HCA Healthcare, Inc. (HCA) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the HCA Healthcare Second Quarter 26 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank George Morgan. Please go ahead, sir.

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Samuel N. Hazen and CFO, Mike Marks. Samuel and Mike will provide some prepared remarks and then we will take questions. Before I turn the call over to Samuel, let me remind you 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. More information on forward looking statements and these factors are listed in today's press release and in our various SEC filings. Over this morning's call, we may reference measures such as adjusted EBITDA, is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA, and reconciling net income attributable to HCA Healthcare Inc. is included in today's release. This morning's call is being recorded, and a replay of the call will be available later today. With that, I will now turn the call over to Samuel.

Good morning. We believe that access to health care and affordability for Americans begins and ends with health insurance coverage. Most people need support to secure it, whether that is through an employer, the federal government, or some other means. Throughout 2025, our teams advocated for extending in some form the enhanced premium tax credits for those individuals who needed it. Unfortunately, the enhanced premium tax credits expired at the end of the year, and the effects as expected were that many people became uninsured and still needed emergency care from hospitals. As we look at the first half of the year, our expectations proved accurate. Although the impact was greater than our estimates. Our colleagues, however, have continued to deliver high quality, compassionate care to an increased number of patients during the first half of the year. While managing well through the various headwinds we faced. On behalf of our board and our senior team, I want to thank our colleagues for their great work. When I look at the company's mid year results, I focus on 3 factors. But before I get to those, I do want to indicate that the company had solid diluted earnings per share growth of 11% in the quarter, and 11% year to date. First, we experienced an unfavorable payer mix shift which created most of the financial pressure for the company. Overall, adjusted admissions for patients who were formerly covered by the health insurance exchanges declined by 15%. We expect that some of these patients to shift to other forms of coverage, but this did not happen. Instead, these patients migrated almost 1-for-1 to uninsured. We had 3 of our 15 domestic divisions that had outsized effects from this payer mix shift. And they accounted for around 50% of the company's overall impact. In the quarter, we had an incremental net benefit from Medicaid supplemental payment programs. Primarily related to Florida, These programs, are fundamental to our providing services to Medicaid patients. Play an important role in supporting access to care. This support has been especially important for hospitals, as they are now providing more uncompensated care to uninsured patients. Our updated guidance for the year incorporates what we have learned through the first 6 months with respect to patients who have lost their coverage on the exchanges. We believe most of the attrition this year is attributable to the loss of the enhanced premium tax credits. The second factor was the strength in demand. Despite the payer mix shift, we were pleased with our volume growth. Insured volumes, excluding exchanges, across many of our services, were solid with improving trends over the course of the first 6 months. Emergency room visits, cardiac procedures, and rehab volumes help drive these improvements. With respect to surgery volumes, the primary explanation for the decline was from reduced demand in elective surgeries across both inpatient and outpatient settings. We believe there are several factors contributing to this dynamic including declines from patients who were previously covered through the exchanges. Emergency inpatient surgery volumes which account for approximately 2/3 of our total inpatient cases, were up as compared to last year. As stated, we continue to be encouraged by the overall backdrop in demand. We believe our longer term assumptions for demand growth of 2% to 3% are supported by market factors and population growth rates that we see in the communities we serve. To meet this expected demand, we have continued to add capacity and facilities to our networks this year. Additionally, we have approved more than $7 billion in capital expenditures that should come online in the next 3 years. We believe these investments will increase offerings and quality for our patients, improve our competitive positioning, and help us grow. HCA Healthcare has produced strong returns on invested capital over the years, and we believe there will be opportunities to do more in the future. We expect to use our cash flow and balance sheet strength to invest further in our business while also returning capital to our shareholders through our capital allocation plans. The last factor I want to focus on is the advance of our financial resiliency program. We continue to see improvement in cost metrics as we move through the first 2 quarters. For years, HCA Healthcare has found ways to create economies of scale increase operational efficiency, and enhance margins. We believe the resiliency program we are advancing now has more capacity through digital transformation global capabilities, and enhanced workforce development programs. We believe our program will continue to add value this year and on into subsequent years. I close with this. HCA Healthcare has a strong track record of effectively responding to challenges. Regardless of the event. From these experiences, we have built a culture of discipline. This culture has helped us stay true to our core mission to care and improve human life. Next, it has allowed us to allocate resources productively to generate solid returns for our shareholders. And lastly, it keeps us focused on execution to deliver the outcomes necessary to make the company stronger. With that, I will turn the call over to Mike for more details on the quarter.

