HCA Healthcare, Inc. (HCA) Q3 2026 Earnings Report, Transcript and Summary

Welcome to the HCA Health Third Quarter 2026 Earnings Conference Call. Today's call is being recorded. After today's prepared remarks, we will host a question-and-answer session. We kindly ask that you please limit yourself to 1 question. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. 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. Frank? 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 our CFO, Michael A. Marks. Samuel and Mike will provide some prepared remarks and then we will take your questions. Before I turn the call over to Samuel, 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. More information on forward looking statements and these factors are listed in today's press release, and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which 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 N. Hazen.

Good morning, and thank you for joining the call. The company's results in the third quarter reflected improvement in key areas of our business. First, demand for our services continued to grow at a solid rate. Adjusted admissions on a same facility basis grew 3% compared to 2.3% year to date. Inside this growth, insured volumes grew faster in the quarter in the first half of the year. The third quarter reflected the 20 second consecutive quarter of volume growth for the company. Second, revenue per adjusted admission for our insured business excluding supplemental payments increased at a higher rate than in the first half of the year, This increase partially offset the payer mix pressure from continued volume declines for patients who were formerly covered in health insurance exchanges. and are now uninsured. Additionally, we had a modest incremental net benefit of $50 million in the quarter from Medicaid supplemental payment programs primarily related to a recently approved Virginia program. These factors coupled with improved cost results, contributed to solid financial performance in the quarter that slightly exceeded our expectations. Diluted earnings per share as adjusted increased almost 4%. I have often mentioned that HCA has strong staying power because of our scale, the important role we play in providing services to communities and our disciplined culture Despite the challenges this year, brought about by federal policy changes, we have continued to move the company forward and believe we are positioned to end the year positively. As we look ahead to 2027,, let me share a few preliminary observations around certain aspects of our business. Before we provide our full year guidance in January. I will remind everyone we are still early in our planning process and there are several important areas that remain fluid including the policy environment. First, we expect demand for services to remain strong with volume growth forecasted to be 2% to 3%. This range is consistent with our long term thinking. Within the demand environment, we believe it is reasonable to assume for 2027 that fewer people will lose their coverage on the health insurance exchanges than we experienced in 2026. However, we do expect that there still will be a meaningful impact on payer mix. We need to get through the fourth quarter before we can provide more details. Next, we expect to receive approximately $550 million to $650 million less in Medicaid supplemental payment net benefits due to various state programs that received grandfather approvals in 2026 and reimbursed us for services we provided in prior years. Last, we anticipate favorable cost performance primarily due to our ongoing enterprise wide resiliency program and the operating leverage from the expected volume growth. When we aggregate these preliminary observations, we anticipate our earnings in 2027 will be generally consistent with 2026. Beyond 2027, we anticipate performance more in line with our long term growth targets. This view makes 3 important assumptions. First, we move past the most significant effects on payer mix, from the exchanges. Second, we assume no material policy changes beyond HR1. And finally, we have a set of strategic initiatives including digital transformation network development, and ongoing resiliency programs that generate significant value. I will reiterate, it is still early, but we believe these preliminary perspectives provide context for how we currently see the company's growth prospects. Let me close with this. Our colleagues continue to provide high quality care to our patients, and execute our strategic plans. I appreciate their efforts in delivering on our mission and I want to thank them for their good work. As we get further into the execution of our plan, we believe it will enhance access for our patients with our capital spending, create a better work environment for our caregivers with our AI transformation initiatives, and deliver value for our shareholders with our enterprise wide resiliency program and balanced capital allocation. As we look to the future, I am confident that HCA Healthcare has the right people, the right process, and the financial position to achieve our long term objectives. With that, I will turn the call over to Mike for more details on the quarter.

