HCA Healthcare, Inc. (NYSE:HCA) Q3 2025 Earnings Call Transcript

HCA Healthcare, Inc. (NYSE:HCA) Q3 2025 Earnings Call Transcript October 24, 2025

HCA Healthcare, Inc. beats earnings expectations. Reported EPS is $6.96, expectations were $5.72.

Operator: Hello, and welcome to the HCA Healthcare Third Quarter 2025 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir.

Frank Morgan: Good morning, and welcome to everyone on today’s call. With me this morning is our CEO, Sam Hazen; and CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we’ll take questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements, they’re 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 will 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 is available later today. With that, I’ll now turn the call over to Sam.

Samuel Hazen: All right. Good morning and thank you for joining the call. As reflected in our earnings release for the third quarter, the company produced strong results when 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 stakeholder 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 our — 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 services 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.

Mike 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 the same-facility inpatient surgical volume of 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 the third quarter of 2025 to prior year, whereas Medicaid and self-pay ER visits were both down to 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 strong payer mix, improved dispute resolution results, consistent case mix index and increased Medicaid state supplemental payment revenues. Regarding payer mix during the quarter, same-facility total commercial equivalent admissions increased 3.7% over 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’ve 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.

And we saw an approximate $240 million increase in net benefit to adjusted EBITDA from these programs in the third quarter of 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 flat in the prior year. Same-facility contract labor was basically flat in third quarter of 2025 to the prior year and represented 4.2% of total labor costs in the third quarter of 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 hurricanes in the third quarter of 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, $2.5 billion in share repurchases and $166 million in dividends.

Year-to-date, we’ve 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. Our 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 $6.50 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 fourth quarter of 2025 versus the prior year due to onetime payments in the year. 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 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 $200 million increase from operational performance. With that, I will turn the call over to Frank for questions.

Frank Morgan: Thank you, Mike. [Operator Instructions] [ Priela ], you may now give instructions to those who would like to ask a question.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Ann Hynes with Mizuho Securities.

Ann Hynes: Great. And thanks for all the detail on the DPP programs. Can you remind us — I know there’s 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.

Mike Marks: So as you think about kind of the states, there are several that have applied under the grandfathering programs, we’ve 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, coming up to the shutdown, that several states had approvals coming into the shutdown. So I think we’re 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’ll 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.

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

Albert J. Rice: Just to maybe ask on the public exchanges. So there’s been some chatter and some of the managed care companies are talking about anticipating a potential step-up in volumes in the fourth quarter, elective procedures, because people are worried that they’re going to lose coverage or their co-pays and deductibles will go up dramatically. I wonder if you’re 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 — are able to reset because 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 re-signed up if that’s a possibility under the special enrollment? Provisions if we get an extension, but it comes late.

Mike Marks: So if you think about EPTCs and what happens with these exchanges, I would mention a couple of things. I mean, right now, we’re really not sizing the potential impact given the fact that it’s so fluid. There’s 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, A.J., we’ll 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 they — do we end up with a special enrollment period at the end — and so it’s really difficult to size the potential impact of that until we get a little bit closer to the fourth quarter call, and that’s when we’ll 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. It’s the idea of them being able to do that on-site is not something that we can do, but we certainly can connect them to the appropriate resources to help them navigate that. And I think we’ve mentioned this in previous calls. We have structured our efforts here as we’ve gone through the balance of this year into 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’re going to try to help our patients navigate this season is very best that we can.

Operator: And your next question comes from the line of Pito Chickering with Deutsche Bank.

Pito Chickering: The quarter was a pretty strong beat even if we exclude the supplemental payments in the 3Q, but guidance didn’t 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, if we just steer towards one or the other? And also, if you can help provide a bridge from 3Q into 4Q as we think about the moving parts between hurricanes and supplemental payments.

