HCA Healthcare Q3 2025 Earnings Transcript

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DATE

Friday, October 24, 2025 at 10 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Samuel N. Hazen

Chief Financial Officer — Michael A. Marks

Vice President, Investor Relations — Frank George Morgan

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TAKEAWAYS

Revenue Growth -- Revenue increased by 9.6% in Q3 2025, primarily attributed to higher volumes, payer mix improvements, expanded utilization of complex services, and contributions from Medicaid supplemental programs.

Diluted EPS Growth -- Adjusted diluted earnings per share grew 42% in Q3 2025 compared to the prior year.

Guidance Updates -- Updated full-year guidance projects revenue between $75 billion and $76.5 billion for 2025, net income between $6.5 billion and $6.72 billion for full-year 2025, and adjusted EBITDA between $15.25 billion and $15.65 billion for full-year 2025.

Supplemental Payment Impact -- Net benefit from Medicaid supplemental programs accounted for about half of the net revenue per equivalent admission growth in Q3 2025, with a $240 million adjusted EBITDA benefit over the prior year, largely from Tennessee, Kansas, and Texas.

Admissions and Volume Metrics -- Same-facility equivalent admissions increased 2.4% in Q3 2025, same-facility inpatient surgeries rose 1.4% in Q3 2025, outpatient surgeries increased 1.1% in Q3 2025 compared to the prior year, and ER visits increased 1.3% in Q3 2025 compared to the prior year.

Payer Mix Changes -- Commercial equivalent admissions rose 3.7% in Q3 2025, exchanges increased 8% in Q3 2025, commercial (excluding exchanges) increased 2.4% in Q3 2025, Medicare rose 3.4% in Q3 2025 compared to the prior year, Medicaid rose 1.4% in Q3 2025, while self-pay decreased 6% in Q3 2025.

Medicare Segment Detail -- Medicare Advantage admissions rose 4.8% in Q3 2025; traditional Medicare admissions increased 90 basis points in Q3 2025 over the prior year; case mix index for traditional Medicare rose in Q3 2025, while the case mix index for Medicare Advantage remained flat compared to the prior year.

Expense Management -- Contract labor expense remained flat year-over-year in Q3 2025, representing 4.2% of total labor costs in Q3 2025; professional fees increased 11% year-over-year in Q3 2025 (notably in anesthesia and radiology), and now account for about 24% of other operating expenses in Q3 2025.

Capital Allocation -- $4.4 billion in operating cash flow in Q3 2025, $1.3 billion in capital expenditures in Q3 2025, $500 million in share repurchases in Q3 2025, and $166 million in dividends in Q3 2025; roughly $1.3 billion in federal income tax payments deferred to Q4 2025 as a result of IRS relief.

Supplemental Payment Guidance -- Management projects a $250 million to $350 million favorable net benefit from supplemental payments for 2025, excluding any potential impact from new approvals still pending with CMS.

Hurricane Market Update -- Year-to-date adjusted EBITDA for hurricane-impacted regions is currently slightly below last year; all anticipated $100 million in adjusted EBITDA growth for these markets is expected in Q4 2025.

Fourth Quarter Volume and Margin -- Management expects sequential growth in line with past trends for the fourth quarter of 2025.

Resiliency Plan Progress -- Initiatives in operating efficiency, digital transformation, supply contract renewals, and technology deployment are advancing, targeting $600 million to $800 million in ongoing performance gains.

AI and Digital Tools -- Ambient AI documentation pilots and revenue cycle automation are underway, focused on addressing payer denials and underpayments.

SUMMARY

HCA Healthcare (NYSE:HCA) reported higher payer mix and robust operational execution as key drivers of margin enhancement and revenue per unit improvement. Management raised annual financial guidance but cautioned that the updated outlook for 2025 does not yet reflect any incremental upside from pending new Medicaid supplemental approvals. Strategic investments in digital infrastructure, ambulatory capacity, and workforce development were highlighted as underpinning sustained long-term performance.

Samuel N. Hazen stated, "We continue to see solid demand across our markets for health care and believe volumes will be within our long-term 2% to 3% growth range."

Labor market constraints that previously limited capacity have been mitigated, improving headcount stability across facilities.

Management described ongoing efforts to further strengthen resiliency through benchmarking, accelerated process improvements, and expansion of shared service platforms.

Discussions indicated North Carolina hurricane-impacted markets are recovering in volume but continue to face adverse payer mix and heightened premium labor costs.

No significant current market capacity constraints were reported as the company enters the seasonally high fourth quarter.

Professional fees increased faster than inflation in Q3 2025, and remain an ongoing margin pressure, particularly within anesthesia and radiology services.

Cash flow conversion ratios are on track to reach nearly 50% for 2025, supported by both operational gains and working capital strategies.

Supplemental payment state applications in Florida, Georgia, and Virginia were specifically noted as pending as of Q3 2025, but this call does not include any potential impact from applications still under review with CMS for 2025, according to Michael A. Marks

The company expects to further clarify capital allocation and operational guidance for 2026 during the next earnings call, after federal policy uncertainties are resolved.

INDUSTRY GLOSSARY

CMS: Centers for Medicare & Medicaid Services; U.S. federal agency overseeing Medicare, Medicaid, and related state supplemental payment program approvals.

Case Mix Index: Weighted measure reflecting the clinical complexity and resource needs of admitted patients, influencing reimbursement rates.