Thank you, Samuel, and good morning, everyone. Let me start by providing commentary on second quarter same facility volume compared to prior year. Admissions increased 2.5% and equivalent admissions increased 2.7%. Inpatient surgeries were down 2.3% Outpatient surgeries were down 3.4%. ER visits increased 3.6%. Regarding payer mix, same facility equivalent admissions, and our insured population excluding exchanges, increased 3.2% in the second quarter and 2.2% year to date versus prior year. Exchanges declined 15%. As Sam noted, these patients losing coverage on the exchanges migrated almost 1-to-1 to uninsured. This 1-for-1 migration makes up approximately 80% of our uninsured volume growth. With remaining 20% related to a decrease in Medicaid conversions. Mostly in Texas. Which has had a modest financial impact. Our second quarter net revenue per equivalent admission growth of 6.4% was payment benefit during the quarter. In our in addition, our contracted rate increases and governmental payment updates offset the negative rate impacts from payer exchanges relating to the exchange and to a lesser extent, service mix. Me now transition to the impact of the exchanges and Medicaid supplemental payment programs in the quarter. The significant payer mix shift related to the exchanges has had an unfavorable impact on adjusted EBITDA of approximately $400 million in the quarter. This amount includes an increase of $75 million related to our previous estimate of the first quarter exchange impact. During the second quarter, the company recognized $400 million of incremental net benefit from Medicaid supplemental payment programs. This included a $540 million incremental net benefit related to the recently approved Florida program from October 1, 2024 to June 30, 2026. This benefit was partially offset by retro payments received in second quarter of 25. Samuel touched on the advancement of our financial resiliency program. Resiliency is core to how we operate the business. Our resiliency program is a long term, multifaceted enterprise wide set of initiatives designed to generate efficiencies across the organization. We were pleased with our cost results in the second quarter. Same facility cost per equivalent admission when considering Medicaid supplemental payment programs, was essentially flat versus prior year quarter. And it improved 1.4% sequentially. Let me add a note on our year to date performance. Given the challenging policy and reform backdrop, we are pleased with our operating performance at the halfway mark of the year. When we consider the impacts of the exchanges, Medicaid supplemental payment programs, and the impact from the respiratory sickness and winter storm in the first quarter. Our year to date operational performance has moderated from our 2025 growth and our initial guidance assumptions. Our revised guidance in 2026 is more in line with our long term adjusted EBITDA growth rate target of 4% to 6%. Moving to capital allocation and cash flow. Capital expenditures totaled $1.2 billion in the quarter. Additionally, we purchased $2.1 billion of our outstanding shares. And we paid $171 million in dividends for the quarter. Cash flow from operations was $2.3 billion in the quarter. Which is a 45% decline from prior year This decline was primarily due to time differences in cash flows related to Florida's Medicaid supplemental payment program. As well as the prior year deferral of federal income tax payments to the fourth quarter of 25. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well positioned for the future. So with that, let me speak to our revised 2026 guidance range. Revenue between $77 billion and $79.5 billion. Adjusted EBITDA between $15.4 billion and $16.1 billion. Net income attributable to HCA Healthcare between $6.3 billion and $6.7 billion. Diluted earnings per share between $28.70 and $30.50. We also included revised key assumptions related to the expected unfavorable impact on adjusted EBITDA from payer mix shifts due to the health insurance exchange. As well as anticipated incremental net benefit from Medicaid supplemental payments programs as follows. Health insurance exchanges between the negative $1 billion and $1.2 billion, Medicaid supplemental payment program net benefit between $300 million and $500 million. The variables on the exchanges are difficult to predict and require significant judgments. We have now revised our estimated impact to adjusted EBITDA based on the updated information through the first half of the year. Specifically, the key change in our updated estimate is driven by our evaluation that almost all of the individuals losing coverage on the exchanges are becoming uninsured. Versus our original assumption of 80 to 85%. In addition, our original assumption around declining utilization for patients that become uninsured due to the loss of insurance coverage did not materialize. Regarding Medicaid supplemental payment programs, our updated guidance implies a $100 million to $300 million hit in the back half of the year. This second half headwind reflects program approvals and retro payments received in 2025 which are projected to exceed the incremental benefit of the Florida program. As we think about the quarterly progression for the remainder of 2026, we believe the fourth quarter adjusted EBITDA growth rate compared to the prior year may be higher than for the third quarter. This is based on our assumptions around the timing effects of exchanges, Medicaid supplemental payment programs, and our resiliency program. We are maintaining our stated CapEx range of $5 billion to $5.5 billion and currently plan to complete most of the existing authorized share repurchase program. Subject to market conditions and other factors. I will now hand the call back to Frank George Morgan for questions.

Thank you, Mike. As a reminder, please limit yourself to 1 question so we might give as many as possible in the queue an opportunity to ask a question. Abby, you may now give instruction to those who would like to ask a question.

Thank you. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press 1 again. If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute. When asking your question. Again, it is 1 to join the queue. And our first question comes from the line of Benjamin Hendrix with RBC Capital Markets. Your line is open.

Thank you very much. Hoping you can give us a little more color on your increased estimate for exchange headwinds. What were those key variables that were informing the $1 billion to $1.2 billion estimate, and what is giving you confidence in the magnitude of that increase. And then also by extension, kind of how we think about that directionally as it paces through the back half of the year? Thanks.