Thank you, Samuel, and good morning, everyone. As Sam noted, demand for our services continued to grow at a solid rate compared to the prior year quarter on same facility basis. Admissions increased 2.7%. Equivalent admissions increased 3%, and ER visits increased 5.1%. Inpatient surgeries were down 1.4% Outpatient surgeries were down 3.7%. Regarding surgical volumes, consistent with the second quarter, we continue to see solid growth in our emergent surgical volumes, and pressure on elective. Same facility equivalent admissions in our insured population excluding exchanges, increased approximately 3% in the third quarter versus prior year. Exchange equivalent admissions declined approximately 19%. versus prior year quarter. For context, third quarter of 25 was our high-water mark for exchange volume making for a difficult comparison. However, we did see sequential improvement in exchange volume from 2Q to 3Q of 26, of approximately 8%. Like the second quarter, we continue to see patients who have lost coverage on the exchanges migrate almost 1-for-1 to uninsured. This 1-for-1 migration makes up approximately 80% of our uninsured volume growth. With the remaining 20% primarily related to a decrease in Medicaid conversion. And mostly in Texas. Our uninsured volume in third quarter 26 represented approximately 10.5% of total equivalent admissions versus 8.5% in the prior year quarter. We estimate the payer mix shift from exchanges to uninsured resulted in an unfavorable impact on adjusted EBITDA of approximately $400 million in the quarter. We now expect the full year unfavorable impact on adjusted EBITDA from payer mix shifts to be at or slightly above the upper end of the range of our previously updated guidance for Medicaid supplemental payment programs. The company recognized approximately $50 million of incremental net benefit during the third quarter. We now expect the incremental net benefit from Medicaid supplemental payment programs to be between $600 million and $800 million. For the full year 2026. This increase in our estimated range was driven equally by the grandfathered application from Virginia and onetime payments from across our other programs. We were pleased with our cost results in the quarter. Same facility cost per equivalent admission, when excluding Medicaid supplemental payment programs was essentially flat versus prior year quarter. And it improved 40 basis points sequentially. As we typically see an increase sequentially from second quarter to third quarter, this outcome reflects strong operating discipline from our teams. Moving to capital allocation and cash flow. Capital expenditures totaled approximately $1.36 billion in the quarter. Additionally, we purchased approximately $3 billion of our outstanding shares and we paid $165 million in dividends for the quarter. Cash flow from operations was approximately $4.5 billion in the quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our state target range. And we believe our balance sheet remains strong and well positioned for the future. We currently expect to complete most of the existing authorized share repurchase program by year end. Subject to market conditions and other factors. As noted in our release, we are reaffirming our estimated guidance ranges for 2026. Given our third quarter performance, we currently expect to be in the upper half of our guidance ranges for the year. 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 people as possible in the queue an opportunity to ask a question. Christine, you may now give instructions to those who would like to ask a question.

We will now begin the question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Albert Rice with UBS. AJ, your line is now open.

Thanks. Hi, everybody. Maybe just to. I know it is early to be given a lot of comments about 2027, but. And you are thinking about consistent EBITDA versus this year. It sounds like you are thinking there is a fairly substantial incremental public exchange headwind that you have got to overcome, and you are also talking about incremental savings from ongoing resiliency programs. I wonder if there is any way to flush out sort of a order of magnitude of what you think that incremental public exchange headwind might be next year even if it is a wide range. Similarly so, should we look for cost savings similar to $400 million resiliency program you announced this year or next year?

Well, AJ, I think what we tried to do in preparing our early book comments is give you the best information we have at this point. As Sam noted in his prepared comments, we still are in the early stages of our planning cycle. And as we kind of finish fourth quarter, we are really studying 2 key components. Number 1 is, our results, and fourth quarter and how the strength of our core performance continues to mature. I think it is clear in third quarter, we were pleased with our core growth and we felt like we had momentum. We need to validate that in fourth quarter, and that will give us a really good sense of our core growth as we kind of step into 2027. Second thing that we have got to study is the exchange environment. And as we go through the fourth quarter first, we will have a better information about how our exchange volumes perform here in the last quarter of the year. But we will also have better intelligence about enrollment. The enrollment period starts on November 1 and goes to you know, mid January. And so with those 2 things, you know, we will be in a much better position to give you our best sense of this on our January call. Our fourth quarter call for 2027 guidance. But I think as you think about core growth, you think about the headwinds that we have disclosed related to Medicaid state supplemental payment programs. And then what ends up happening with the exchanges in 2027? Those are the big moving parts. And we will give you further guidance as we get on our fourth quarter call.

On the cost side. Look. AJ, let me add to the cost. I mean, we see our resiliency agenda broadly as an ongoing strategic program for the company. We now have new capabilities We have new technology. We are expanding our shared service platform as a result of that. And we are able to move the cost agenda systematically as a company today And heretofore, we did not have that ability because we did not have the capabilities nor the technology. And I think the mindset to accomplish it as a result of that. So when we start thinking about cost in 2027, as I mentioned in my comments, we do anticipate more value coming from our resiliency program broadly within our networks, and from a cost standpoint overall for the company. And so that is more of a strategic agenda item that will carry itself into the future and be a part of our programmatic efforts as we move beyond 2027. I think the other point, Mike, is the Medicaid supplemental payment program is related to some payments from prior year. As we think about 2027 also. Yeah.

Our next question comes from the line of Ann Hynes with Mizuho. Ann, your line is now open.

