Good day and welcome to the HCA second quarter 2019 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Mr. Mark Kimbrough. Please go ahead, sir.

Well, thank you for the promotion, Ian. I appreciate that very much. Good morning and welcome to everyone 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 second 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 statement, you should not place undue reliance on these statements. 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 or 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 second quarter earnings release. This morning's call is being recorded and a replay of the call will be available later today. I will now turn the call over to Sam.

Good morning to everyone and thank you for joining us today. Earlier today, we reported our second quarter results. The results were driven by positive trends in the following areas, solid volume growth, cost metrics that were mostly in line with our expectations and good performance from our acquisitions. These positive results were offset by slower growth in revenue per equivalent admissions which resulted in reported revenue and adjusted EBITDA that were slightly below are our internal expectations. Adjusted EBITDA grew by approximately 3% to $2.3 billion, with adjusted EBITDA margin at 18.2%. Diluted earnings per share in the quarter was $2.25, which was down 2.6% from last year. We have carefully reviewed what drove this lower revenue growth and importantly we don't believe it represents a headwind with respect to achieving our four years earnings guidance. Bill will provide the details in his comments. Revenue grew by almost $1.1 billion, a 9.3% increase. This increase was driven by volume growth broadly across our markets, service lines and by revenue generated from our recent acquisitions. On a same facilities basis, revenue grew by 4.3%. Inpatient admissions and equivalent admissions grew 2.1% and 2.6%, respectively. Emergency room visits grew 3% and total surgeries were up modestly. We have now grown same facilities inpatient admissions in 21 consecutive quarters. Inpatient market share trends remained positive for the company. Based upon an analysis of our results and year-to-date performance, we are confident in the second half of the year. We have not seen any major structural changes within our markets from a competitive standpoint, physician standpoint, payor standpoint or execution standpoint. The fundamentals in our markets remain strong with growing demand for healthcare services. We continue to believe we are well-positioned for growth as we execute our operational initiatives, improve the overall competitive positioning of our local healthcare systems and integrate our acquired hospitals. The strategic investments we are making to expand the inpatient and outpatient capacity within our networks and improve our clinical capabilities create more opportunity for patients to access high-quality convenient care in an HCA Healthcare facility. With that, let me turn the call over to Bill.

Okay. Thank you Sam and good morning everyone. I will cover some additional information relating to the second quarter results. Then we will open the call for questions. As Sam mentioned, our volume stats were solid and I will provide some additional information. During the second quarter same facility Medicare admissions increased 2.5% and equivalent admissions increased 3.2%. This includes both traditional and managed Medicare. Same facility Medicaid admissions increased 3.2% and equivalent admissions increased 2.3% in the quarter compared to the prior year. Our same facility commercial admissions were flat while equivalent admissions increased 1.9% in the second quarter compared to the prior year. Same facility self-pay and charity admissions increased 5.1% in the second quarter compared to the prior year and was in line with our expectations. When looking at our 3% growth in emergency room visits in the quarter, our level one through three visits increased 0.6%, while our higher acuity level four and five visits increased 4.9% over the prior year. In addition, admissions through the emergency room increased 3% over the prior year. Same facility net revenue per equivalent admissions grew 1.7% over the prior year in the quarter. This growth rate was lower than our recent results, which has averaged 1.5% to 2% higher. So let me give you a little more information on factors that affected this in the quarter. And there were two primary drivers I would like to call out. Our commercial revenue growth was softer in the quarter, primarily because admissions were flat and there was a moderation of our acuity growth in the quarter, which was primarily driven by decline in inpatient surgeries. The second item is that we had some favorable revenue items last year across some state's supplemental and graduate medical education programs that did not reoccur…

Thank you Bill. Before we go to Q&A, I want to make four more points. First, our management teams are relentlessly focused on executing our agenda as we have always been. Secondly, we are confident in what we are doing and our outlook for 2019. Third, periodically we have quarterly results that don't reflect our longer run beliefs. The first quarter was that and the second quarter was also that. That's why we believe year-to-date performance is more indicative. And fourth, where appropriate we are making adjustments to our cost structure as we historically have done. So with that, Ian, let's go into questions-and-answers.

[Operator Instructions]. We will now take our first question from Pito Chickering of Deutsche Bank. Please go ahead.

