positioning to increase capacity in key areas and drive technology improvements, along certain services lines that we think are differentiators for HCA and we continue to invest in that at this particular point in time.

Thank you, Frank.

Thank you.

Thank you. We’ll now move on to our next question from Peter Costa with Wells Fargo.

Good morning. Nice quarter. A couple of your competitors seem to see a little bit faster medical admissions and a little bit slower growth in surgical admissions. You didn’t seem to have that issue. Could that be, because you’re taking share in the surgical side and the other guys are not taking as much share and there’s just something going on with the market, or do you think it’s just totally separate companies and geographies?

This is Sam. Thank you for that question. Our inpatient surgeries were flat in the quarter. A lot of that was driven by some C-section reductions. But our outpatient surgeries conversely were up and especially inside of our hospital-based outpatient surgery centers, which were up 3 %. So one thing we did have in the first quarter is, we have one less surgical day. And so the calendar is not present what I would call it a favorable calendar and surgical set of days. And so that yielded some pressure on surgery. So if you look at surgery on a per business day standpoint, which is how we look at it, we had really strong surgical activity. I think the company’s efforts around creating what we call the OR of choice has been very productive for us. We’ve been on this journey since 2012 to improve the operations of our surgical suites and appeal to our surgeons in a way that create efficiency, better nursing, better technology offerings and so forth inside of our surgical suites. When you couple that with better improvements inpatient satisfaction, you yield a pretty positive result. The other thing I will tell you is that, some of the deep service line capabilities that we are building or have built are surgically oriented in nature. For example, trauma is heavily surgery-oriented, burn heavily surgery-oriented, cardiovascular, a lot of surgical growth this quarter for us in cardiovascular, and even our robotics investments that we’ve made have been very productive for us as we look at surgery across the line. As I mentioned in my comments, the company has achieved a high watermark on its inpatient market share. We think that’s fairly broad-based across different service lines, which include the surgery components. So we’re very pleased with our surgical initiatives the investments that we’re making, and we think broadly it’s having an impact in the market with our physicians and with our patients and it’s yielding pretty solid growth for us.

Thank you. And just if I could have a follow-up. Given the strength in surgeries that you’re showing and the strength from the acquisitions, isn’t it time to come off your long-term EBITDA growth rate target of 4% to 6%?

Well, we’re not ready to do that yet. And so, obviously, this year we guided above that and last year we did perform above that and we’ll have to evaluate that as we get through the rest of this year and look at some of the other factors that are important to long-term guidance. But we hear your point and your question and it’s not a bad question by any means and we’re working our way through it. I think it’s important to understand, we’re pushing 100% on as many fronts as we possibly can. And if we can produce 20% EBITDA growth like we did this quarter, we’ll do that. And so I don’t think the management team is trying to beat down the performance of this company. We’re trying to lift it up wherever we can find it, and we understand the guidance is a part of that, but we will continue to look at that as we move through the rest of the year.

Thank you, Peter.

Okay. Thank you, guys. I appreciate it.

All right.

Thank you. And we’ll now take our next question from Michael Newshel with Evercore ISI.

Thanks. Can you guys comment on the IPPS proposal for 2020 in the company specific impact? And then what does your 2019 guidance assume for the calendar fourth quarter as they reflect the favorable proposal, or a lower more typical average?

Hey, Mike.

Yes, Mike, this is Bill. I’ll take it. Obviously, we’re looking at that proposal as everybody else is still early, so we haven’t quantified it. We’ll continue to evaluate that as we go through the common period, so no specifics on there. Relative to our guidance, I will say, our guidance anticipate in the fourth quarter that we will return back to kind of a normal Medicare rate update. We did have incredible rate this year that were in that we talked about on our year-end call. So our guidance did presume that we go back to a normal rate. So we’ll have to see what that final IPPS rate turns out to be once we go through the common period. And when we get closer, we’ll comment on the quantification of that.

All right. Thank you.

Yes.

Thanks, Michael.

Thank you. We’ll take our next question from Ann Hynes with Mizuho Securities.

Hi, good morning.

Hi, Ann.

Could you give us some detail, I think, the investment in Galen College of Nursing is interesting? How do you think that will improve expenses over time, and maybe when more we see that investment at the income statement? Thanks.