Great. Thank you so much. I just wanna ask about 340B. I know there is a regulation out there that if it goes into effect as is, should benefit the for profits that do not participate in that program. And I know that it will probably be challenged at some point to the legal system. But does that slack guidance assume any change in that program or any potential benefit? And if it does, have you sized that? Thanks.

Thanks, Ann. So this is part of the Medicare OPPS rule that is proposed at this point We were pleased with the construct that is a part of the proposed rule as a relates to a budget neutral reallocation of 340B. It would benefit us. We have not. Or we are not sizing that publicly at this point. And as we think about kind of our early look statements, keep in mind that the idea of being generally consistent is where we are standing here at third quarter. We will give much more detailed information as we get on our fourth quarter call. But I would say, I mean, we view the OPPS rule as proposed and we are hoping that it gets finalized here soon as a positive. A factor for HCA as we head into 2027.

Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Ben, your line is now open.

Great. Thank you very much. And I appreciate the demand comments for next year and the expectation for 2% to 3% volume growth. I am wondering how the surgical backdrop is fitting into your thoughts there. I know you had said that you did not expect any recovery of the kind of weaker elective trends through the end of this year. But as we think about next year, is there pending, demand getting pinned up there that could unwind and would that be upside to that 2% to 3%, or would that be considered in there? Any thoughts on how you are thinking about surgical, progression for next year? Thanks.

Ben, we have not, landed on a components of that growth just yet. We have you know, some viewpoints. I think, again, we need to get through the fourth quarter, see how seasonality on surgery plays out in the fourth quarter. I think our emergent business, as Mike spoke to, continues to be strong. We see some macro forces impacting the elective business. Coverage being the primary macro force, and then just sort of general affordability across the economy being a second 1. So I think from that standpoint, we have not landed on any surgical viewpoints. But I think it is important for everyone to understand that our composition of volume is fairly diverse. I mean, we have cardiac, we have women's, we have NICU, we have transplant programs, we have surgery, yes, medicine, critical care, all of these components are attributes of our company that we think give us an ability to navigate through a component, not being as productive as we want, and that is what we are seeing. We are seeing more growth in other services that are compensating for some of the surgical growth. our surgical weakness that we are experiencing. For example, our neonatal activity in the quarter was very strong. Our cardiac business continues to be strong. Our trauma business strong. EMS traffic to our hospitals, up significantly. So there is all of these elements that go into our volume assumption, We are not ready to sit there and call out surgery specifically for 2027 until we get a better viewpoint of it through the seasonality patterns that typically exist in the fourth quarter.

Your next question comes from the line of Brian Tanquilut with Jefferies. Brian, your line is now open.

Hey. Good morning, guys. Maybe, Mike, as I look at the SWB and the operating expense lines, SWB up sequentially other OpEx down. Anything you can call out there, especially as we think through TAP staffing, we are seeing indicators that it looks like temp staff orders are picking up So just curious what you can share with us on those 2 line items, especially given the resiliency efforts. Thanks.

Sure. And I mean, that is. Part of this answer is consistent with our sequential notes we had in my prepared comments, Brian. You know, typically, when we go from second quarter to third quarter, that is the timing of when we do a lot of our merit adjustments in labor. So we typically see, even a 100 basis point increase in our expense per AA overall. And that is 1 of the factors. And so we were actually really pleased when we looked at our expenses per equivalent admissions, obviously, state supplemental payments, 1, they were essentially flat to prior year, but 2, they were down 40 basis points sequentially from second quarter to third quarter, which you know, we think really reflects the strength of not only our resiliency plan, but also the operating leverage we are getting from I mean, if you look at SWB on a margin basis to prior year, even with the softer overall revenue, we had a 40 basis point margin. So we were pleased with that. And same thing, you know, we had good performance in supplies as well. You know, in other operating expenses, you know, if you just look at third quarter to prior year, you do have a bit of cost related to the state supplemental payments. Keep that in mind. Professional fees, continue to be a pressure point for the company. We were up about 12% versus prior year quarter. And professional fees now represent about 24% of other operating expenses. And I would note that those continue to be driven by radiology and anesthesiology. So Brian, that is a bit of a rundown on the cost side.

Your next question comes from the line of with Deutsche Bank. Pito, your line is now open.

Hey. Good morning, guys. Thanks for taking my question. Going to ask AJ's question a little differently. You quantified the $600 million or $550 million to $650 million of less Medicaid for the loan payments. You talked qualitatively about mix and Medicaid impact next year. And the core mission growth of 2% to 3%. Can you just confirm that 2027, the adjusted core EBITDA growth is still in the 4% to 6% range? The other piece is impacting that, or is core running hotter or lower. How much is resiliency driving that core growth? Thank you.