Good morning guys. Thanks for taking my questions. Just to drill down a little bit more on the inpatient admissions for your commercial book of business, a couple of questions. Can you sort of talk about different markets, if that weakness was widespread among the markets? You talked about some more competition. Did you see some markets that had increased competition from that? And then also on strategic investments, you guys are continuing to invest in inpatient business. Does the 2Q results change your view of making those investments?

All right. Pito, thank you. This is how I would answer that question. We had 12 of 14 domestic divisions that had admission growth. We had 12 of 14 adjusted admissions or divisions that had adjusted admissions growth. On the managed care side, we had eight divisions that were up, two that were flat and four that were down. On surgeries, in total we had nine divisions that were up, one was flat and four was down. So generally speaking, our portfolio performed pretty well. We did have a couple of markets that were softer than we anticipated. We understand what those drivers are. We think we have the appropriate responses in place to deal with them and we will continue to execute on those. To give you a few more statistics on the volume side, which again, the company had a very productive volume quarter. Rehab admissions were up 8%. As Bill said, our emergency room visits were up 3%. Our trauma was up almost 15%. We had tremendous growth again in our cardiac volumes with our PCI volume, our cardiac CAT volume up 2.5%, electrophysiology up 4%, CV surgery up 4.5%. So we had a very broad based, as I mentioned in my comments, service line growth and also division wide growth. The issue is, we were a little bit softer in total for our managed care admissions, as Bill alluded to and that did put some pressure in the quarter on our revenue. I don't think it significantly changes our thinking around investments. As I mentioned, we believe our strategy is appropriate for the market. We continue to invest in it in an appropriate way in my opinion and we think it will produce opportunities for the company to generate growth in the future.

Great. And one follow up. If the weak commercial story continues in the back half of the year, what levers do you guys have available on the cost side to react to the softness?

Yes. Pito, this is Bill. Let me try to address that. As Sam mentioned, our teams are making adjustments every day. We have great operators and we are obviously proud of the work they do. We manage productivity daily, even hourly matching our labor trends to projected volume. And I mentioned our productivity gains in the comments. We have process improvement teams throughout our operations who work in a variety of cost efficiencies such as throughput in the emergency room and OR, also working with our clinical teams on clinical efficiencies. We benchmark ourselves to our best performers on a wide range of metrics and identify improvement opportunities. We continue to strive for cost efficiencies in our support structures and continuing to leverage size of scale, which we have been doing for some time in revenue cycle, supply chain, information technology support, human resources and the like. And then as Sam mentioned, we will look for fixed costs and overhead reductions, where appropriate and where we believe we have the opportunity. So we continue to believe we have appropriate control systems around managing our cost structure. As we step back, we don't cost management was the issue for the quarter. We continue to make adjustments where we believe is appropriate and will continue to do that in the future.

Thanks Pito.

Okay. Great. Thanks.

Thank you. We will now take our next question from Steve Tanal of Goldman Sachs.

Good morning. Thanks for the question. I guess I just wanted to focus on the revenue per adjusted admission, the metric there and some the drivers you called out. So forgive me for being specific here but there is a few things I wanted to touch on. The lapping of the $65 million of supplemental payments in the second quarter, was the expectation that that would recur? I just don't remember that as a call out last year and just thinking through that, I think the size of that is maybe 60 bips or so. You framed 150 to 200 basis point delta versus recent trends on the metrics. So is it sort of fair to say that the biggest driver within there was with sort of commercial volumes? And any reason why that slowed? Maybe how widespread it was? Just really trying to understand if that's just a function of sort of low unemployment, more macro driven or if there is anything more specific you could tell us about that. And finally, just an acuity mix read would be helpful. I don't know if I missed that, but those are the three parts to that question.

Yes. Thanks Steve. Let me start. So on the supplemental payments on there, we did not expect that to reoccur. We didn't call it out in 2018, because it wasn't really an issue on a year-over-year basis because we had at least two of the three programs we mentioned in 2017 and 2018. As we went through our budget process, we knew those wouldn't reoccur. So they were not in our internal plan as we went forward in 2019. So that's why our internal plan, we weren't that far off on our performance for the level. On the managed care volume, as Sam mentioned, it's a handful of markets. We did see our commercial surgical volume decline in that area. That did flow through on the acuity in a couple of service lines. But as Sam mentioned, we don't think that we see any structural or significant changes across the marketplace. So that influenced both the volume and the flow-through to acuity related to that.