Thanks, Ben. it is Mike. If you think about first half of the year, we have gained a lot of experience. And especially in second quarter. And given that experience and understanding of the exchanges better, we have adjusted our estimates according You know, if you go back to our original set of assumptions, the volume declines that we are seeing at first and second quarter on the exchanges, are 15% in both first and second quarter, are in line with our original guidance estimates in terms of exchange volume decline. Whit's different as we have gone through second quarter is that we originally assumed that about 80 to 85% of the patients who lose exchange coverage would become uninsured. And our data is telling us now that it is closer to 1-for-1. And so that is really the biggest driver of any of the updated estimate of the impact. I think about the first half versus second half, you know, first, we are providing a range. And so this $1 billion to $1.2 billion range that we are calculating for the full year of 2026. You know, considers a variety of scenarios. But to come up with that estimate for second half, we are using what we have learned through the first 6 months of the year. And we have also stated our past attrition rates over the last several years. In addition, we have pulled, I am sure just like all of you have, all the external data that we can with updates as we have gone through the year. So based on that, that is the driver of our full year guidance update. I would note though is we look back to last year, we began to see some slowing in exchange volume in the fourth quarter of 25. Historically, over many years, our exchange volume would typically peak in fourth quarter. But this was not the case last year. In hindsight, we now believe that the exchange reforms actually started late last year started having an impact, and specifically and give you 1 example. The pausing of the low income special enrollment period during late 2025, we thought--we think now, in hindsight, have an impact. Our fourth quarter of 2025 exchange volume growth to prior year was only 2.5%. The full year 2025 versus 2024 was over 10%. So that gives you a sense of it. So we do think when we think about second half of last year, the 2026 compared to prior year, that fourth quarter has a bit of an easier comparison. So Ben, that is a wrap on HICS assumptions and our second half guidance. Thank you.

Our next question comes from the line of A. J. Rice with UBS. Your line is open.

Hi, everybody. Maybe just drill down a little bit on surgeries. that is been a topic of conversation this quarter across the board with companies. Your inpatient and outpatient surgeries were down. I wondered if you could go talk a little bit more about the types of surgeries that were impacted. Relative to service lines. Do you see this as being more elective procedures, postprumable procedures that are being, deferred and are you attributing this mainly to the HICS disenrollment And finally, on surgeries, are you giving any allowance for people hitting deductibles as the year progresses and maybe doing those surgeries that have been postponed from the first half later this year.

AJ, this is Samuel. there is a lot of questions in there. Let me see if I can sort through a condensed answer here. I think it is important to understand our surgical business. We have on the inpatient side, 2 sources of channels, if you will, for surgery. We have the emergency room, which represents about 2/3 of our inpatient surgeries. Trauma programs, cardiac events, general surgery, you name it. That continues to grow. We have seen in 2025 over 2024, our emergent inpatient cases were up 2 percent year over year, and thus far through the first 6 months of this year, that particular component of our surgical business is also up 2% year over year. So that is a stable component of our surgical business. And we continue to invest heavily in our emergency room capacity in network offerings to enhance opportunities for patients to enter our system and get the care they need. that is number 1. The other piece of our inpatient surgery is clearly elective, which represents about a third. And we are down this year more than we were last year. Last year, we were down on elective 2%, This year, we are down on elective 6%. We do believe that HICS demand which is a big piece of our elective declines on both inpatient and outpatient is a part of it. This discussion that Mike just referenced around HICS, it is cutting across all aspects of our business. Alright? We are seeing it in the ER with our payer mix there. We are seeing it in outpatient surgery. From an elective standpoint, and we are seeing it on the inpatient. On the outpatient, it is predominantly all electives. As you would expect, there are some cases that do migrate through the emergency room, but 9 out of 10 patients are roughly elective. Here again, HICS demand was a big piece of it, not the sole piece of it, but a big piece of it. We do hear from our physicians that their activity flow is off a little bit this year. They are attributing it as you would suspect to sort of the general affordability and pressures that people are experiencing with the economy as a whole. it is hard for us to tease that apart, but that is the best feedback loop that we have. And then I think there is just a handful of other things that are connected to it. You know, obviously, the Medicare inpatient rule change, it is had an impact, and we have seen some cases move from inpatient to outpatient. We do capture some of those, and we lose some of those, as you would expect, because the outpatient surgery market is a little bit larger than the inpatient surgery market. So those are some of the factors that we see. We have a response to this as you would expect of us. We are investing in our ORs to make sure they have the equipment that they need, We are optimizing our operations so that the patient and the physician has the flow and efficiency that they require. And then we are aligning with our physicians where it makes sense to ensure that they have a connection to our network. With our ASC business, our ASC division actually had earnings growth over the first 6 months of this year, We have roughly the same number of facilities in that division, and for both surgery and what we consider nonsurgical cases like endoscopies, colonoscopies, lithotripsy, pain, our overall volume in our surgery centers due to more units is up slightly year over year, but the acuity of those cases is growing. So we continue to add to that network also, as you would expect, so that we have multiple offerings for our patients, multiple offerings for our physicians, and making our network more resilient with additional capacity. So we are obviously sorting this out, and we think that we are in a good position competitively. And we will have to see AJ as we move through the balance of the year whether or not we see a recovery from some of the early indicators that we have seen in the first 6 months. Okay. Thanks so much. That was great.