Well, Peter, resiliency is just part of our core operations, and so that is the way we think about resiliency is just part of the work we do every day in managing the company. When I think about core growth in third quarter, we were pleased with core growth in third quarter and call it a 10% core growth increase. I think that reflects good volume growth. It reflected good net revenue per unit improvement in the quarter. And really good cost management as well. And I think if you see how we kind of set the guidance range in the upper half of range, that gives you a sense of how we are thinking about fourth quarter. And then, you know, we will give our thinking in more detail about 2027 when we get on our fourth quarter call. So that would be the way to think about core growth. And, you know, we will have to validate it for fourth quarter, but we were really pleased with third quarter. And you get a sense from the upper half of range, that we have confidence Your next question comes from the line of Matthew Gillmor with KeyBanc.

Matthew, your line is now open.

Hey. Thanks for the question. On the pricing topic, you called out an acceleration in insured revenue per equivalent admission. It sounded like that was better than expected. Can you talk about some of the drivers of that acceleration?

Sure. So, Matthew, if I look at kind of net revenue per unit, and I think about the insured book, obviously, excluding the exchanges, because the payer mix is still the big negative. That we are dealing with in terms of net revenue per unit to prior year. Number 1 is really the strength of our commercial volume. Our commercial, excluding exchanges volume, was up 2.7% over prior year quarter, and that is strong. And so that component of our payer mix is definitely a part of why our net revenue per unit was a bit stronger in third quarter than the first half of the year. The second, we continue to see solid rate growth across our peer of payer categories. And then, really, third, Paralon, we see continued strength in their abilities to collect our net revenues and yield our contracts, their work to continue to strengthen our abilities to deal with the knowledge and other payments continues to improve. And so I think, overall, we had a good net revenue per unit performance in the third quarter, given the headwinds from our payer mix impact.

Your next question comes from the line of Sean Dodge with BMO Capital Markets. Sean, your line is now open.

Yeah. Thanks. Good morning. Maybe just on the 2026 guidance. Mike, you said you are now pointing to the upper half of the range. I think that is still in implies core growth in Q4 will accelerate some from Q3. Maybe if you could just walk us through the visibility you have and what is going to drive that. Is that just incremental gains from resiliency you are expecting to come through And then Samuel, you also mentioned volume growth in Q3 broadly improved from the first half of the year. Is that part of the assumption, that volumes also continue to improve in Q4?

Well, first, I would say, I mean, I think if you look at the upper half of our guidance ranges, that largely implies the core growth is fairly consistent if fourth quarter, third quarter would be the first thing I would contact. And then I think the drivers are similar. Number 1, is we did see strength in volume in third quarter And so that is encouraging for sure. We have already mentioned a little bit on the net revenue per unit side. There tends to be a step up from third quarter to fourth quarter. In normal course, and so we expect that normal seasonal trend to apply broadly. And then we do believe even Samuel mentioned, not only in his opening, but in his comments as we were talking about in the first question, that our performance around our resiliency plan, our ability to manage cost, we continue to see strength. Across our resiliency plan, in third quarter and fourth quarter and in 2027, 2028, and beyond. So I think those are the key components, Sean, that are kind of making up our guidance comment for fourth quarter of 26.

Your next question comes from the line of Whit Mayo with Leerink. Whit? Your line is now open.

Yeah. Thanks. Did the HICS headwind get larger in any particular market? And any comments around AR collectability, balance after collectability would be helpful. And any of the 400 million is that related to prior quarters? Thanks.

Well, I would say, with, that our HICS results in third quarter were a little bit higher than we estimated. You know, we would have estimated a third based on our guidance that we gave at the second quarter. The third quarter would be 15% to 16% decline. Ended up at about 19% decline, which you know, just reflects the sustained decline in the same. In our exchange volumes. I would like to put that in context, though. I mean, you know, that is that 2 or 3 points is about 2,000 adjusted admissions, you know, just we have about a million adjusted admissions in the quarter. So, you know, these are not perfect estimates, but it gives you a sense of kind of the numbers we are looking at here. Our experience in third quarter, and I mentioned this in my prepared comments, number 1, third quarter of last year was our high-water mark, so there was a bit of a prior year comparison difficulty. We did see, however, a sequential improvement in exchange volume from second quarter to third quarter 26 of about 8%. And so all of that, when we brought it together, you know, it is kind of what guided us to say that we think for full year 2026 now, you know, we will be at to maybe slightly above the top end of our previously updated ranges for these changes. that is how. that is kind of how the numbers pull through here in third quarter, Whit.

Your next question comes from the line of Ryan Langston with TD Cowen. Ryan, your line is now open.

Great. Thanks. Appreciate the commentary. On elective versus emergency surgical future trend growth. Can you maybe update us on what ASC versus HOPD surgical volume look like in the third quarter?