Parallon: HCA’s wholly owned revenue cycle management subsidiary specializing in billing, collections, and financial counseling.

Equivalent Admissions: Internal metric combining inpatient admissions and adjusted outpatient activity to reflect total facility volume.

Professional Fees (ProFees): Expenses related to payments for physician, anesthesia, radiology, and other contracted medical services, separate from nursing and staff costs.

Full Conference Call Transcript

Samuel N. Hazen: Alright. Good morning and thank you for joining the call. As reflected in our earnings release for the third quarter, the company produced strong results compared to last year with 42% growth in diluted earnings per share as adjusted. Revenue increased by 9.6%, which was driven by broad-based volume growth, improved payer mix, more utilization of complex services, and additional revenue from Medicaid supplemental programs. We also translated this revenue growth into better margins with disciplined operations. As a result, you will see in this morning's release that we raised our guidance for the year to reflect this performance and our outlook for the fourth quarter. Our teams continue to execute our agenda at a high level.

Across many operational measures, including quality and key stakeholders' satisfaction, outcomes were better year over year. I want to thank our 300,000 HCA colleagues who once again demonstrated excellence in what they do. As a team, we remain disciplined in our efforts to improve care for our patients by increasing access, investing in advanced digital tools, and training our people. These investments allow us to enhance capacity, improve service offerings, and gain efficiency, making it easier for us to provide better services to our patients, physicians, and the communities we serve.

Typically, on our third quarter earnings call, we provide some preliminary perspectives on the upcoming year. Before I get to these, I want to comment on the enhanced premium tax credits. We continue to advocate strongly for the extension of this program for the 24 million Americans who depend on it for health insurance coverage. Today, we believe there is greater recognition by legislators of the negative impact this issue will have on families, small businesses, and individuals than earlier in the year. At this point, however, we still do not know how this policy will play out.

Because of the fluid nature of the federal policy environment, we will limit our early thoughts for 2026 to our views on demand and the cost environment. We continue to see solid demand across our markets for health care and believe volumes will be within our long-term 2% to 3% growth range. As it pertains to operating costs, we expect mostly stable trends consistent with the past couple of years. As usual, there are some pressures in certain areas, but we believe our resiliency plan should provide some relief.

It is important to note that we are still early in next year's planning process, and these preliminary views may change before our fourth quarter's earnings call when we will provide you with our guidance for 2026.

So let me close with this. As we work to complete another successful year for HCA Healthcare, we believe the company is well-positioned to sustain high levels of performance in the years to come. Organizationally, we have strengthened enterprise capabilities to execute at a higher level through our previously restructured management team and improved management systems. Competitively, our networks have enhanced service offerings for patients with more outpatient facilities, greater inpatient capacity, and improved operations. And financially, because of the increased cash flow and stronger balance sheet, we have the resources to invest more in our strategic agenda. With that, I will turn the call over to Mike for more information on the quarter and our updated guidance.

Michael A. Marks: Thank you, Sam, and good morning. The company produced solid results during the third quarter. The demand for health care services was strong in the third quarter, with same-facility equivalent admissions increasing 2.4% over the prior year. Our surgical volume growth also improved, with same-facility inpatient volume up 1.4% and outpatient surgical volume up 1.1% in the third quarter over the prior year. Same-facility ER visits increased 1.3% in the quarter over the prior year. Commercial and Medicare ER visits combined increased 4.1% in 2025 compared to the prior year, whereas Medicaid and self-pay ER visits were both down compared to the prior year.

We have also seen a slow start to the respiratory season in 2025, which is impacting the year-over-year growth rate in our admissions and ER visits by an estimated 50 and 70 basis points, respectively. Our net revenue per equivalent admission growth in the quarter reflected a strong payer mix, improved dispute resolution results, consistent case mix index, and increased Medicaid state supplement payment revenues.

Regarding payer mix, during the same-facility total commercial equivalent admissions increased 3.7% over the prior year, with exchanges growing 8%, and commercial, excluding exchanges, growing 2.4%. Medicare increased 3.4%, Medicaid increased 1.4%, and self-pay declined 6%. Regarding Medicaid supplemental payment programs, as we have said in the past, these programs are complex, variable in timing, and do not fully cover our cost to treat Medicaid patients. Considering these programs in isolation, the revenue growth from these programs drove about half of the overall increase in net revenue per equivalent admission in the third quarter compared to the prior year.

We saw an approximate $240 million increase in net benefit to adjusted EBITDA from these programs in 2025 over the prior year. This increase was largely driven by Tennessee program payments and the approvals of grandfathered applications in Kansas and Texas.

We were pleased with our operating leverage and expense management in the quarter. The improvement in adjusted EBITDA margin was driven primarily by good performance in labor and supplies. As expected, we did see contract labor expenses flatten compared to the prior year. Same-facility contract labor was basically flat in the third quarter of 2025 compared to the prior year and represented 4.2% of total labor cost in 2025. The increase in other operating expenses as a percentage of revenue in the quarter was driven primarily by increased expenses related to Medicaid state supplemental payments and, to a lesser extent, professional fees compared to the prior year.

Our work progressed to both enhance and accelerate our resiliency program as we prepare for the future. Through these efforts, we continue to identify a robust set of opportunities across revenue and cost to improve efficiencies. The growth in our adjusted EBITDA in the third quarter reflects our strong operating performance and the increase in supplemental payments. We would also note the estimated $50 million impact from the hurricane in 2024.