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

Great. Thank you. Just a follow on to that question. And I think in your prepared remark, remarks, you said you will be investing $7 billion over 3 years. Is that more and defensive, just almost as a response to your last question that maybe there is an acceleration of, like, a shift from inpatient to outpatient because some of the CMS regulatory changes. Can you just talk about the competitive environment? Do you think you are still gaining market share? And where do you see the biggest opportunities to gain market share over the next couple of years? And just given in some of the markets that are under pressure, I am assuming your not for profit peers are also under pressure. And are you seeing any change in behavior when it comes to their investments competitively?

Okay. Ann, thank you. This is Samuel. Let me let me let me see if I can pull all that together and respond to your questions there. If you look at our company over the past, let's just say 5 or 6 years with our capital spending, we have added to our inpatient chassis just to give you some numbers on that, we had roughly 37 thousand beds at the end of 2038, in operation--in operations, we have 42 thousand today. Our occupancy level since that time has grown from 71% to 75%. So in addition to adding roughly 15% inpatient capacity to our company, our utilization of that capacity has grown by 5 points. Within our 7 billion that I referenced earlier, we do have another 1 thousand to 1.2 thousand inpatient beds that we are adding. But in addition to that, we are also adding to our outpatient network. In the second quarter, of 2026 as compared to the second quarter of 25, we had 5% more sites of care than we did last year, and that is roughly 250 or so, if I remember correctly. In our pipeline, we have another 250 to 300 outpatient facilities either in our capital plan or in our acquisition plans that will come online, we believe, sometime later this year and early next year. So that will add roughly 10% to our overall network capacity more units on the outpatient as you would suspect. The $7 billion includes components for all of that. It includes new beds, actually new hospitals in some cases, a number of outpatient facilities, some of which I just referenced, and all of that goes to help us compete We are losing no competitive positioning. We have judged through our midyear reviews, through our market share analytics, that our competitive positioning has is stable to growing net. Yeah. There may be a market or 2 here that has had a competitor do something, that we have to now respond to, but that is fluid and dynamic always. And our touch points with our markets allow us to make adjustments invest in initiatives to respond to those dynamics. And so we do we do believe we are gaining market share where in many of our markets, some are flat, and some are modestly down. That is normal course for us. But overall, we feel good about our programs, that are necessary to extend our networks and create convenience and more offerings for our patients. And then the investments back in our hospital centric components of our facilities increasing capacity, increasing technology offerings for our physicians and patients, and then creating the kind of availability so that can get into the system, it is positive because we see, again, demand growing. And our job given our position in these communities, is to meet that demand. Let me make this last comment on our markets because I think this is a very important component, and we shared it with our board with our mid year review just this week. The demographic trends that we see in HCA markets we believe, are as positive or more positive than they were during the COVID migration that we saw to the Southeastern and Southwestern parts of the country. Through our study, through our understanding of other people's studies, we believe those trends are going to be supportive to the overall growth that we expect in HCA's markets, Florida, Texas, Utah, Nevada, South Carolina, Georgia, Tennessee, all of these states are targeted for growth that we think is going to support these investments, provide for more health care demand, and create great opportunities for HCA to grow.

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

Hey. Good morning, guys. Maybe, Mike, as I look at the P&L, shifting gears here to the cost side a little bit, the other OpEx line was up a decent bit, and I am guessing some of that provider tax. But if you can just walk us through other moving pieces potentially there and pulling through a broader view because I am just curious how your thinking about the resiliency programs. Obviously, Hicks was a surprise. So any other incremental offsets that we can be thinking about maybe as we even think through 2027 and beyond? Thank you.