So the ASC surgery volumes were down 5.4% on the surgery Overall case volumes were down about 3.7%. The primary pressure is related to the exchanges in our ASC book, very similar to the hospital side. I would note, however, that, you know, e. Even in light of the volume, softness there that our overall net revenue and earnings did show some growth to prior year. The hospital based outpatient surgeries down 2.9%.

I think it is important to understand the construct of our AS platform, and that informs at some level for us the macro forces that are out there with elective care at this particular juncture. And so when you sort through what is going on, yeah, there are certain issues in some centers that we have. But at sort of an aggregated level, it informs a little bit of our macro thinking around some of those forces that are influencing overall demand.

Your next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah, your line is now open.

Thank you. I would like to keep going on that topic. So is there a way to unpack how much of the inpatient and outpatient surgical trend pressure so far this year is exchange related versus how much is affordability and things that may be continuing. And then given your comment on affordability pressure, are you assuming any stronger than normal tailwind in 4Q ahead of the deductible reset?

We are not at this particular juncture, anything outside of normal. Seasonality, but your point is relevant It could be that some folks are making decisions. We have seen that on the margin. In other years, but at this particular point in time, we are not. When I look at our elective care surgical care, I mean, the HICS is a large percentage of the explanation. It goes back to what we have been saying all of last year and all of this year. Coverage for people matters, and it creates access affordability, and elective care. it is a very fundamental element to individuals' abilities to get the health care they need And so it is it is a large piece of the elective equation is the coverage dynamic that is occurred in the HICS environment. And I do not have an exact percentage here in front of you, but it is a very significant piece of the variance. And we have called that out. And we think that had some incremental effects in other payer classifications as well as we talk about the affordability more broadly. Thank you.

Your next question comes from the line of Justin Lake with Wolfe Research. Justin, your line is now open.

Thanks. Good morning. A couple quick number follow ups. First on 2027 DSH, appreciate the $550 million to $650 million number. I was hoping you can isolate your estimate here of how much of that number comes from the Q4 DPP cut as HR 1 gets implemented? Versus the 2026 out of period that does not reoccur? Is there any exchange impact for Q4? Can you tell us how much your guidance assumes that, what sequential exchange volume growth occurs from Q3 to Q4 this year. I know you just gave us the Q2 to Q3 number, curious on Q3 to Q4?

Well, let me start with the first part of your question.

So what you. As Samuel noted in his comment, we expect to receive approximately 550 to 650 million less in Medicaid state supplemental payment net benefit. in 2027 versus 2026. And that is because the grandfather approvals that happened in 2026 that were really related to prior years. The predominance of that, Justin, was related to Florida which we previously disclosed. You know, the rest is really related to the other grandfather states like Virginia, Georgia, etcetera. So you know, that is really the makeup of those. Of the kind of the out-of-period state supplemental payment programs. If I think about what the guidance implies at the fourth quarter, you know, we are finished September 2026 year to date with $650 million of incremental net from state supplemental payments. So if you think about the full year guidance range that we just updated to 600 to $800 million that would give you a sense for what we are thinking about fourth quarter. You know, at midpoint, it would be another $50 million net. Incremental benefit, and then you can see the range. So that is kind of how we are thinking about that for fourth quarter. And then on exchanges, not ready to quote a sequential move from Q3 to Q4 at this point. I would note, and we noted this on our second quarter call, You know, I would point you back to fourth quarter 25 where we did see a slowdown occur in our exchange volumes from you know, from Q3 to Q4 last year. And so we do think there is a bit of a benefit comparison benefit in fourth quarter of 2026. Given that given that fact.

Your next question from the line of Kevin Fischbeck with Bank of America. Kevin, your line is now open.

Great. Thanks. I just a lot of moving pieces here. So I just wanna make sure I understand the new guidance versus the old guidance. Is the right way to think about that the new guidance includes about $300 million more of STPs and $100-plus million more of headwinds from payer mix and then that combination is largely the increase in guidance from the prior guidance. Is that the right way to think about it? And then just a clarification on the Hicks headwind that you guys are talking about. Is it purely just an uninsured number, people coming in and not paying? Or are you also kind of thinking about the implication of lost surgery from people losing coverage in that, in that number? Thanks.

Well, let's walk through guidance first, Kevin. So, yes, I mean, from supplemental payments, we have raised our net benefit guidance by about $300 million. So that is certainly a piece of it. If you think about the big changes with this idea of kind of at or slightly above the top end of our previously released estimates. You know, you are in the $100 million to $200 million increase in headwinds related to that. And then the third thing I would call out is just core growth. I mean, you know, I think we. As we noted on today's call, we believe our fourth quarter core growth should be good. The net of those 3 factors really led us to making the comment that we believe will be in the upper end of our guidance ranges for the full year. Which will give you a sense of how all that comes together. So that would be the logic of guidance.