Moving to capital allocation, we continue to execute our strategy of allocating capital for long-term value creation. Cash flow from operations was $4.4 billion in the quarter, with $1.3 billion in capital expenditures, $500 million in share repurchases, and $166 million in dividends. Year-to-date, we have been able to defer approximately $1.3 billion in federal income tax payments to the fourth quarter due to the IRS providing relief to Tennessee taxpayers in the aftermath of severe weather in early April. Debt to adjusted EBITDA leverage remained in the lower half of our stated guidance range, and we believe our balance sheet is strong and well-positioned for the future.

So with that, let me speak to our 2025 guidance. As noted in our release this morning, we are updating the full-year guidance as follows. We expect revenues to range between $75 billion and $76.5 billion. We expect net income attributable to HCA Healthcare to range between $6.5 billion and $6.72 billion. We expect adjusted EBITDA to range between $15.25 billion and $15.65 billion. We expect diluted earnings per share to range between $27 and $28. We expect capital spending to be approximately $5 billion. We now anticipate our supplemental payment full-year net benefit to be $250 million to $350 million favorable comparing full-year 2025 versus 2024.

This guidance update does not include any potential impact in 2025 from any additional approvals of grandfathered applications under the act. And at the midpoint, this guidance assumes a $120 million decline in net benefit from Medicaid state supplemental payments in 2025 versus the prior year due to one-time payments. Consistent with our comments on the second quarter call, we believe our hurricane-impacted markets will produce approximately $100 million in adjusted EBITDA growth in full-year 2025 over 2024. Year-to-date, adjusted EBITDA in our hurricane markets is modestly below the prior year, and we are anticipating all of this growth will occur in the fourth quarter. We are increasing our earnings guidance at the midpoint of adjusted EBITDA by $450 million.

This represents an expected $250 million increase in net benefit from the state supplemental payment programs and a $200 million increase from operational reform. With that, I will turn the call over to Frank for questions.

Frank George Morgan: Thank you, Mike. As a reminder, please limit yourself to one question so we might give as many as possible in the queue an opportunity to ask a question. Operator, you may now give instructions to those who would like to ask a question.

Operator: Thank you. And we will now begin the question and answer session. We ask that you please limit yourself to one question and one follow-up. Your first question comes from Ann Hynes with Mizuho Securities. Please go ahead.

Ann Kathleen Hynes: Great. Thank you. And thanks for all the detail on the DTP program. Can you remind us, I know there are other states that have preprints in for approval for grandfather programs. Can you remind us what states are still pending? And any quantification of what could be incremental would be great. Thank you.

Michael A. Marks: Good morning, Ann. So if you think about the states, there are several that have applied under grandfathering. We have mentioned Florida before, and certainly, that one is under review. There are a few others as well. I might mention Georgia and Virginia as well being in that list. We do not expect that CMS will be approving these additional grandfathering programs during the shutdown. I would say that we have reports that indicate, though, that the reviews between CMS and these states are active, and those reviews continue during the shutdown. I might also mention that we were encouraged by coming up to the shutdown. Several states had approval coming into the shutdown.

So I think we are in a pretty good environment. We are, at this point, not going to size those potential applications until they get approved. But I did note in my comments, and I will note again, that the updated guidance that we gave you just now on this call does not include any potential impact from the applications that are still pending review with CMS.

Ann Kathleen Hynes: Great. Thanks.

Operator: And your next question comes from the line of A.J. Rice with Credit Suisse. Please go ahead.

A.J. Rice: Hi, everybody. Thanks for the question. Just to maybe ask on the public exchanges. So there has been some chatter in some of the managed care companies about anticipating a potential step-up in volumes in the fourth quarter for elective procedures because people are worried that they are going to lose coverage or their co-pays and deductibles will go up dramatically. I wonder if you are seeing an early scheduling for surgeries, for example, elective surgeries or anything else that would indicate that we might see that in the fourth quarter.

And then if we do get disruption where people go off during the traditional open enrollment period but then reset or are able to reset because an after-open enrollment special enrollment period is set up, would you be able, if people show up in your emergency room, are you basically set up so you could get them resigned up if that is a possibility under the special enrollment provisions if we get an extension, but it comes late?

Michael A. Marks: So, you know, if you think about EPTCs and what happens with these exchanges, I would mention a couple of things. Right now, we are really not sizing the potential impact, given the fact that it is so fluid. There is going to be an enrollment period, as you know, that opens up here in a couple of weeks. When we get to the fourth quarter call, AJ, we will have a lot more information. First, about what is the deal, potentially, that comes out of this work in the government? Do they get extended? If they do get extended, what is the form of that extension? And then third, to your point, is timing.

Do we end up with a special enrollment period at the end? So it is really difficult to size the potential impact of that until we get a little bit closer to the fourth quarter call, and that is when we will intend to do that. We do have our financial counseling teams through our Parallon revenue cycle that helps our patients both with things like Medicaid and with exchanges. The idea of them being able to do that on-site is not something that we do. But we certainly can connect them to the appropriate resources to help them navigate that. And I think we have mentioned this in previous calls.

We have structured our efforts here as we have gone through the balance of this year and the next year to really beef up our resources with Parallon and broadly as a company to help patients navigate coverage both on Medicaid and on the exchanges. And we feel really good about our preparation in that area, and we are going to try to help our patients navigate this season the very best that we can.

A.J. Rice: Okay. Thanks.

Operator: Thank you. And your next question comes from the line of Pito Chickering with Deutsche Bank. Please go ahead.