Yeah. Brian, thank you. Yeah. As I mentioned in my prepared comments, when you kind of consider the waiver, and you are right. I mean, our other operating expenses are being inflated because of the provider tax associated with our way with the new provider tax for sure. If I pull up and just look at our total cash total cost per adjusted admission. To prior year, you know, in the quarter, the second quarter and think about that. And that would that would be SWB supplies and other operating expenses combined, Brian. When I look at that compared to prior year, we are only up about call it, flat to slightly up over prior year. That really reflects really good work in second quarter. Related to our resiliency plan. As Sam noted in his comments and as I reinforced in mine, resiliency is really core to the business. And it is something we have been working on for a long time. You will remember that we even highlighted this in our investor day back in 2023. And resiliency has been in the company's results going back to the pandemic. If we look at all of the work in flight with resiliency the gaining maturity of these programs, we are confident that we are gonna be able to bend the cost curve. And bend the cost curve, improve our cost trends, if you will, in the second half of the year and into 2027. And then from the next generation of that work, think about digital transformation, building global capability, and all the work we are doing to expand shared services, you know, we believe this will produce multiyear benefits for the company as we go out in town. The only other thing I would mention to your question, if I think about kind of other operating expenses would be potentially professional fees. That are in other operating expenses. They are up about 8.5 percent on the same facility basis to the prior year, which is moderated and is pretty flat sequentially to first quarter. And so we are pleased with that work and it is it is it is still a little elevated from our other cost trends, but we believe we have made progress here in terms of our professional fees. Yeah.

And let Mike, let me add to that for 1 minute. I have been with the company for 43 years, and I have seen our approach to our business grow when it comes to complexity of services that we offer, whether that is trauma, bone marrow, solid organ transplant, whatever the case may be. If I juxtapose our resiliency program against sort of our service components and how complex and sophisticated our services are in our hospitals. that is exactly where we are with our financial resiliency program. We are getting more sophisticated. We are getting more sort of capabilities to execute on this piece of the agenda. And this has been an opportunity for us for years. We just did not have the tools to get after it. And the tools and capacity that Mike just alluded to reminds me of where our networks were maybe 7 or 8 years ago where we did not have a full array of services, where we did not have the outpatient capabilities that we needed to build out a network, Well, today, with our resiliency agenda, we have these additional components. Technology, digital, global, capabilities corporately to support all that. that is why we think this particular program has durability and capability to add value for the company as we push into the future.

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

Looking at 2Q core EBITDA, excluding DPP and Hicks, can you help bridge us how you get to your guidance in the back half of the year specifically? Can you call out any changes to assumptions on the top line, like surgeries or paramedics? And on the bottom line, could you call it any savings, you know, like, initiatives that are coming online in details around those initiatives.

Sure. Hi, Pito. This is Mike. You know, first, just a couple of background statements. 1, we do have a range, so it is always important to note that when we gave our updated, you know, full year guidance, we gave a range to ensure that it contemplates a variety of scenarios. And then, you know, inherent in your question, we did think about in the second half of the year assumptions that we are making related to health insurance exchange changes and the incremental net benefit from the Medicaid supplemental payment programs. When we think about the rest of the business, I really think about 3 drivers that give us confidence here in our guidance for the back half of the year. The first 1 is really volume. And, you know, our second quarter results profile solid volume growth. Particularly in our insured population excluding exchanges. And we do believe that demand momentum will continue through the balance of the year. The second is our cost, and you noted that, but it is clear in the second quarter, we had really good performance in our cost trends. From what we are seeing in our resiliency plan and the visibility into the execution of that plan, And as well, if you think about the operating leverage, that we generated in second quarter from volume growth, that we believe continues, we are confident that we will be able to improve our cost trends in the back half of the year. And into 2027 as well. And then lastly, I think it is important to say, We have an excellent management team. In the field and in corporate. And our management team has demonstrated through many past challenging cycles the ability to handle challenges and exceed and thrive during environments like that. And like the ones we are in now. And so I am confident that as we kinda go through the year, our management team-- Heavy. My apologies. I was not sure if the line had cut out.

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

Just circling back on the exchange headwind discussion. You had mentioned that 3 divisions represented 50% of the impact Can you give some context in terms of either the geographies or just the commonalities in terms of the those divisions and why they are seeing a bigger impact?

Yes. This is Samuel N. Hazen. We, we have 3 divisions. Our Gulf Coast division, North Florida, and South Atlantic division are the 3 that had a lot of HICS exposure, going into the year, and they have had dramatic impacts from the HICS exchange volume shift. Their composite adjusted admission decline in HICS is somewhere between 2.53 thousand%. For the first half of the year, and that is obviously created a lot of pressure. We did not expect it to be that much in those markets. And the teams have tried to adapt to it as you would expect as best they possibly can, but that is fairly sizable. Impact. So it has had an outsized effect on the company. Obviously, we are all in on all of our divisions, and typically, have a more balanced performance across the company. But in this instance, it is been a bit imbalanced with those 3 situations. And so we are reacting to it appropriately, In 2 of the 3 divisions, actually, we have more volume than we did in the previous year in total. But, again, the payer mix in those divisions had been compromised by the expiration of the enhanced premium tax credits, and that is produced a significant move from HICS to uninsured in those markets. Got it. Thanks.

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

Hey. Good morning. I just wanted to get an update on the internal views on work requirements for 2027. Just any thoughts on potential coverage leakage or headwinds or just general thoughts would be helpful. Thanks.