Your next question comes from the line of Scott Fidel with Goldman Sachs. Scott, your line is now open.

Hi. Thanks. Good morning. My question is just first on the. I know there is been some questions around it on the third quarter or next year. But on the fourth quarter, maybe the visibility and expectations that you have around elective procedures, and sort of how scheduling seems to be playing out in terms of just normal seasonality. And then I just wanted to also ask in terms of the headwinds that you have laid out for next year relating to DSH. Whether there is anything specifically relating just to the CMS policy that now is requiring all the 1.11 thousand waivers to be budget neutral from a federal perspective. And just whether your intel, you know, from the states, are you seeing any change in terms of approach or in terms of applications or you know, sort of anything that you think could be, sort of play out, you know, relating to that policy that could impact fundamentals, in 2027? Thanks.

On electives, Scott, and I think Samuel mentioned this when he was answering the previous question, on surgery, At this point, we did not assume any pickup on elective demand related to co pays and deductibles in the fourth quarter. I think we expect a normal seasonal move from Q3 to Q4, but we did not build into our guidance thinking some kind of improvement or pull forward demand from an elective standpoint in the fourth quarter. When I think about HR1 for 2027 and we continue to monitor all of the rules and I see we know that our states can continue to file their applications and feel good about the processes that we see in place. I would mention on HR 1 that, you know, the big change is really work requirements for able-bodied adults. In our expansion states. You know, I might mention just for context that expansion states are 40% of our Medicaid volumes and revenues. When you think about work requirements targeting able-bodied adults in those expansion states, You take out the seniors and the disabled and the kids and those that are medically frail, we think that work requirements would be kind of applicable to about 15% to 20% of our Medicaid-like. And so, you know, the net of all of that, while we are not quite ready to size it in terms of earnings impact, we do think that work requirements specifically would have a bit of a modest impact in full year 2027. So that is the main things we are watching for HR1 next year. And I think that wraps both of your questions.

Your next question comes from the line of Steve Baxter with Wells Fargo. Steve, your line is now open.

Hi. Thanks. Just a couple of follow ups on the breakout of adjusted admissions. I think you gave us the commercial exchange number already, but could we get the Medicare, year-over-year AA growth, Medicaid, And then, I guess, you gave us the exchanges on a quarter over quarter basis. If you also had the year over year basis, that would be helpful too. Thanks.

Sure. So these are same facility adjusted admissions compared to prior year for third quarter. Medicare is up 3.2% Medicaid is up 2.7%. Commercial, excluding the exchanges, are up 2.7%. And then the exchanges are down 19% to the prior year quarter. As you. As I noted in my commentary, though, that is an 8% sequential improvement from Q2 to Q3.

Our next question comes from the line of Jason Cassorla with Guggenheim Securities. Jason, your line is now open.

Great. Thanks. Good morning. I wanted to turn back to the volume discussion. You guys have seen pretty solid volume acceleration over the past couple of quarters. That clearly stands out. You are talking about 2% to 3% volume growth next year. I was just hoping if you can give us a little more in terms of what you are attributing the volume strength to? I mean, you have talked to the solid demand environment, but can you help quantify maybe, like, how much you are thinking is coming from benefits of the end market initiatives, all the work you have done to expand capacity and the like? And how that kind of fits into that 2% to 3% mold that you are looking for next year would be helpful. Thanks.