Thanks, Ann. So the Galen College of Nursing is a very exciting acquisition for HCA Healthcare. This is a very impressive organization. We think their culture lines up great with HCA. Their strategy and their discipline around standardization and how they scale their solutions was very impressive to us. And so we see this as an opportunity to put on the front-end of our nursing agenda, an education component that will allow us to interact with nursing students early on in their journey to be a nurse and hopefully integrate them into the HCA Healthcare network in a way that allows us to source talent for our investments in our growth and so forth. As far as expenses, we see some opportunities to use their platform as we expanded in our broader education initiatives. HCA has a very robust clinical education agenda that’s underway and we see the Galen College of Nursing as being very complimentary and in some cases synergistic with that particular effort. We haven’t put a number to that as of yet. We have to close this deal hopefully by the end of this year through a regulatory process that we’re going through currently. But once we get through that, we’re going to be fairly quick in trying to expand their model into different HCA markets, so that we can get moving on it. But we don’t have any numbers yet specifically on expense synergies, but we do think it’s going to create opportunities for us to enhance the pipeline of nurses into our company.

Thanks, Ann.

Thank you. We’ll take our next question from Matthew Gillmor with Robert W. Baird.

Hey, thanks. Following up on Peter’s question, can you quantify the calendar impact on volumes? And then did the Hurricane Michael have any lingering impact on the Panama facility that impacted overall volumes at all?

This is Sam. Thank you for that question. On the second part of your question, the short answer is no. Our Gulf Coast, the Medical Center in Panama City, that’s an incredible group of people down there in what they went through and how quickly they rebounded, and I want to take the opportunity since you asked the question to thank them again for everything they’ve done. So we’re up and running fully at that particular hospitals. So our corporate teams, our local teams, other markets supported that hospital in getting up and running, so it had no impact on the quarter, as it relates to volume. I think the way we look at surgery, especially on the outpatient side, almost 95% to 98% of all outpatient surgeries are done on weekdays. So when you look at one less week day in the quarter and then you put the outpatient surgeries on top of that, you can get the sense of what our per calendar day or business day rather surgical volumes were – I’m not doing the math here on my phone, but nonetheless I’ll give you some sense of it. On the inpatient surgery side, it’s not as much. We do surgeries on the weekends, mainly for emergency patients, but it’s a small number. So I think the inpatient surgeries are also influenced by the business day calendar, but not nearly as much as the outpatient. And then you have the same kind of impact on cardiology business, which the company had tremendous cardiology growth in the quarter. Our cardiac volumes were up 3% on the procedures side. Our electrophysiology volumes were up 5%, again, that’s in the face of a business calendar that was a little softer than the previous year, and our cardiovascular surgeries were up 4%, so very solid growth in that particular service line as well. And I think, again, somewhat impacted by the calendar, but we overpowered that as we went through the quarter.

Thanks, Matt.

Got it. Thanks, Sam.

Okay.

Thank you. We’ll take our next question from Whit Mayo with UBS.

Hey, thanks. Sam, I don’t want to jump the shark, but assuming that we may see some CON law changes in Florida, maybe mostly around some tertiary services. What does this mean for HCA?

We have not seen the final rules on the CON regulation changes in Florida as of yet. Florida is fairly relaxed currently on a lot of their CON rules. There is no restrictions of any significance on expansion of existing facilities. There are opportunities to do certain outpatient facilities without certificate of need requirements. So it is gradually relaxed itself over the years. I mean, the opportunity for us would be new hospitals, potentially in certain markets. It would also mean new programs, for example, rehab is a very restrictive CON process today, so our opportunity to get into that service line would be potentially available to us if the CON rules are changed on that front. And then there’s a few other programs where there are some restrictions that as we understand it could be relaxed. So we’ll learn more as this bill continues to progress through the legislative process.

Thank you. We’ll now take our next question from…

Thank you.

Thank you. We’ll now take our next question from Ralph Giacobbe with Citigroup.

Hey, Ralph.