Okay.

Thanks Steve.

Thank you.

Thank you. And we will now take our next question from A.J. Rice of Credit Suisse. Please go ahead.

Hi everybody. I just wanted to, picking up on Sam's comments towards the end there, the little more volatility from quarter-to-quarter. I mean that seems to be something we are seen across the sector. Obviously, one of your peers had the exact opposite, really soft first quarter and a strong second quarter and surgeries were part of that. Do you think there is anything going on, either with benefit design changes, I don't know, terms of your managed care contracts? When people talk about the deductibles and high-deductible plans and that having an impact on traditional seasonality, is there any way you can look at the calendar, I know the calendar is different in the way some of the holidays fell this year versus last year? Or is there anything else that you think is creating a little more volatility from quarter-to-quarter where you still end up the same point for the year, but maybe the seasonal patterns are not what they used to be exactly?

A.J., this is Sam. I don't know that we have anything that would suggest the seasonal patterns are changing on us. I mean we went through a period of time, as we have discussed on these calls in the past, where we felt there was some migration to outpatient procedures in the last part of the year because of deductibles and holidays and so forth. So we tend to see some outpatient surgical activity and procedure activity increase in the fourth quarter. But as it relates to the first half of the year, I don't know that we have any indications that seasonality factors are changing on us. I think my point was that, you know, the first quarter was incredibly good for HCA and had tremendous, like mid teens same stores growth, if I remember correctly and we just felt that we had a perfectly good quarter that yielded tremendous bottomline results. And then we looked at the second quarter and it just didn't play out as we had anticipated entirely. Not that far off, as Bill indicated. And so, when we sort of pull up and look at the business and then look at our markets and we just completed our midyear reviews with our divisions, we feel pretty good about where we are on a year-to-date basis and we think that's fairly reflective of our business and how it should play out over the remainder of the year. And so, that's why we sort of called it out that way. But we will continue to study. We will hopefully get a good indicator here in the third quarter and move through the year as we think. But there is nothing to suggest that seasonality has played into this in any material way.

Thank you A.J.

I think the managed care companies have pointed to an extra business day in the third quarter is a bit of a headwind for them. Is that something out that -- is that enough to move the needle, in your mind for you guys at all?

Well, clearly, with an extra business day, we will have more procedures most likely because of that. So whether or not, over the course of the whole quarter that will have a material impact, we will just have to wait and see. But business days to influence our surgical activity and some of our procedure activity.

Okay.

Thanks A.J. Appreciate it.

Thank you. And we will now take our next question. It comes from Justin Lake of Wolfe Research. Thank you. You may go ahead.

Thanks. Good morning. Sam, I appreciate the comments on the confidence in the second half EBITDA run rate. Given the weaker commercial volumes in acuity in the second quarter, I am curious whether that confidence is a function of management expecting commercial trends to return to previous levels in the second half? Or whether you are driving cost improvements that will allow you hit these numbers even if the commercial trends continue at those second quarter levels?

Well, I would say, it's a bit of a blend. It's not one or the other. I don't think the second quarter is necessarily reflective of commercial volumes. We have had, I think, six straight quarters where we have had adjusted admission growth in our commercial activity. I think five straight quarters heading into the second quarter where we had inpatient commercial admission growth. So we don't necessarily see anything changing within the markets, as I have mentioned, that would suggest that the second quarter is the marker for us as we move forward. But when you do bump up our expectations for some rebound there plus some cost initiatives where we think we have some incremental opportunities for improvement, those two combined, I think, Justin give us a reasonable level of confidence as we look to the last half of the year.

Okay. If I could just squeeze in a quick number - I got it. Thanks.

Thank you. And now we will take our next question from Ralph Giacobbe from Citi. Please go ahead.

Thanks. Good morning. Can you maybe call out the specific service lines where you saw the pressure that drove the lower acuity? And then I think in the past you have given managed care revenue, I think, per admission. So hoping you can kind of give that for the second quarter? And then the last thing, just anything to call out on bad debt or collection rate that could maybe influence the revenue capture and pricings data in the quarter? Thanks.