Philip Chickering: Hey, good morning, guys, and thanks for taking my question. The quarter was a pretty strong beat even if we exclude the supplemental payments in the third quarter, but guidance did not go up a whole lot past the beat you guys did this quarter, at least at the midpoint of the range. Can you give us any color on how we should think about the range of guidance implied on the fourth quarter and if we should steer towards one or the other? And also if you can help provide a bridge for the third quarter and fourth quarter as you think about moving parts between hurricanes and supplemental payments?

Michael A. Marks: Hey, Pito. Good morning. When I think about the fourth quarter growth rate, it is really two main considerations that I would think about, and then the third being just operations. But first would be the hurricane impact, for sure. And then second would be the decline in state supplemental payments that I noted in my comments when you compare 2025 to the prior year. When we take those two factors into consideration, we believe the implied growth rate is still solid for the fourth quarter, in the high single digits range, like, 7% roughly.

And then the other note I would give you, when you take those same considerations into account, our sequential growth from the third quarter to the fourth quarter is in line with our past trends. And so we feel that our guidance for the fourth quarter is solid. I might also just note that our range in our guidance is intended to really cover a range of outcomes, including at the high end of the range, even stronger performance as well. So that is how we are reviewing the fourth quarter.

Operator: And your next question comes from the line of Benjamin Hendrix with RBC Capital Markets. Please go ahead.

Benjamin Hendrix: Thank you very much. Just a quick follow-up on the SDP guidance. How much in there did you recognize in the third quarter and is included in guidance for Tennessee specifically? And did you recognize anything in the quarter and in guidance related to Texas, none of that got approved later in the quarter? Just want to see if you are including anything in there. Thanks.

Michael A. Marks: Thanks, Ben. So Tennessee was the largest driver of our net benefit in the third quarter. We did receive cash in 2025, and we began accruing this program. So that is the update. We are going to see Texas, as you know, we did receive approval of the grandfathered application. As this approval was really an enhancement to an existing program, this was really accrued just in our normal manner for the third quarter of 2025. I might note, Ben, that this grandfathered application really only had one month of impact for the third quarter. The third one that we mentioned on calls is Kansas, where we also received approval of the grandfather application.

We received cash for this program in the third quarter of 2025 as well. This is a calendar year program, so nine months of impact recorded in 2025.

Benjamin Hendrix: Thank you.

Michael A. Marks: And, Ben, let me just mention, like always with these programs, and we always talk about their complex and variable nature. There were a number of pluses and minuses that you see across our portfolio of programs. So these three states with those pluses and minuses of all the other programs really led to the aggregate of $240 million net benefits. It is always important to keep that in mind.

Operator: Alright. Thank you. And your next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead.

Brian Gil Tanquilut: Good morning, guys, and congrats on the quarter. Mike, I appreciate your highlighting how you guys have done really well with expense management, labor, and supply. So just curious as I think of supplies cost, you guys have done a great job over the last few years keeping that fairly steady. At what point do those contracts reset? And then maybe the follow-up question for me on cost too is, as we think about your efforts to mitigate Medicaid cuts from 2028 forward, when do we start seeing those efforts come through the P&L? I mean, I am guessing a lot of those initiatives will start way before 2028. Thanks.

Michael A. Marks: On supplies, Brian, and good morning. We have a robust ongoing effort with supplies we have communicated multiple times in the past. Certainly, to help trust, a lot of effort is in flight on our contract renewal cycles. We tend to run two-year cycles, some contracts as many as three. So those renewals flow as follows. And we spend a lot of effort in those contract negotiations, and that is certainly one component of our supply expense annual trends. The second component would be the mix of technology. As you are aware, every year there is new technology coming in, and then there is management of technology that goes through its maturation cycle.

That is a big part of our overall management routines. The third part of our resiliency plan is our efforts to manage utilization. And so we have a very active resiliency plan. Supplies is one of those areas that we are continuing to both enhance and accelerate our resiliency plans focused on appropriate management of supplies and utilization of supplies throughout the platform.

As I think about the bridging into the future, the other component that we are keeping a close watch on are tariffs where our health trust team continues to work through a very diligent effort to manage the tariff risk. Both in terms of sourcing, the way that we negotiate with contracts, our vendor partners on contracts, and then also in terms of moving products and moving choices of products across countries of origin. So a lot of work in flight with supplies that I think you have seen not only help us manage supplies over the last several years, but we believe will continue to give us a very strong platform moving forward in our ability to manage supplies.

You have asked about resiliency, and really, we had a long resiliency effort in the company. As we have noted in the last couple of calls, noted again today, our work to both enhance and accelerate our resiliency plans continue as we prepare for the future. These are widespread across both our corporate platforms and our field platforms. Really proud of the entire team at HCA. Helping us to find additional opportunities to drive efficiencies. We are doing this through benchmarking, we are doing this through a robust focus on digital tools. Sam talks often about digital transformation, and it certainly applies to our resiliency and efficiency efforts. It is a big part of what we are doing.

And then third, we are focused on our shared service platform. And the strength that they give us and the ability to expand their influence across the company is helpful as we continue to move forward. So a lot of good work going on with resiliency. As we get into our fourth quarter call, we will intend to provide additional comments about our resiliency effort when we get 2026 full-year guidance as well.