Hey, good morning. Are there more of these larger arbitration cases outstanding? I know they happen from time to time, just trying to get a sense of whether there’s more of a bullish at this point? And with the out-of-network related to exchanges specifically, or was it broader commercial and over what period of time? Thanks.

Yes, Ralph, this is Bill. From time to time, we have discussions and disputes with payers that result in arbitration and this was one of those, I can’t say that there’s a big one now that we see near-term. This did relate to health insurance exchange activity in the early periods of health reform, principally 2015, 2015, with a little bit of 2016.

Thanks.

All right. Thanks, Ralph.

We’ll now move on to our next question from Kevin Fischbeck with Bank of America.

Great. Thanks. Just wanted to dig into the margin improvements, because that seems to be where the biggest surprise, and I guess maybe labor in particular. I guess, we’re all kind of assuming that as the economy keeps improving that wages are going up and that this will be more of a pressure on you going forward, but really good labor cost growth in the quarter. So I just want to understand what was driving that and how you think about that number tracking through the year?

Well, I spoke to most of the details a minute ago on labor and how we viewed it. Again, if you look at same stores for the company, our labor costs were up 3.6% on revenue growth of 6.3%. We were able to find some productivity inside of that and manage our wages, as I said, under 3%. So we had good reductions in contract labor. And I just think overall, really well managed by our facilities. Obviously, when we have commercial volume and we have high intensity volume, we aren’t using a ton of marginal cost to support that. We’re using some marginal cost for sure, but because it’s got more revenue turnover and more revenue yield per patient, if you will, it clears more effectively. And that shows itself in the margin expansion that I mentioned as well earlier in the call and it shows itself significantly in labor as well when you figure roughly 50% of our labor costs in HCA are fixed in nature. And so to the extent, we have some volume growth, but really good volume growth as far as the mix of that volume. It clears itself pretty effectively through the different expense categories, and that’s what we saw in the first quarter. As it relates to the rest of the year, we’re not anticipating anything significantly different with respect to labor pressures. We continue to execute the multiple agendas that we have to improve our environment for our employees. So it’s a better place to work and more attractive to them, and we don’t see any unusual cost pressures coming from that.

Thanks to hear them.

Thank you.

Thank you. We’ll take our next question from Josh Raskin with Nephron Research.

Thanks. I appreciate, guys, taking the call – the question. I guess, it’s been a little while since we’ve talked about taking risk. And I’m just curious if you’re seeing any changes in the market or payer expectations or even in the HCA side in terms of your appetite to be taking more risk, and I guess sort of attitudes from payers, et cetera, everything along that line?

This is Sam. Thank you for that question. Nothing in our view has changed materially across our 43 different markets. We continue to interact with the payers, I think, very effectively and strategically in many instances. I think the approach that we take to building on our network with various outpatient facilities that have different price points is productive for the payers and at the same time very convenient and efficient and satisfying for our patients. That’s been effective for us. We do have some contracts where they’re value-based provisions in them and so forth. I think what people fail to recognize is that, HCA on a roughly 75% to 80% of its inpatient admissions takes a former risk. In that, we get DRG payments or we get a case rate payment on a particular patient and it’s our responsibilities to manage efficiently underneath that. And so we are taking forms of risk. We’re not taking risk outside of the walls of the hospital in any material way, because we don’t feel we’re in a position to control that or influence that or even price that necessarily. So our approach has been to focus on risk parameters that we can control that we have some visibility into and then be a really productive partner for the payers by meeting their needs with different facility offerings with very efficient high-quality outcomes that don’t result in readmissions or don’t result in infections or longer lengths of stay and such. And so that’s been our approach, and we think that generally is workable with the payers. So we are really seeing any significant changes broadly across the marketplace.

Thank you, Josh.

Okay, thanks.

Thank you. We’ll take our next question from Scott Fidel with Stephens.

Hi, thanks. I’m interested if you could just touch on some of the key factors that drove the year-over-year change in operating cash flows, particularly as it relates to the DSOs and then maybe update us just on anything to call out around the quarterly cadence of operating cash flow over the remainder of the year?

Hi, Scott, thanks.