Yes. Ralph, let me try to take some of those. When we look at the service lines, it was in some of our spine surgical procedures, orthopedics and some women services. We think on the orthopedic side on the commercial, we could have caught some of that as they moved into the outpatient area. But it's mainly in the spine and women services and the same metric spread among a handful of markets on there. On the collection rates, we are not seeing any material change in our collection rates. Our net days actually had declined on us for the year. So we continue to feel very comfortable with our revenue cycle operations. And the net revenue per admission for our commercial side was running 3.5% on a revenue per admission in the second quarter.

Thank you.

Thanks Ralph.

Thank you. We will now take our next question from Brian Tanquilut of Jefferies. Please go ahead.

Hi Brian.

Hello Sam. Can you hear me?

Yes, now we can. Yes.

Hi. Good morning. I just wanted to ask a question on price transparency. Obviously, as CMS came out with a proposal yesterday and how do you think that plays out and where do you think HCA is positioned if that actually goes through in terms of pricing and where you stand in the markets that you operate in? Thanks.

Yes. This is Bill. I will take a stab at that. Obviously, it's early. We just got that last night. We are still interpreting that. We have been on record that HCA supports price transparency and we believe that's helping our patients gain a reasonable understanding and estimate of the cost prior to service. So we support those efforts. We will have to see an implementation in terms of the specific procedures out there our approach to complying with that and we think HCA will continue to show good value. We don't know exactly where we stand relative to others in the marketplace and we think that will create some opportunities, maybe some challenges there. But we think, again, the HCA system will stand up well on a price transparency view.

Yes. Let me just add to that, Bill. I think a couple of things. Over the past five to 10 years, we have been on this journey to try to narrow the band amongst our payors so that there is not a large delta between the lowest payor and the highest payor. And we have a delta but it's not significant and we have narrowed it significantly over time. So that's point number one. Point number two, we think we are competitive in the marketplace. Otherwise, we would not be accomplishing contract renewals at the pace that we are. And for 2020, we are about 80% contracted. And for 2021, we are about 60% contracted at what I would call normal inflationary trends. Therefore, I believe we are generally competitive. To Bill's point, there could be a market here or there where we are under a competitor. We believe that in a handful of cases, there could be a market here or there where maybe we are in a better position from a he pricing standpoint and we will just have to sort that out over time. But at this point, we are focused on the patient and getting the patient the necessary information for them to understand their cost. So we are going to go through this comment period that CMS has offered and make sure we push forward appropriate thoughts and appropriate ideas on dealing with the patient and it will determine whether or not there is an appropriate way to deal with other kind of pricing that is embedded in the proposed rule.

All right. Brian, thank you.

Thank you. And we will now take our next question from Frank Morgan with RBC Capital Markets. Please go ahead.

Good morning. Hate beating this issue, but could you tell just a little bit may be about on the commercial volumes side, how that progressed and tracked through much of the second quarter? And did you seeing any kind of change in that by the end of the quarter? And then just also want to confirm, no major losses of contract? Nothing when out of network during the quarter? And then any country around the surprise billing legislation? Thanks.

Yes. Frank, let me try. The quarter, you have to align, we mentioned it before, on our business days. April had a favorable business day. June, you had one less business day. So I normalize for that. But I don't think we, you know, see any intra-quarterly trends of any material nature in the trends that we are talking about. Relative to surprise billing, I don't think there is any new developments out there. We have, you know, worked with various policymakers and industry leaders to express our views on surprise billing and we will see where that ultimately finalizes. But we don't think that's an issue for us in the near term as we as we look at various proposed legislations that out there.

Anything about out of network during the quarter?

No. We haven't lost any material contract or any material out of network activity.

Thank Brian.

Thank you. And we will now take our next question. It's from Josh Raskin of Nephron Research. Please go ahead.

Hi. Thanks. Good morning. I appreciate the question. I understand you guys are saying it's really a cost side of the issue and I think I heard a couple of comments around labor. But maybe you could just flesh that out? Was there any increase in temporary labor? Are you seeing any shortages in specific markets, any specific lines, et cetera that caused any potential changes in the volumes? Or is it really steady as she goes on the labor front?

I think it's pretty consistent. When we look at the overall labor trends, as I mentioned in my comments, josh, our productivity improves. We improved just under 1% for the quarter. Our wage rates at 2.6% are in line with our expectations. Our temporary and contract labor has remained stable recent. We are very proud of the efforts our operators are making on that front. We are running nice turnover ratios in there. So again, when we step back and look at the cost trends and when we manage our per unit basis, they are very consistent with our trends. We recognize per as a percentage of revenue, they are showing some growth. But just as in the first quarter when you got really solid commercial growth it helps the per revenue stats and the opposite occurred in the second quarter. But when we look at how we are managing the cost on a volume basis, they are remaining relatively and stable in our view across all categories, labor and supplies, at that standpoint.