Samuel N. Hazen: And, Mike, let me add to resiliency. I mean, we think about resiliency holistically. There is clearly a financial resiliency culture within HCA that Mike's alluded to, and it is not event-driven. It is really a part of our culture. It is embedded within the disciplined thinking, the disciplined resource allocation, and the disciplined execution. But holistically, we also think about other aspects of resiliency across the organization. First is what we call, and I alluded to this in the fact that we had restructured. We are now embarking upon a more aggressive effort to develop our people, enhance the capabilities of our C-suites across our facilities, and so forth.

Prepare for succession planning, all these things that go into having a very durable organization. And we have great people at HCA. We want to make them greater through our development programs. And we have asked our human resource department to invest even more in ramping up capabilities there.

The second aspect of resiliency that is beyond financial is something I will call network resiliency. Our organization within the marketplace is also advancing resiliency with respect to adding more outpatient facilities, improving throughput within our facilities, investing in very targeted ways to improve our overall competitive positioning, and then just operating at an even more excellent level when it comes to quality, engagement, efficiency, patient satisfaction, all these important fundamentals that help us endure through whatever cycles we have. And so our resiliency agenda is broad. It is across these three dimensions, and it puts us in a strong position, we believe, to navigate tailwinds, push through headwinds, compete on the ground, and produce solid outcomes.

And we have got a pattern of doing that. And we are enhancing that now with technology. We are enhancing it with new capabilities within our shared service platform as Mike alluded to, and we are further enhancing it with the development of our people.

Operator: Alright. Thank you. And your next question comes from the line of Whit Mayo with Leerink Partners. Please go ahead.

Benjamin Whitman Mayo: Hey, good morning. I was wondering how you guys are thinking about capital deployment for next year. Obviously, you have the capacity to increase buybacks or the dividend or whatnot. But I know you evaluate every year. So just wanted to take your temperature on preliminary thoughts and then I think of what I mean is, like, where do you think you will be spending differently from prior years? Thanks.

Samuel N. Hazen: So, Whit, this is Sam. You know, we are not ready to give you our financial plan for 2026 yet. I think it is a reasonable assumption to assume that our plan is going to be somewhat consistent with the methodology we have used in the past. And so we need to get through the planning process that we are in now. See how some of the federal policies land. And from there, we will refine and define our capital allocation plan for 2026.

But, just as much as the culture of HCA is around resiliency and cost discipline and so forth, we have the same culture around capital allocation and finding the most productive ways to allocate it to benefit our networks and benefit our patients, but also benefit our shareholders. And that thinking will permeate our plan in 2026 just as it has done this year and in past years.

Operator: And your next question comes from the line of Justin Lake with Wolfe Research. Please go ahead.

Justin Lake: Thanks. Good morning. A couple of things here. First, I think you mentioned payment to dispute resolution is one of the drivers of revenue growth, pricing growth in the quarter. How much of a benefit there? And then another question on DGP. You know, it sounds like your DGP number for 2025 benefit will be somewhere in the, if I am right, the $2.3 to $2.4 billion range this year. Is that the right number? And before any of these additional data approvals come through, what is the right run rate that we should think about going into 2026?

Michael A. Marks: You know, when we think about our net revenue per equivalent admission growth in the third quarter to the prior year, the first thing, and I mentioned this in the comments, Justin, but the first thing is about half of the growth was related to state supplemental payment increases in revenue, so that is a piece. Also mentioned in this, the next biggest driver is payer mix. I mean, as we noted, we had very strong payer mix in the quarter, and that is the next biggest driver for sure in our overall growth in net revenue per unit. Case mix index was pretty consistent. It is just up a tick, about 30 basis points to the prior year.

And then, as we have noted in past calls, we continue to work on our dispute resolution activities, and they did provide some support in the quarter. And so those combined really drove the net revenue per unit growth.

I think on, you know, if I think about for the year, and the state supplemental payments, at this point, just keep in mind that we noted that we expect, and part of what drove the earnings guidance is the net benefit from state supplemental payment programs, we are going to be about $250 million better for the quarter.

And so, you know, you would just apply that now if you just think about kind of the walk-up on state supplemental payment programs and you apply that to our full-year guidance, I think that gives you a sense that now we are expecting it to be $250 million to $350 million favorable full-year 2025 to full-year 2024, and that gives you a sense of our kind of our early thinking or as we have finished guidance right here. This is where we think the year will come in at this point.

I did note, and there is a lot of volatility here, that guidance update does not include any additional impact from any other state supplemental payment programs that may get approved by CMS in 2025 once the government reopens. So just keep that in mind as well.

Operator: Thank you. Your next question comes from the line of Andrew Mok with Barclays. Please go ahead.

Andrew Mok: Hi, good morning. Last quarter, you called out a few underperforming regions outside the hurricane markets. Can you give us an update on those markets and how addressable those issues are near term? Thanks.

Samuel N. Hazen: So we did mention that we had two of our six geographic divisions that had some challenges in the second quarter. One of those, I am happy to say, has recovered. But within our portfolio, we were fortunate that we have a very diversified geographical base and a very diversified service base. And we have seen again very strong portfolio performance across the company in the third quarter. So one of the divisions recovered. The second one is still working its way through some of the challenges, and we are confident that we will be where we need to be as we push into 2026.

I think an important point here is, you know, the third quarter over the second quarter is always a challenging period. You have got summer dynamics with vacations, physician movement during the summer months and so forth. And in this particular third quarter, we performed sequentially really well. And our core operations were managed very effectively from a cost standpoint. We saw a good mix of volume from the second quarter to the third quarter. So that is an encouraging seasonality aspect to this particular year versus some of the other years that we have seen. And I am really proud of our teams and how they push through that.