Yes, Scott, this is Bill. So as I called out in my comments, the most significant item that affected the year-over-year cash flow was our 401(k) match that we funded in the first quarter related to 2018. There were a couple other items that affected it. The payer settlement we spoke to went into receivables in the first quarter, we’ve subsequently collected that in April. With the Mission AR acquisition, there were some increased receivables just given we were two months into that, both of those were in the $80 million range. So when we adjust for those or cash flow from ops is right on track. We continue to believe for the full-year, cash flow from ops will range between $6.5 billion and $7 billion. And so we feel good about where the company is positioned on that. I think as the company continues to see some growth in earnings, we’ll see that growth in cash flow operations as well.

So our original guidance was $6.5 billion to $7 billion…

$6.5 billion to $7 billion, yes, and we really continue to believe that’s the proper guidance for HCA.

Correct. Okay. Scott, thank you.

Thank you. Our next question will come from Steven Valiquette with Barclays.

Steve?

Mr. Valiquette, we aren’t able to hear you. Please check your mute function. Again, sir, please check your mute function, we aren’t able to hear you.

Hello.

Hey, Steve.

Hey, sorry [indiscernible] and I turned on the cellphone. I hope, you can hear me.

Yes, go ahead.

I just want to follow-up. Okay. So just separate from the surgery discussion earlier, there has been discussion this quarter among your peers softer same-store revs per adjusted admission that maybe happening for other reasons as well that you guys obviously had pretty good results in 1Q 2019 on that metric and now there’s a ton of variables that go into that metric. But I’m just wondering if you are able to comment on the durability of your results there just for the rest of 2019 just to give investors more confidence around, again, this same-store revs per adjusted admission metric for HCA for the full-year? Thanks.

Thanks, Steve. I think, obviously, we benefit from commercial volume growth, and our commercial volume growth, like I said, we’ve had six consecutive quarters of adjusted admission growth in our Commercial segment and that yielded strong revenue per adjusted admission. The second thing I would say is, as we build out service line capability and deepen our programs broadly across the organization, that yields more revenue per patient Those are the two factors that drove our revenue per unit up above where maybe people expected. And we’ve had a pretty good pattern with that. I think in 2018, if I remember correctly, we were north of 3%, and that again is a function of those two variables. Also when you look at our case mix, our case mix trends, which is not a perfect proxy for acuity, but a good one is actually trending north of 3% as well. So we continue to invest in both of those components of our business. We have numerous initiatives that are geared toward being more accessible for the commercial population. We have more outpatient investments that are geared towards that. Also, in the service line standpoint, we continue to build out capabilities across the company’s portfolio. And again, those things still think have room to grow. And as we see continued momentum in the markets with job growth and strong economies, we think that portends reasonably well for us over the course of 2019.

Okay. I appreciate your best color. Thanks.

Thank you, Steve.

Thank you. Our next question comes from Steve Tanal with Goldman Sachs.

Good morning, guys. Actually was – I wanted to follow-up on that one. I guess, the quarter itself was quite good. Clearly, the commentary is very bullish. And so I guess the question would be, is there anything that could potentially move you back into the guidance range on revenue per adjusted admit that’s 2 to 3 for the year? Does it seem like pretty likely to be tracking above?

Well, we’ll have to see. There’s obviously quarter-to-quarter trends we have. But as you’ve heard us talk about, we feel there’s a lot of momentum in the growth prospects of the company. As Sam just mentioned, good commercial growth really helps drive that. We continue to invest in higher acuity services. So, we do anticipate continued strength in the revenue portfolio and the composition of the company. So I think for the near-term, we might be above that, but we’ll just have to see what the future quarters yield.

Appreciate that. And maybe just lastly, from anything just on the M&A pipeline, any comments there? How was that looking? Are there still opportunities out there? Have you slowed the pace? Any color would be helpful? Thank you.

All right. Thanks, Steve.

Well, I wouldn’t say that we have anything to report on at this particular point in time. It’s our judgment. And I mentioned this, I think, on the last call or maybe the call before that, we could be entering a cycle where there are some nice opportunities for the company. We are having discussions, but they’re early discussions with different systems that are exploring their options as they look at their future and their situation. Most of those are independent not-for-profit systems that we think have some appeal. And so we will continue those conversations to say that there are any more than we’ve had in the past, I really can’t say that. But I do think we are entering a period of time, where we could see more than we’ve seen in the past.