Thank you Josh.

Thank you. And we will now take our next question from Whit Mayo of UBS. Please go ahead.

Hi. Thanks, One quick clarification. Can you provide what state supplemental program actually changed and why it was different versus your expectation? And then my real question was just on the Houston market. I think you have recently come out of a rebranding initiative and announced a new affiliation with a large medical school. Just looking for any commentary on the market. Thanks.

Yes. Whit, let me start. The two supplemental programs that were the drivers were a graduate medical education bonus program we had received that didn't reoccur. That was principally in Florida. And then we had a disproportionate share settlement that was principally going back to Colorado in some past years. So those were the two major programs. And then we had a little bit of change in our California supplemental that showed down in our operating expenses. So those were the three. The remaining programs, as we said, we view as stable and we think those issues are behind us. We don't see them creating a headwind going forward on there. And then relative to Houston market, Sam?

Yes. We are in a turnaround, I would say, in Houston. We struggled for a couple of years, as we have called out on this call in the past. And I think this year, we have started our recovery and we are seeing pretty good results from some of our initiatives to grow our business. We have seen some results with respect to consolidating some excess capacity. The new acquisition we did in the Northwest side of town is going to be a nice acquisition for us. So all-in-all, the branding, I think, the re-purposing of some assets, the focus that the team has put forth in that market is starting to show results. We think the macros in Houston have turned a little bit where we are starting to see job growth again and see a slightly better payor mix in that market than what we have seen historically. So we are pretty pleased with the first six months of the year's performance in Houston and believe some of the other initiatives, strategically, that we have in place including branding are going to be productive for us. The graduate medical education program that you speak to is in an early stage and has really not yielded anything yet but we think over time, it will be a valuable program for us in the Houston market.

Thank you Whit.

Thank you. And we will take our next question from Sarah James with Piper Jaffray. Please go ahead.

Thank you. I wanted to ask a bigger picture question. So when you talk about seeing competition in the market, how exactly is it presenting today? So are you talking more from surgical referrals, branding or where you sit and ensure efficiency networks and how that presents to the consumer? So if you could give us some color on where the big competition is now in your industry, that would be helpful.

Well, I will try to generalize it as best I can. Obviously, it's market-to-market and somewhat competitor-to-competitor. I think the unique thing about HCA and we have mentioned this before, is we don't compete against the same systems from one market to the other. We believe fundamentally that creates competitive advantage for us as we look to deliver best practice solutions from one market to the other or allocate resources in a more timely manner. I think generally speaking, most of our competitors are trying to do a lot of what we are trying to do. They are trying to attract physicians. They are trying to create outpatient capabilities that are responsive to the markets and so forth. And so I think from that standpoint, those are always won and lost in my opinion, when it comes down to execution, when it comes down to detailing your business and your relationships with physicians and so forth and then really creating a compelling offering for the patient. And we think that's in HCA's wheelhouse. And so we have been about that for many years and we will continue to be about that. And we think it's that level of execution and such that ultimately delivers market share gains. Again, we are growing our market share on the inpatient side, as we have mentioned. We have actually grown our market share from a commercial standpoint. We don't have the second quarter of 2019 yet. So we have fairly broad-based market share performance. When you look at the most recent available data, which is all of 2018, we had two-thirds of our markets grow their market share. The company, in total, is at an all-time high on both overall market share as well commercial market share. So we think our approach to building out comprehensive and clinically capable networks that are easy to access for our patients, very responsive to our physicians and produce a positive outcome for our payors, for our patients and others is yielding results and we will continue to focus on that and we will continue to resource that as we move forward and we think that's going to be a successful model for us.

Thanks Sarah.

Thank you.

Thank you. We will now take our next question. It's from Peter Costa of Wells Fargo. Please go ahead.

Good morning. My question is on same-store outpatient surgery cases. If I look at Q1, you are up 1.3%. In this quarter, you are up 0.6%. Q1, you should have been negatively affected by the number of days. So this quarter, you would think it will be a little bit stronger. When I look at a year ago, you had a very strong quarter, up 2.6%, in the second quarter. But you had an even stronger quarter in the third quarter for outpatient surgeries. So I am kind of wondering, what happened last year in outpatient surgeries that's perhaps not happening this year, if that's the right way to look at it? And then will the problem be bigger in the third quarter?