So if you start at the top here, I mean, it is our belief that there is a lot of inherent demand growth in the markets that we serve. Coming from population growth aging baby boomers, chronic conditions, new technology -- all of this sort of converges to create an upward movement in demand in the markets that we serve. And so that is a starting point. We do think across a lot of our markets, we are gaining market share incrementally. We do have some markets that we have to adjust to different dynamics and respond at that level, but when you look at it in the main, over time, we picked up market share. Our approach to our networks is continuing to advance with respect to our ambulatory platform. We are up to almost 3 thousand units through acquisition of urgent care, ambulatory surgery centers, and other outpatient facilities that complement our hospital ecosystem, and create for our patients a more convenient and accessible location and efficient service. That continues to evolve in our networks, and as we mature on that platform and leverage the restructuring that we did with 1 of our group presidents, Charles Gretzli. I anticipate that we are going to be able to move our ambulatory platform forward and create even more growth out of it. Again, meeting our customers, our patients where they live so that we can create convenience and so forth for them. A second important initiative for us is creating patient coordination once they do hit 1 of our ambulatory facilities. And through patient coordination, we think we can create a better experience for the patient and ultimately integrate them into our system and if in fact they need acute care services we are helping them achieve that in an efficient and transparent way. So that is evolving also. Clearly, we are investing in our hospitals with capital. We are adding beds We are adding other capacity within our facilities to manage the demand. We are running the company at an all time high when it comes to occupancy levels, pushing 75% on our inpatient platform. We are benefiting. However, through patient flow initiatives, where we are able to improve the flow for our patients and get them to the care site they need. that is creating capacity for us as we evolve. Also, All of these things combined are yielding growth for our company. And then lastly, it is how we engage with our physicians and support our physicians with their practices, meet them where they are, and find ways to invest in clinical capabilities, be very effective at an efficient in how we process their patients, and then ultimately give them a voice in what is going on that is allowing us to respond largely to our physician requirements as well. So all of those things, it is impossible to point to 1 thing, and each market's slightly different. We have to nuance our approach in each market to address those differences. that is why we are organized as we are with our divisions. But I think with 22 consecutive quarters of growth, in volume. Which is quite impressive from our standpoint. And then with the return on capital, and then with the improvements in quality and service for our patients, we feel like our model works. And gives us, again, the staying power that I mentioned in my comments, and allows us to push into the future with confidence and a belief that we can achieve our objectives.

Your next question comes from the line of Raj Kumar with Stephens. Raj, your line is now open.

Yes. Maybe on the pricing conversation, just curious on I know you are mostly contracting on the commercial side for 2027, but as you kind of think about 2028. Or payers starting to, you know, embed any explicit assumptions around coding and more accuracy on that front, And just curious across, on that note in terms of how diffuse it is across the platform, or is it still in early stages around the coding and the acuity on that front?

You know, this is Samuel N. Hazen. Let me let me let me lift a little bit on this point. it is important for us to have solid relationships with the major payers in our community, and we do that. And we are able to meet their objectives and meet our objectives in most circumstances, and that is been I think part of our ability to execute our strategy and help them execute their strategy. Our contracting process is transparent. With our major payers, and we are accomplishing contract cycling that naturally occurs over time, We are deep into 2027, and we are not as deep into 2028, but we are making progress on 2028 as contracts mature and move into the cycle that naturally occurs. We are able to achieve our objectives and then support the objectives of the major payers. Our teams are working very earnestly to come up with solutions for people. And what I mean by that is the patient the providers, and the beneficiaries that are all connected to what we do administratively between the insurance companies and the hospitals, HCA, and many of the major payers are working, diligently to eliminate the friction, create a more cost effective solution, and reduce the administrative complexity that exists within the system. And I am encouraged by the progress that we are making, and I am encouraged by the attitudes of many of the payers, and I think we are going to progress over the next year or so and really create value for our patients and for the beneficiaries in a manner that starts to change the paradigm a little bit between what is going on with payers and what is going on with HCA. So more to come on that, but we are, in fact, progressing on just about every front with respect to our major payers.

Your next question comes from the line of Benjamin Rossi with JPMorgan. Ben, your line is now open.

Hey, morning. Thanks for the question. Following up on your market specific commentary, with some of the broader operational pressures you are facing, I appreciate that you are still adding inpatient capacity and outpatient density. But as you assess your options, are you at all considering any market exits or potential changes to your footprint? Or with these pressures hitting everyone, do you consider yourself a potential buyer? As competitors also face these headwinds? I guess just curious where you stand on market positioning at this juncture. Thanks.

So we compete in 43 markets roughly in the U.S. Some of them are smaller and they get counted in that and then some are mega markets. Over the last 7, 8 years, we have been fairly intentional about looking at our individual markets and determining whether or not we can execute our model and be successful and meet the needs of our constituents. And we have largely pruned the portfolio of HCA down to the markets that we think can go the distance. And today, the markets that we have are ones that we are investing in at levels as you would expect because of the different circumstances from 1 market to the other, the different opportunities that exist So I do not see any significant change to our market configuration. At this particular point because we have been intentional over the past few years to optimize the portfolio, if you will, and put ourselves in a position where we can succeed and build out the model that we think adds value to our patients and adds value to the organization as a whole. That allows us to focus our capital spending, to focus our talent and our resources on a smaller footprint, but with a very significant growth prospect, we believe, for the company So that is where we are. We always have 1 or 2 items here or there. With regard to new markets, you are right. We are built to be bigger. We know that. But we just have not seen a lot of opportunities yet. If opportunities do develop, as usual, we will be opportunistic and take a look at whether or not it is affordable, whether or not we can execute our model, and make the right decision at that particular juncture. We do have a lot of outpatient activity, as I mentioned earlier, that is important to building out the network overall so that it is accessible for our patients, and we continue to invest in those opportunities as they develop as well.