Great. Thank you.

All right. Thank you.

Thank you. We’ll take our next question from Anagha Gupte with SVB Leerink.

Hey, thanks. Good morning. So very impressive quarter. You continue to impress and you decouple from the rest of the hospital operators on growth and all the metrics. So, my questions are really about how much of this is even secular anymore relative to the HCA playbook? And I can ask many, but two quick ones would be your commercial mix has been very impressive. You had once, I think, a year ago maybe talked about market specific population growth probably in a better employment in your markets. Is that anymore, or is it just shaking, because you’re investing so well in service lines and I mean, all of that and with your physicians? And then secondly, on the pricing growth, also, the rates in the payer mix and acuity, but you’re much better than everyone else. And is it also, because you have an unparalleled asset base across the inpatient assets, your 2000-plus sort of access points that you’re buildings towards? So you have the ability to optimize your payer mix and your acuity by sight of service, if you will, any comments on that?

All right. Thank you, Anagha.

I’m not in a position to speak to the other companies and their results. What I can speak to is how we approach the market and what it takes for us to compete in these large metropolitan markets. And typically, we are competing against a local not-for-profit system or to most of which are only in that particular market, very few of them are what I would call portfolio market players. So we have to adjust our approach to deal with those local nuances. But we have been very effective in transporting ideas, transporting initiatives and investing aggressively in our growth agenda across the company. And our results are broad based. Our market share on the commercial is at an all-time high. We grew our market share on the commercial book actually slightly better than we grew our overall market share in the in this last report that we’ve got, so that’s very encouraging. We continue to believe we’re doing the right things, again, from a payer standpoint and relating to them and finding ways to be a solution for them and at the same time creating an efficient and satisfying experience for the patient. So a lot of our commercial revenue is on the outpatient side. We invest in that. We try to create programs that make it easy for the patients to navigate. And so, we’ll continue down that pathway, because we think it works. And so that’s really what we’re seeing. It’s hard for me to compare against the other companies, because I don’t get to see their results like I do ours nor do I understand their business model to the same degree, as I understand our competitors across our markets.

All right. Thank you, Anagha.

Okay. Thank you very much. Thank you.

Thank you. We’ll hear now from Matt Borsch with BMO Capital Markets.

Yes. Just two question on the trend in your services and the demographics. As you look at the weighting towards cardiac services this quarter and, on the other hand, the fewer C-sections that you had. Is that – are we talking aging of the population on the one hand and the very, very low birth rate on the other? And I’m just curious how you see that developing, given that the vanguard of the baby boom generation is now in the early 70s.

So there’s two pieces. This is Sam. Thank you for the question. There are two pieces to that question. On the cardiac side, we have seen strong cardiology volume trends even in the fourth quarter, I think, we were up about 5%. And so we’re up again about that same level, and that really goes to our service line strategy, which is led by a team up here in Nashville, who supports our field teams in physician recruitment, program development, technology, deployment, patient navigation, all of those kind of things, and we think that has allowed us to attract physician talent and add program capacity and that’s yielding volume gains for us across the board in cardiology. In the obstetrics world, what’s interesting in this quarter, our commercial obstetrics volume was up about 6%. Our Medicaid volume was down significantly. And so that’s what drove sort of the overall blend of the metrics and yielded some reductions in C-section. We do see birth rates flattening out across the country. We’ve spoken to that before. And our approach to women services has been to really create destination sites in most of our markets, where physicians and moms want to go, because we have the facilities, the physician capability, the nursing capability and so forth that creates a very positive environment. And that’s working for us in markets, where we’ve made those investments. And we’ll continue to look at, again, transporting that idea more broadly, so that we can pick up market share. I think for the most recent report, our market share in obstetrics is actually flat, but that where we’ve lost it is again in the Medicaid side of the equation and not so much on the commercial side.

Thank you.

Thanks, Matt. I appreciate it.

Thank you. We’ll take our next question from Sarah James with Piper Jaffray.