So let me speak to outpatient surgery. This is Sam. So our hospital-based outpatient surgeries were up 1.9% in the quarter. Our ambulatory surgery center surgical volumes were down 0.6%. And then, our U.K. surgery volumes were down and that influenced sort of the composite. But when you look at our hospital-based outpatient surgery, up almost 2%, that's a pretty good number for us. Some of that was a migration from inpatient in a couple of service lines, as Bill alluded to, but it didn't influence, I think, the aggregate number in any significant way for the company. In the ambulatory surgery center area, we actually categorize our surgical cases into three tiers, Tier 3 being the most significantly reimbursed, Tier 2 in the middle and Tier 1 at the lowest. When you look at our Tier 1 volumes, they were down significantly. That's some ophthalmology cases, some pain cases and so forth. And that's what influenced the metric for the quarter. I don't recall the specifics in the second quarter of last year. But we feel pretty good about what we are doing with our surgical growth initiatives and our quality and investment initiatives inside of our ORs and we have had a fairly good pattern of growth. Over time, it does go up and down a little bit from one quarter to the other. Some of that could be calendar, some of it can be this transition that we spoke to, but generally speaking, we had a pretty good metric this quarter with our outpatient surgeries. Again, inpatient surgeries were the metric of concern for us. They were slightly down. Flattish, if you will, domestically, but down with international. And so that created a little bit of pressure. We will have to continue to work on that and monitor that as we move forward. But all-in-all, our surgical activity on the outpatient side, I think, is yielding pretty good results for the company.

Thanks, Pete.

Okay. Thank you.

Thank you. And we will now take our next question. It comes from Steven Valiquette of Barclays. Please go ahead.

Thanks. Good morning everybody here. So just sticking with the main topic of the day. I am just curious. I mean are you able to comment on whether the inpatient surgical volumes and/or revenue per admission are improving in early 3Q 2019, just following the softer result in 2Q?

Yes. This is Bill. See, we do not comment on the current quarter. So we will leave our comments to the period ending June 30 in the second quarter and year-to-date.

Okay. Maybe just one other quick question here around North Carolina. I mean there's been some headlines around the proposed state employee contract hospital rates for 2020 and the state wants to move to Medicare reference pricing. Obviously, hospitals do not want to do that. I am just curious, first of all, I mean how critical is that contract within North Carolina? If you able to opine on it, is your bias to stay out of network? Or are you willing to potentially agree to like Medicare reference rates knowing that it could kind of filter into other contracts as well? Just curious to get your thoughts around that topic. Thanks.

This is Bill. I will try. I think that's the point. I don't know and I don't have any data in front of me to suggest that if we move to reference for the state employees that it would have a major impact on our North Carolina operations. But I do think from a precedent standpoint, we don't believe having government dictate fixed pricing, especially Medicare pricing, is an appropriate kind of response to managing health care demand. So I think that's where our focus will be on that topic. I don't view it will be a material issue to HCA as we run it up. And as we go through our 2020 planning, if it becomes an item we will disclose it. But I don't think at this point, that particular issue will be a material issue for us.

Got it. Okay. Thanks.

And we will take our next question. It comes from Michael Newshel of Evercore. Please go ahead.

Michael?

Michael, your line maybe muted. We will move on. We will now take our next question from Gary Taylor of JPMorgan. Please go ahead.

Hi. Good morning guys. Just asking this question, certainly in the context that there is normal fluctuation between quarter. So I am kind of beating the dead horse a little bit, but just maybe want to ask a slightly different way. When we look at net revenue per adjusted admission on a same-store basis, I mean, the comps do get a little tougher in 3Q and 4Q. So Sam, when you talk about looking at this, analyzing the quarter, reaching a conclusion that there is not a concern with respect to second half guidance. how much of that is looking at the market specific explanations for some of the commercial softness this quarter and being comfortable with whatever issue that might have been and the trajectory versus some of the new cost initiatives that you have talked about?