Sure. I think we You know, obviously, there is a proposed rule out Medicaid work requirement You know, just a couple of notes. 1, we believe work requirements will have, you know, an impact in non expansion states. I am sorry. Sorry. They will have an impact in expansion states. Way more than nonexpansion states because of, you know, this focus on working adult As a reminder, of all of our Medicaid revenues, about 40% of our Medicaid revenues are an expansion state, 60% are not. We are monitoring this proposed rule as you can imagine. We are gonna have to see how it plays out. I mean, it is there are some litigation and legal challenges around the way that CMS is implementing the work requirements. We will have to see how they move through the system. And we are also monitoring how our states implement these plans. Most of these, if not all of these expansion states tend to be a little bit more blue, little bit more democratic. And we are working with those states to make sure and try to support the notion of a good supportive approach towards implementing work requirements within the bounds of the rule, of course. And so our Paragon teams are also getting really organized here. Think about the coverage benefit support teams that we have embedded in all of our facilities in these states, and the work that they do with patients. To help them work through the Medicaid application process and help them work through the work requirements process. So we have beefed up those teams with we are preparing the best we can. You know, I will say when I just think about the distribution of our assets, between expansion and non expansion states and the work that we are doing to prepare we still think that on balance, while Medicaid work requirements are going to have an impact we believe, We do believe that we will manage through those in a reasonable way. Okay. Thanks.

Okay.

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

Thanks. Good morning. Samuel, really helpful on the, surgeries. You gave us 6 month numbers for the inpatient coming through the ER and the electives. You know, the down 2% and the down 6%. Maybe you could give us first quarter versus second quarter and just how things are running through the second quarter. And then can you guys also run the volume growth by payer and hopefully give us commercial employers separately from exchanges? Thanks a lot.

Yeah. I do not have a different explanation for the second quarter versus the year to date. I think it is hard sometimes in short cycles to make judgments about demand, and 90 days is a short cycle, I think from that standpoint, I do not think the explanation varies much from quarter to quarter, and so a midyear I think, is a more relevant perspective on that. So I do not really have anything to add additionally to the commentary on surgeries.

And then, Justin, if I look at same facility equivalent admissions, second quarter of 26 compared to prior year, All in Medicare is up 3.6%. Medicaid is up 2.7%. Commercial, excluding the exchanges, are up 2.4%. The exchanges are down 15%, and the total uninsured is up 15%. I would note the total uninsured equivalent admissions now represents about 10 little over 10% of our total equivalent admissions and the exchanges now represent about 6.8% of our total equivalent admissions.

Right. If you look at the payer mix, Mike, of the company on the inpatient side, this year versus last year, it is almost identical by payer class and then when you put health insurance exchanges and uninsured together, and this is why we conclude that there is a bit of a 1-for-1, it is the same number. And then so that is that is that is what is happened here is our payer mix is actually the same in Medicare as it was last year. Medicaid as it was last year, managed care and other as it was last year, and then HICS and self-pay, uninsured, together are exactly as they were last year. And so our conclusion on 1-for-1 is reinforced, we believe, by, you know, that sort of fact. For us, obviously, it is not a good thing. We still have to take care of these patients, and we do. Our people do a wonderful job, but it does put pressure on the P&L.

You know, Samuel, to that point, you know, another way we have looked at this, and this, again, year-to-date, same facility compared to prior year. Our health care exchange equivalent admissions are down about 22 thousand. And our uninsured equivalent admissions are up about 26.5 thousand. Yeah. And so, you know, we get to the 1-for-1 migration from the exchanges, and then with the uninsured, we also, on top of that, have a little bit of this Medicaid conversion slowdown in Texas. And so to Samuel's point, that is the payer mix dynamic. We are dealing with.

And to put that into context, those 20 some thousand patients, Mike, that you referenced, we took care of about 1.1 million people. And so the implications for the company are really hinging on those 22 thousand patients. It is what it is. We understand that. But you have got to appreciate the context here in the backdrop of 1.1 million adjusted admissions and 22 thousand or whatever that number was you gave. Yeah, Represents about 2 percent of that. And that movement has had obviously a disproportionate effect, And again, you know, we are responding to it as well as we can.

Our next question comes from the line of Steve Baxter with Wells Fargo.

Hi. Thanks. I think in past, you discussed an expectation that the moderation of exchange coverage and volumes could take place over a couple of years rather than all of it occurring in 2026. I guess based on what you observed this year and the larger headwind that you faced do you still think that is a reasonable planning assumption? Do you think there is any, you know, any change to the way that dynamics around coverage transitions and volume could look versus this year? Thank you.

As we think about attrition rates for the exchanges in 2027, we believe it is reasonable to estimate at this point even with premium increases that we are starting to see, that the loss of coverage will be less than 2026. This estimation assumes the core premium tax credits, are central to the original Affordable Care Act, will continue with no new enhanced premium support. Clearly, there are other factors from both the policy and the market standpoint that could change our thinking But at this particular point in time, that is where we are. We again believe most of the attrition this year is directly attributable to patients who were benefiting from the enhanced premium tax credits, now that those have gone away, we think we will be in a normal course as we push into 2027.