All right. This is Jesse on for Sarah. Thanks for taking the question. So on the last call, you highlighted that 80% of hospitals grew even, say, year-over-year, 70% for admissions year-over-year, 65% of hospitals grew outpatient surgery year-over-year. So all in 2018 was really good year. Just wondering how that’s trending so far in 2019? If it makes a difficult comp at all, do you still think there’s room for improvement among those facilities? And then if there is room for improvement, just what could that mean for the kind of 2% to 3% volume growth and 4% to 6% EBIT growth guidance? Thanks.

Well, we had a really strong portfolio performance again in the first quarter of 2019. It was very similar to the metrics that you just delineated. We had 75% of our hospitals that had year-over-year EBITDA growth. We had 54% have admission growth. Now some of that is because of the flu season and the impact that the flu season last year had on our year-over-year comparisons. But nonetheless, that’s a pretty powerful metric in my judgment given that we had one less business calendar day or one less business day and then we had the impact of the flu from the previous year. Emergency room volume was a little softer than what I recorded – reported last year and, again, I think that’s due to the flu. But all in all, we had a really strong portfolio performance pretty much across the Board, so we’re very pleased with the execution of our strategies by our management teams across the Board.

Okay, great. Thank you. Hey, Cody, we’ve got time for two more questions, okay?

Absolutely. We’ll take our next question from Brian Tanquilut with Jefferies.

Hey, good morning, guys. Congratulations on a good quarter. Sam, I guess my question for you. As I think about your physician strategy, are you looking at piloting or pursuing any new approaches to in-hospital physician practice ownership? And then, again, as we think about the M&A pipeline, how does that relate to that in terms of your appetite for acquiring in-hospital practices at this point?

Well, we continue to add to our physician services group physician practices. I think, we’re over 5,000 physician practices in – or 5,000 physicians roughly 1,200, 1,400 clinics across the company, and that’s growing it roughly 8% to 10% per year. So that’s an ongoing trend that we think is part of our success, but at the same time part of creating an offering for our patients and for our payers that works. As it relates to hospital-based physicians, specifically, we are exploring approaches to deal with some of the pressures that exist in the marketplace. We have today hospital-based physician practices that are owned by HCA. For critical care medicine, we may have the largest or the second largest critical care medicine practice in the country. We also have a very large pathology practice inside of HCA that’s growing. We are exploring hospital as we’re exploring emergency room physicians. We’re exploring anesthesia in ways that are maybe different than what we’ve done in the past. We don’t have anything today to report as to exactly what that’s going to be. How that will impact acquisitions in the futures? I don’t think it will be a material impact on any acquisitions. It could be synergistic on the margins for some acquisitions in the future if we do have a different approach there. But at this point in time, it’s not really that material.

All right. Thank you.

Thank you, Brian. We’ve got one more.

Thank you. We’ll take our follow-up from Pito Chickering with Deutsche Bank.

Hey, guys, thanks for taking the follow-up here. Quick question, case mix, I guess, quantify that increasing at 3% in the first quarter? Did you disclose the same-store case mix? And also it’s increasing over the past three years and mostly due to our CapEx investments. With the amount of CapEx spend in the process, is it fair to think the case mix growth shouldn’t slow anytime in the next two to three years?

Yes, Peter, this is Bill. Our case mix index for the first quarter was 2.6%...

Same facility…

…on a same facility basis on there, a lot of service line variables on there. I don’t know whether it will slow or not as we’ve talked about our focus, both from capital as well as the program development, Sam has alluded to throughout the call, is to continue to grow our high acuity and high intensity services. So, we’ve been in a period where we’ve been north of that for some period of time in this 3 to 4. I said before, 2 to 3 likely might be a long-term settlement – settle period. But as we continue to invest capital in the high acuity, as our program development is focused on the high acuity, I wouldn’t be surprised if we still see a robust case mix index for us.

Thank you very much.

Okay. Cody?

Thank you. That does conclude today’s question-and-answer session. I’d like to turn the conference back over to Mr. Kimbrough for any additional or closing remarks.

Okay, great. Listen, I want to thank, everyone, who participated today. Thanks for your interest in HCA, and I’ll be around the office if you need any additional follow-up. Thank you so much.

Thank you. That does conclude today’s conference. Thank you all for your participation. You may now disconnect.