And again, with a large portfolio, you always have movements inside of it, but for the most part, none of them are material in and of themselves individually because we have other divisions that are outperforming our expectations and tend to provide cover for those that may have a struggle in the short term or what have you. Thank you.

Operator: And your next question comes from the line of Matthew Gillmor with KeyBanc. Please go ahead.

Matthew Dale Gillmor: Hey, thanks for the question. I thought I might ask about the growth in surgeries. There was a little bit of an improvement this quarter versus last quarter. Sam just mentioned some of the seasonal dynamics. Can you give us a sense for some of the service lines that are maybe doing a little bit better? Just anything to highlight there.

Samuel N. Hazen: Well, when we look at our outpatient surgery, we had strong general surgery activity. Our urological service line was very strong on the outpatient side. On the inpatient side, our neurosciences surgical capabilities, orthopedic surgical capabilities, cardiac, all of these were up and had very good performance on a year-over-year basis. So, again, diversification is a powerful element for us. Diversification amongst these service lines, different milieus for delivering care to our patients, all of it sort of works in as a system to create again the enterprise performance that we are able to produce. But those are some of the categories that moved favorably. We had a couple that were not as positive.

Again, that is par for the course from one quarter to the other and not really indicative of anything structural. Our gynecology business on an outpatient basis in the third quarter was slightly down. So that is one item that was down, but it was covered by some of these other areas. And then within the inpatient side, you know, our neurosurgery business was down modestly, and that impacted the inpatient business, but it was overcome by some of these other areas.

Michael A. Marks: You know, Matthew, I might also mention outpatient surgery that payer mix continues to be solid. Actually, Medicaid self-pay volumes continue to be below the prior year, which obviously implies that our commercial and Medicare business continues to be really strong. So we are seeing that and really good growth in overall net revenue in outpatient surgery and the translation to earnings.

Samuel N. Hazen: One of the things we talked about at our investor conference back in November 2023 was what I termed the staying power of HCA Healthcare. And that staying power is really connected to three points. One, the relevance of our systems within the communities that they serve. The second thing is the scale across the company when it comes to just the sheer size of HCA Healthcare. The third aspect to that is the diversification. And so you are hearing about how the diversification provides what I call staying power for our organization, allowing us to push forward with our agenda, produce solid returns on our capital, and create better outcomes for our stakeholders. Thanks, guys.

Operator: And your next question comes from the line of Scott Fidel with Goldman Sachs. Please go ahead.

Scott Fidel: Hi, thanks. Good morning. I was hoping if you could maybe drill a bit more into the Medicare volumes in the quarter and break those down for us between Medicare Advantage and then fee-for-service year-over-year and sequentially? And then just observations on case mix or acuity that you are seeing in the volume trends within those two categories of Medicare? Thanks.

Michael A. Marks: So Medicare Advantage was up 4.8% in the quarter over the prior year. And then I think, let me look at what was traditional over there. Traditional is up 90 bps. You know, a case mix index, the traditional Medicare case mix index was actually up a bit. And Medicare Advantage was pretty flat compared to the prior year. So those would be the two components of Medicare in the quarter. I think one of the things that we noted, we have kind of more of a macro statement here, is the improvement in our volume trends in the third quarter to the prior year versus the second quarter to the prior year. Saw that in Medicare.

You know, Medicare combined was up 3.4% on adjusted admissions. You know, Medicaid was up 1.4% after being down for several quarters. And then as we noted, we saw good movement in our overall commercial business as well with self-pay being down 6%. So overall, really good operational growth, good demand growth across our payer categories. So really with the one exception of being self-pay.

Operator: Thank you. And your next question comes from the line of Ryan Langston with TD Cowen. Please go ahead.

Ryan M. Langston: We have heard a lot of news on the pickup of hospital usage in AI, particularly in revenue cycle. Can you give us a sense of how your initiatives there are progressing and how much runway you see with the advances of technology in the future? Thanks.

Michael A. Marks: So, you know, you are right. I mean, there has been a lot of commentary around this idea of utilization intensity and maybe coding intensity and the like. You know? And I think it is important to note we cannot speak to all of the dynamics that the payers see across their various geographies and lines of insurance. We have already noted from a pure volume perspective, you know, what we are seeing volume-wise. I do think that both Medicare Advantage and the exchanges, you are seeing pretty good volumes this year, at least from HCA, and that is really the extent that we can speak to.

As it relates to coding intensity, we think about that as case mix index. And from a case mix index perspective, it is pretty consistent with the prior year and with trends. I think it was at 30 basis points in the third quarter of 2025 versus the third quarter of 2024. Actually down a little bit sequentially from the second quarter. As we look at the individual lines of insurance, whether it is Medicare Advantage, Medicaid, exchanges, and commercial, we are really not seeing any material changes in case mix index compared to the prior year at the detailed line level as well.

It is always important to note, our coding practices remain consistent and accurate as verified by multiple layers of audits.

Specifically related to AI, we do, as Sam mentioned, you know, we are deep into our efforts around digital transformation across our company, including in our revenue cycle. Our focus in terms of AI and automation in our revenue cycle right now is really specifically focused on working to respond to the growing denial and underpayment activities from the payers. You know, we have noted before, we are also both piloting and rolling out ambient AI documentation tools designed to help our physicians be more complete, more accurate, and more timely in completing their clinical documentation. So that is a quick update of what we are seeing in the utilization space.