And our next question comes from the line of Andrew Mok with Barclays. Your line is open.

Hi. Good morning. Can you clarify how many quarters worth of Florida DPP were recognized in the quarter itself? And also clarify whether the retroactive payment that offset the benefit in 2Q were included in the initial guidance? And relatedly, can you share what line of sight you have into the approval of Florida for fiscal year 2026 given the decision to recognize it in 2Q results?

Sure. So, you know, to set context here for the quarter, we recognized 400 million in incremental net benefit from state supplemental payments in the second quarter. That included 540 million incremental net benefit related to the recently approved Florida program. In the time period that is 10/01/2024 to 06/30/2026. So that is 21 months worth of benefit. Booked into the second quarter. Now in the second quarter, that Florida benefit got a little bit netted down because there were some retro payments in the prior year. Of second quarter of 25. If I just think about Florida specifically, you know, the other I make maybe 2 other notes here. You know, the new year that we have an accrual on clearly is the is the time period of 10/01/2025 through 06/30/2026. We did accrue benefit into that Given that the Florida program is a long standing program, this approval is an enhancement to that program, given that the program was approved for state fiscal year, you know, 2025, and the state recently submitted the fiscal year 2026 program for preapproval we felt comfortable going ahead and making that accrual. And then just as a note, as we have kind of gone through July we are receiving cash against that approval and feel good about the status of Obviously, our guidance also implies that we booked an accrual for the fourth quarter of 2026 as well. it is part of our overall guidance for the year on labor.

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

Great. Sorry if I missed it. Hoping you could give us the monthly cadence of surgical and nonsurgical volumes in the second quarter. And looking forward, appreciate any thoughts on the proposed OPPS rule for 2027 appears to be a nice tailwind for HCA in for profits in general if it holds in the final rate. Just curious how you view the proposal. Thank you.

We do not comment about mid quarter progression, so I will pause on that 1.

I will mention the proposed rule. If I think about both the inpatient and the outpatient rules, that have been recently proposed, we are generally pleased with the proposed payment updates you know, in the aggregate. So generally, generally pleased especially on the outpatient rules to your--is to your point, but even in aggregate, we think they are positive. Now, obviously, we have got to get them from proposed to final, so that is what we are waiting I mean, it is difficult with the month by month because of business day alignment, and it sort of skews a comparison and you have to normalize for that.

that is why I think, again, you need some longer runs to really judge what is going on. As you push through, you know, the different month to month, and that is why it does not really make sense, we believe, to give you sort of an indication on the second quarter because there were different movements, and I do not even think we have it in here. Okay. Thank you.

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

Samuel, would be definitely interested if you wanted to provide the MHCA's perspective the view on this, you know, very quickly sort of hyperscaling dynamic around, the IDR claims from the no surprises act and you know, the payers are talking about this being a really significant 50- to 100-basis-point impact on overall medical cost trend, and CMS just really a whole bunch of data as well. And just curious around, you know, from HCA's perspective, just the you know, the potential as we think about, you know, sort of reimbursement dynamics and payers looking to offset those higher costs and doing that by trying to put you know, reimbursement pressure on hospitals who may not even be involved in the IDR process. And so and just then the overall effect it is having on, you know, sort of overall health care costs in The US, Definitely curious on your perspective on that.

Well, thank you, for that question. Let me pull up first and give you some backdrop because I think it is important to our philosophy when it comes to our relationships with our payers. I mean, largely, and I mean, almost universally, we are an in network participating provider with all of our facilities. There are a few 1 off situations with provider owned health plans in California or Utah where we do not participate, and there is only a few other commercial contracts outside of the exchanges that we do not participate in. Within the exchanges, roughly 80% to 85% of all available payer contracts, we participate in those, and that is a very important part of our strategy. With our acquisition of Vilesco, we have gained control of many of our hospitals, hospital based services. And through that control, we have been able to integrate them into our contracts appropriately with reimbursement that is improving in aligned with what those services need to operate. So as a company, we have very few of our accounts go through the IDR process, and it happens at times with some of the exchange contracts where we do not participate or in a few commercial contracts here or there that we do not participate in. We do not use the same methodology that I think is in question broadly across the industry. We have internal resources that appropriately work the process inside of Paralon, with the payers following the protocols and so forth. I do not have a good view point into the full impact that it is having for the payers through these other situations that are developing. You know, like any early stage regulatory solution, for a marketplace, it takes a while to sort those out. And maybe we are in that period where the regulatory framework that was established for the IDR process still needs refinements in order to balance out the process? I do not know. We are not that active in it, and so I have read some of the same stuff you have read, and so I cannot really speak to the full effects on the industry as a whole, but I can give you our viewpoint on it from what our experiences have been. And we are hopeful in many of those instances. We can get the contracts that we need so we do not have to use that process. But that is a very important point. Thank you.