Your next question comes from the line of Andrew Mock with Barclays. Andrew, your line is now open.

Hi. Good morning. Can you talk about what you are seeing in the market as it relates to the removal of the inpatient only list, both in terms of procedure migration today and actions taken now in anticipation of future migration And how should we think about the impact of the inpatient only list and potential outpatient capacity additions against the backdrop of fewer surgeons? Thanks.

Andrew, The. if I think about being on the list, obviously, we are in year 1 of a 3-year phase out. This first year is focused a bit more on ortho and musculoskeletal type procedures, so that is what we are seeing. I think if I look at our elective book, I would say, you know, after the changes, which was the biggest driver of elective surgical volume weakness the second driver would have been Medicare, especially on the inpatient side. So we are seeing some impact of the inpatient only list. You know, I think it is fair to say that the outpatient market for surgery is a bit larger than the inpatient market for surgery. there is more competitors and so that is a factor. When I think broadly, though, you know, we look at ambulatory surgery centers, as Samuel just walked through, as part of our networks. And building out our ambulatory networks they play an important role. We are continuing to invest in our operating rooms, our surg platforms, the inpatient side, in the hospital side for outpatient surgery, and in our ASC platforms and believe that it is a long term important component. I do not think that anything we are seeing would say that it would drive a material change in the way we are approaching building out our networks.

And, again, Mike, I think the fact that we have probably 25 different service categories that we focus on across the company that are different gives us an ability at times to invest, just like I said, in different markets, We can invest in different services depending on demand, forecasts, population trends, competitive dynamics, and so forth. And you see that in our volume when it comes to some of the pressures we have seen on elective care. We have offset that with other services that give networks a level of resiliency, give the demand sort of equation inside of the market support when it comes to our ability to provide patient care. And I am not sure that is fully recognized in some of these isolated discussions about service a, service b. Clearly, there are always issues. We have had issues with stuff migrating from inpatient to outpatient. We have had new technologies over the years, we have had new technologies evolve that change the procedure approach for physicians and better for the patients. Obviously, we embrace that. But we have been able to backfill with other services, expand our market, get into new capabilities, and ultimately keep the company moving forward in the face of those incremental, changes that occur. And that is what I think is unique in many respects to our platform, the services we provide, and how we approach our business. And it gives us the diversification in some regards that allows us to navigate through these incremental issues that surface.

Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig, your line is now open.

Yes. Thank you. Mike, the comment that resiliency is part of the core now Can you just touch on some of the applications you have been able to accelerate this year? As well as any untapped opportunities you see on a longer term basis on resiliency?

When we think about resiliency, we largely think about 4 key focus areas that really make up this multifaceted effort across the enterprise. The first is really revenue integrity. Working to ensure that we collect the revenue for services we provide under the contracts that we operate. that is number 1. Number 2 is asset optimization, Craig, and that is important. that is patient flow. that Samuel was talking about. And, certainly, that is important on the inpatient side it is also important in our emergency rooms, our operating rooms, our cath labs, And so we continue to see good performance on patient flow and an opportunity ahead. We are nowhere near the back 9 here on asset optimization and feel good about the work ahead there. Third is variable cost, things like labor, supplies and even some of our variable operating costs. Which are performing well this year. We have a number of resiliency plans that are driven to focus on variable cost. And when we look ahead, we continue to see opportunity in our. In the variability across the company in our benchmarking tools and advanced analytics. And taking that forward. And then lastly are fixed cost. You know, both at corporate and in the field, which are important part here. So as I think about where we are today, we had good resiliency efforts that have been in our past and that are certainly, improving our current year's performance. Have great line of sight now going into 2027 and into 2028 and beyond. And I think about things like the digital transformation is really being a key enabler and gives us that confidence that we are going to have resiliency benefits in the years to follow. We continue to build out our global capabilities I think about the underlying work of expanding our shared service platforms have a number of expansions in-flight where, for example, Parallon is taking on additional administrative, functions for the company and bringing shared service scale and expertise to broader parts of our work. So as I sit here today, at the end of third quarter of 2026, we believe that we are in a really good spot. We have a multiyear multifaceted enterprise wide approach to resiliency, and we believe it is going to produce great results as we move forward.

Christine, I think we are at the end of our allotted time for questions.

We have reached the end of the Q&A session. I will now turn the call back to Frank for closing remarks.

Christine, thank you for your help today on the call, and thanks to everyone for joining us. Please reach out to me if you have any additional questions. Thank you very much.

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