Ryan M. Langston: Alright. Appreciate it. Thanks.

Operator: And your next question comes from the line of Raj Kumar with Stephens Inc. Please go ahead.

Raj Kumar: Good morning. Thanks for the question. I am just kind of focusing on the expense side and pro fees. Just maybe kind of any color on how that trended year over year and as a sense, if we try to bridge towards 2026 and think about the Valesco and how that has historically been a drag of $40 million to $50 million in the past for EBITDA on a quarterly basis, kind of how do you expect that to trend in the fourth quarter and 2026? And what kind of opportunity is still there to maybe potentially achieve breakeven in 2026?

Michael A. Marks: So our same-facility professional fees increased 11% over the prior year in the third quarter of 2025 versus the third quarter of 2024. I will note it is about a 1% sequential increase to 2025. Again, professional fees continue to run hotter than just average inflationary levels across the rest of our cost structure. I might note that this is a bit more related to anesthesia and radiology this year. And so that is a bit of an update on ProFees. Professional fees on an as-reported basis still represent about 24% of total other operating expenses. Remember, Valesco was an acquisition. It is part of our employee base.

And so we do not really call that out separately other than to just say generally, and Sam might note additional commentary here, but we are pleased with our work around integrating Valesco and really making Valesco a strategic asset for the company. As we think about not only the ability to manage the cost structure of emergency physician management and hospital medicine, it also really helps us with our strategic work around things like management to improve our length of stay and the ability to manage our emergency room and drive really good emergency room efficiency. So the work around Valesco continues to mature.

I am really proud of our operating and our physician management teams for the really good work around the Valesco family.

Samuel N. Hazen: Yeah. And the only thing I would add there, Mike, is I would say generally, we do expect continued financial improvement as we carry forward into 2026. We have not finalized their budgets yet either, and so we do not have a number specific to that. But we are seeing progression, favorable progression in the financial performance of Valesco. And beyond even operational improvements, as Mike was alluding to, we expect clinical improvement, patient engagement improvement, and other clinical efficacy, if you will, from the opportunity that we have with Valesco being part of our organization now. So we are excited about what the prospects are.

Raj Kumar: Thank you.

Operator: And your next question comes from the line of Ben Rossi with JPMorgan. Please go ahead.

Ben Rossi: Good morning. Thanks for taking my question here. Regarding maybe the capacity for incremental volumes, I appreciate your commentary regarding the stable operational backdrop and some of your existing efforts and patient throughput. I guess just as you think about the fourth quarter and the typical seasonal uptick in utilization, how would you characterize the incremental cost to manage additional throughput or ramp up additional capacity? And then are you seeing any variance across your markets in being able to ramp up this capacity in a cost-effective manner?

Samuel N. Hazen: Well, the short answer is we do not see any significant capacity constraints at this particular point in time. If you recall, from a couple of years ago, we had capacity constraints that were driven mostly by staffing and not having the workforce that we needed to take care of the patients who desired service in our facilities. We do not have that issue today. We have improved the net headcount of the company, and we believe we have good programmatic efforts in place today to put us in a position to carry forward the workforce necessary to meet the demand that we expect in the fourth quarter.

And really, on into next year, we are excited about some of the other operational initiatives that are being put forward with our emergency rooms. We have very specific surge planning that we are preparing for and learning from past years to improve our preparation and anticipation of demand surges in whatever periods we have. So we feel much better about our capacity on the labor side. We are also encouraged about the fact that we have more capital coming online in 2026 than we had this year. And that will add physical capacity and align with the workforce capacity that we are creating and put the company in an even better position to accommodate the demand that we anticipate.

Michael A. Marks: I might add as well that the work that we have been putting forth to manage length of stay has also been very helpful. The third quarter showed really good performance around length of stay management. Those efforts continue, not only into the fourth quarter but into 2026. That also gives us the ability to make additional room for volume growth as we head into the future. So I really want to call out to our operating teams and our case management teams for really good work this year to help us prepare for volume growth in the future.

Ben Rossi: Great. Thanks for the color.

Operator: Your next question comes from the line of Jason Casolo with Guggenheim. Please go ahead.

Jason Casolo: Great. Thanks. Good morning. Just wanted to ask about the hurricane-impacted facilities. I know you left that the same in guidance. There is a big step up in the fourth quarter. But how should we think about the ability to recover the remaining $150 million or so headwind versus the $250 million total headwind back in 2024? Would you expect to recover the majority of that remaining headwind next year? Or how do we think about growth off that? Thank you.

Michael A. Marks: Yeah. So, you know, first, let me walk back to you quickly the way the hurricane markets have flown. It has kind of transversed this year. As you may recall, as we started the year, we actually thought that our 2025 full-year EBITDA would be about flat with 2024. And 2024 had this $250 million hit from the hurricanes. And really, that $250 million hit was a hit to our pre-storm run rate of earnings. So think about them to 2023. As we are now updating guidance, we believe that we will recapture, call it, $100 million of that in 2025.

The real impact here now is just the continued and lingering effects of that storm, mostly in our North Carolina markets. While volumes have recovered in North Carolina, the payer mix has deteriorated. And we are having to use a significant amount of premium labor staff at those facilities. And so that is the driver there. It is too early to give 2026 guidance, but just to give you a sense of how it has moved through the first part of the year, 2025 was about flat compared to the prior year. The second quarter was a bit negative, modestly negative, and the third quarter of 2025 compared to 2024 combined for hurricane markets on EBITDA was again about flat.