Well, I answered that, I think earlier. I don't remember who asked it. It may have been Justin. But I do think we are not of the mind yet that our commercial volume growth is flattening out. Again, we have had five quarters in a row, heading into the second quarter where we had inpatient admission growth on commercial activity and six quarters heading into the second quarter and now, seven, if you count outpatient where we have had adjusted admission growth. And so, we don't see anything, again, from a structural standpoint whether it's payor, physician, competitor, what have you that would suggest that our trends should just immediately change. As it relates to pricing trends, as we sequentially move through the rest of the year, we do typically run about third quarter and second quarter very close. And then we ramp up in the fourth quarter through normal contract provisions that we have and so forth. And we don't see anything at this particular point in time preventing us from being able to ramp up in the fourth quarter as we typically do. Obviously, some of our Medicare increase has come through in the fourth quarter as well. As we mentioned earlier, we do have a calendar day advantage in the third quarter that tends to produce more commercial activity because of the type of volume we get typically from commercial activity. So there could be some influence there as we work through the quarter. So we are pretty confident in what I will call the structural aspects of our business. And none of those issues suggest that anything has changed in any material fashion that would cause us concern. And that's why we are reiterating our confidence in our outlook for the rest of the year.

Okay. Thank you very much.

Thank you. And we will now take our next question. It comes from Kevin Fischbeck of Bank of America.

Hi. Thanks. I just wanted to kind of understand a little bit the rationale for the guidance raise. You mentioned that Q2 came in below expectations and yet you are raising the guidance by $150 million. I assume it sounds like you are just saying that Q1 was so strong, you now feel comfortable with those trends. But just trying to understand maybe a little more color about what exactly came into the guidance. Is there anything new in the second half of the year versus what you were expecting? And I guess, we don't have the final regs, I don't know, if DSH at all change in that assumption, but if there is any change in DSH in there, that would be helpful?

Yes. Kevin, this is Bill. Let me try to take that. After the first quarter, we feel that a lot of questions about our guidance adjustment that we made in the first quarter which, you know, we raised our guidance after first quarter $100 million, which was primarily due to that favorable payer settlement we recorded in the first quarter. We indicated we typically wouldn't raise guidance further after just one quarter, but we did just for that settlement. So obviously now the half of the year is behind us. Well, in essence, we did was tighten our guidance by raising the previous low and about $150 million, which obviously effectively raises the midpoint by $75 million. So as we look at our year-to-date performance, it's an appropriate benchmark, we think, as we have said several times throughout the call for our full year guidance expectations. And if you look at year-to-date, once you adjust for the payor settlement for us, we have grown EBITDA just over 9%. And so our new midpoint suggests just over 9% growth for the second half of the year when you adjust for last year's insurance settlement and the Harvey settlement that we had. So we believe that tightening the guidance range after the second quarter, looking at the midpoint is really consistent with what our year-to-date trends. And so that was really what was behind the tightening and the raising of the midpoint of our guidance after this quarter.

Thank you, Kevin.

Thank you. Now we will take our next question. It comes from Matthew Gillmor of Robert W Baird. Please go ahead.

Hi. Thanks for the question. I wanted to ask about the contribution from recent acquisitions. Did Mission and the 2017 acquisitions contribute about 3% to EBITDA growth again this quarter? Or was that any different? And if you have any sort of general comments about how those deals are going, especially Mission and Savannah, that would be helpful.

Yes. This is Bill. Let me start. So we are very pleased with the performance of the acquisitions and they did have a good quarter. As you mentioned, we anticipated them in our guidance to contribute about 3%. That's what they had in the first quarter. They ran stronger in the second quarter. Year-to-date, we are running about 4% contribution from our acquisitions. Mission, in particular, continues to perform very well. We are ahead of both our internal expectations and plan at Mission. As did Savannah. Savannah is progressing nicely and had a nice growth in the quarter. So overall, the performance is very strong for the acquisition. I think when we look at the full year, we still think 3% to 4% contribution is probably a good number for all the acquisitions. And the Houston market is on track as well with our plans. We have made some adjustments in Houston. Our North Cypress acquisition in that market is performing very nicely. So are overall pleased with the performance of the acquisitions in the quarter and a little ahead of our expectations on a year-to-date basis.

Thank you.

Thanks Matthew.

Thank you. And we have no further questions at this time. So I would like to hand the call back to our speakers.

Okay. Listen, I want to thank everybody for joining us today and I will be around if anyone wants to follow up. Thank you so much.

This concludes today's call. Thank you for your participation. You may now disconnect.