And our next question comes from the line of Benjamin Rossi with JPMorgan. Your line is open.

Great. Good morning. Thanks for taking the question here. I heard you are making some good progress on professional fees. 1 of your peers called out the elevated growth here, particularly for anesthesia and radiology. How did those trophies trend in 2Q across those 2 areas specifically? And how sensitive are antifuses subsidies to the current slowdown among elected surgical procedures? Thanks.

Well, as I noted in my previous answer, think it was to Brian, what we are seeing now is about an 8.5% growth, same facility on pro fees to the prior year. And year to date, it is 10%. So we are seeing some stability here in our pro fees. I mean, clearly, you go back to our last couple years, we have come off of 2 previous years that where our pro fees were inflated. You know, as we have been dealing with all of these hospital based you know, physician group pressures for sure. If you go back in time, as Samuel mentioned, the acquisition of the Valesco joint venture and bringing that in, through that work, we have been able to stabilize our emergency room physician component and our hospital medicine physician component and we are in a much better shape there as it relates to the cost side. And it is also by the way, a great asset for the company, and we believe will drive strategic value in our facilities. What we are dealing with now is similar to what you are hearing. The components of hospital based pro fees that are still elevated are anesthesia and radiology. And those are really the components that are driving even our, call it, 8.5% growth in the prior-year quarter are continued pressures there. And we continue to work diligently through both of those. Those lines of businesses, if you will, using the HCA playbook that we are working on, people, process, and technology. Our management teams in the field are hard at work in both of those components as our clinical services group here in Nashville. So, I do think we have stabilized. it is still the part of our cost structure that is running at above inflationary levels for sure. But we feel better today as we sit here in June coming off the last couple of years.

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

Thank you. On the uninsured billed from Medicaid, can you talk a little bit about what your conversion assumption was versus where it landed, and what is specifically weakening in Texas?

Sure. I think the right way to profile this is as follows. Mike, if you look at our growth in uninsured volume, about 80% of that growth is coming from the 1-for-1 migration out of the exchange. About 20% of that growth in our uninsured volume to prior year is coming from the slowdown in Medicaid. Conversions. So that will give you a bit of sizing of the driver here. And we talked about this a little bit in first quarter as well, but there is really a couple of components that we are watching for that are frankly different than what we saw last year. You know, the first 1 is the applications for emergency Medicaid. You know, from people most think of them as mostly undocumented people are down. And so that is a piece of what is driving Medicaid conversions down is the, you know, the slowdown on applications to emergency Medicaid. You know, the other component is the general slowdown people who are eligible. For Medicaid as we see the self pay volume attribute we are just seeing less people that qualify for Medicaid conversion. As part of that. And so you know, that is those are the 2 factors we see, and check seems to be feeling the brunt. I mean, not that we do not have any Medicaid conversions going on you know, in other components of the business, but Texas is uniquely being affected here. And so those would be the drivers I would call out.

Eddie, I think we have time for 1 more question.

Thank you. And our final question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.

Thanks. I just wanted to get a little bit more color on the building blocks to the volume to the guidance change. I guess, you know, you guys lowered your overall EBITDA by $250 million. It looks like you raised the STP number by $550 million. So it kinda feels like the XSDP number was cut by about 800, and it sounds like 53 is because of the exchanges. I am just it is not clear to me what the other $450 million is for the guidance reduction.

Yeah. You Kevin, I tried to deal with that a little bit in my prepared comments. But as we have gone through the first 6 months and you think about our updated guide, and to your point, if you take into account the change in assumptions related to the changes and the change in assumptions related to the supplemental payments. You are left with, call it, $500 million roughly of reduction to guidance. And when I think about that, you know, that really reflects the moderation in our growth rates that we are seeing this year. Compared to where we were in 2024 and 2025. And from where we started the year with our initial guidance rates. I would note though, when you when you build it up from the bottom, think about kind of what that implies in terms of operating performance. Again, considering those adjustments that we talked about. You know, it looks like kind of back to our long term plan levels of adjusted EBITDA growth and, you know, really even for a full year basis, maybe even top end of that. So, you know, that is how I think about it, Kevin. Okay. So it is just it is just to view that the original guidance had a little bit above the long term growth algorithm starting point, and now you are back at the long term growth algorithm. Yeah. And that and that is really, you know, what we experienced in the first 6 months has helped us, and so we are reflecting that in our full year update. Alright. Perfect.

Thanks. Bye.

And that concludes our question and answer session.

I will now turn the conference back over to Mr. Frank George Morgan for closing remarks. Abby, thank you for your help today, and thanks, everyone, for joining us on the call. Hope you have a great weekend and around this afternoon. If you have questions, Have a great weekend. Thank you.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.