So that is why we said in the fourth quarter, we do expect that all plus of that $100 million improvement in year-over-year EBITDA will happen in the fourth quarter. We will give more guidance on our fourth quarter call when we give full-year 2026 guidance about the hurricane markets. But hopefully, that helps as it relates to the movement through the year.

Operator: Thank you. And your next question comes from the line of Stephen Baxter with Wells Fargo.

Stephen Baxter: Hi, thanks. Appreciate the early commentary on 2026. I am wondering if there is something that you can speak to that gives you confidence in achieving the long-term volume range at this point? I guess the question would really just be without exchange growth, you would be below the range this year. So I am sure you thought about it even with an extension, exchange volumes could potentially be flat to down next year. But wondering how you are thinking about what the other moving parts are, whether that could include more normal levels of Medicaid or self-pay growth in there too? Thank you.

Samuel N. Hazen: I realize the past is not prologue here. We have had eighteen consecutive quarters of volume growth. So that gives us a pretty confident foundation that we can continue to navigate through different dynamics within our markets. As I mentioned, we have more capital coming online next year. We have more outpatient facilities, our ambulatory outreach is growing. We are building new relationships with physicians. All of that is woven into our thinking around 2026 volume. We continue to believe that population is growing in many of our markets as it has. And there is going to be this consistent level of demand.

The exchange piece of it is a small component of the overall, again, diversification that we have as a company. And so when you add all that up, we feel pretty confident that the range will accommodate some of the movement within our overall demand equation.

Operator: Thank you. Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Please go ahead.

Craig Hettenbach: Yes, thank you. On the $600 million to $800 million resiliency program, you laid out a few years ago, just give us a sense of kind of how you are tracking to that. Then how you think about any additional levers to extend that further over time, whether that is technology or increased AI adoption?

Michael A. Marks: Yeah. So at our Investor Day back in 2023, we highlighted our resiliency plan, including that target of $600 million to $800 million. We have been working hard on that, but the other thing that we highlighted, so yes, some of those dollars helped us in 2024 and 2025. But as we have gone through really the last twelve to eighteen months, we have been focused on both enhancing and accelerating our development of our resiliency program and our execution of our resiliency program. And that development piece is key. We think about this as a program. In other words, as we have work streams that we identify, we work those through, we pilot them, we test them.

Then we roll them out to scale. And then literally every day, we are hunting for new ideas. Our teams are really attuned to this idea of the pipeline of resiliency and identifying new ideas. And as new ideas come into our resiliency work stream efforts, those ideas, again, are piloted. They are verified within our markets, and then we try to roll them out at scale. And so think about the resiliency program, all of our benchmarking work, with all of our digital technology and development, a robust series of use cases that are in flight for AI, machine learning, and automation.

And then lastly, as I mentioned earlier, this notion of continuing to expand the impact of our shared service platforms. All of those combined really give us encouragement that we are preparing for the future and that this resiliency program is not a static one-time event. It is a program that allows us to develop financial resiliency well into the future as well.

Samuel N. Hazen: And I think, Mike, some of that is reflected. I mean, if you just look back, in 2023 when we gave the update on the resiliency program and you look at the core operating margin of the company at that particular point in time versus what it is now, it has improved. And so we are experiencing some of that in the margin advancement that you are seeing in the results of the company. And we are continuing to, as Mike said, with technology, with best practices, with benchmarking, with finding other ways to deliver more efficient services. We see this as a growing agenda, not one that is static. Operator, let's take one more question.

We are running out close to the end of the hour.

Operator: Yes. Your last question comes from Joshua Raskin with Nephron Research. Please go ahead.

Joshua Richard Raskin: I appreciate that. So I wanted to ask about cash flow conversion. We have seen the ratio of EBITDA that converts to free cash flow sort of move from the 30% range into the 40s. And I think this year, you are on track to almost 50%. So maybe talk about the factors that are driving that. Is that a shift to outpatient? Is there an impact from the strong pricing, including the supplemental payments? I guess, most importantly, do you think that is sustainable over the next couple of years?

Michael A. Marks: You know, there are three or four things I would note that are driving strong cash flow from operations as we think about it. One, certainly, is just we had really solid adjusted EBITDA growth. And that strong operational performance that we continue to highlight, you know, as we think about the strength of our revenue cycle operations and with Parallon, we turn that revenue into cash. And so that is a piece of that. And you are seeing that in kind of our working capital management plans.

We have a pretty robust working capital management strategic plan that includes not only that days in AR, but includes things like inventory levels, prepaid levels, and network around working capital, continues to assist us as we think about growing our cash flow. Another point that I made on the call, but it is important to note, is that year-to-date, we have been able to defer $1.3 billion of estimated federal income tax payments to the fourth quarter. So keep that in mind as well.

But when I think about the long term, you know, this idea of clearing out your revenue cash and the strength of Parallon and our revenue cycle operations and the strength of the working capital management plans company, I think, puts us in good stead for continued strong management and performance around cash flow into the future.

Operator: Thank you. And that is all the time we have for questions. I would like to turn back to Mr. Frank Morgan for some closing remarks.

Frank George Morgan: Thank you for your help today, and certainly, good luck for the rest of the earnings season. If anybody has any questions, we are around today. Give us a call.

Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

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