Mike Marks: When I think about fourth quarter growth rate, there’s really 2 main considerations that I would think about and then the third being just operations. But the first would be the hurricane impact for sure. And then the second would be the decline in state supplemental payments that I noted in my comments when you compare fourth quarter of ’25 to prior year. When we take those 2 factors into consideration, we believe the implied growth rate is still solid for fourth quarter in the kind of high single digits range, maybe 7% roughly. And then the other note I would give you, when you take those same considerations into account, our sequential growth from third quarter to fourth quarter is in line with our past trends.

And so we feel that our guidance for fourth quarter is solid. I might also just note that our range in our guidance is intended to really cover a range of outcomes and including at the higher end of the range, even stronger performance as well. So that’s how we’re viewing the fourth quarter.

Operator: And your next question comes from the line of Ben Hendrix with RBC Capital Markets.

Benjamin Hendrix: Just a quick follow-up on the SDP guidance. How much in there did you recognize in the fourth — or in the third quarter and is included in guidance for Tennessee specifically? And did you include — recognize anything in the quarter and in guidance related to Texas? I know that got approved later in the quarter. I just want to see if you’re including anything in there.

Mike Marks: Thanks, Ben. So Tennessee was the largest driver of our net benefit in third quarter. We did receive cash in the third quarter of 2025, and we began accruing this program. So that’s the update on Tennessee. 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 third quarter of 2025. I might note being, though, that this grandfathered application really only had 1 month of impact for third quarter. The third one that we mentioned on call is Kansas, where we also received approval of the grandfathered application, we received caps for this program in third quarter of 2025 as well.

This is a calendar year program, so 9 months of impact recorded in third quarter of ’25. And Ben, let me just mention, like always with these programs, we always talk about that they’re complex and variable. There were another number of pluses and minuses that you see across our portfolio of programs. So these 3 states with those pluses and minuses of all the other programs really led to the aggregate of the $240 million net benefit. It’s always important to keep that in mind.

Operator: And your next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut: Congrats on the quarter. Mike, I appreciate you highlighting how you guys have done really well with expense management, labor and supplies. 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 ’28 forward, when do we start seeing those efforts come through the P&L? I mean I’m guessing a lot of that — those initiatives will start way before ’28.

Mike Marks: On supplies, Brian, we have a robust ongoing effort with supplies that we’ve communicated multiple times in the past. I mean, certainly, to HealthTrust, a lot of effort in flight on our contract renewal cycles. We tend to run 2-year cycles, some contracts as many as 3. And so those renewals flow as follows. And we spend a lot of effort in those contract negotiations, and that’s certainly one component of our supply expense annual trends. The second component would be mix of technology. And so as you’re aware, every year, there’s new technology coming in. And then there’s management of technologies that goes through its maturation cycle that’s 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 the utilization of supplies throughout the platform. As I think about bridging into the future, the other component that we’re keeping a close watch on our tariffs, where our HealthTrust 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 origins. So a lot of work in flight with supplies that I think you’ve 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 and our ability to manage supplies.

You asked about resiliency. And really, we’ve had a long-standing resiliency effort in the company. As we’ve noted on the last couple of calls and 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’re doing this through benchmarking. We’re 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’s a big part of what we’re doing. And then third, we’re focused on our shared service platforms 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. And as we get into our fourth quarter call, we will intend to provide additional comments about our resiliency effort when we give 2026 full year guidance as well.

Samuel Hazen: And Mike, let me add to resiliency. I mean we think about resiliency holistically. There — it’s clearly a financial resiliency culture within HCA that Mike’s alluded to, and it’s not event-driven. It’s really a part of our culture. It’s 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 organizational resiliency, and I alluded to this in the fact that we had restructured. We’re 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 in HCA. We want to make them greater through our development programs. And we’ve asked our human resources department to invest even more in ramping up capabilities there. The second aspect of resiliency that’s beyond financial, it’s something I’ll call network resiliency. Our organization within sort of 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’s across these 3 dimensions, and it puts us in a very strong position, we believe, to navigate tailwinds, push through headwinds, compete on the ground and produce solid outcomes. And we’ve got a pattern of doing that, and we’re enhancing that now with technology. We’re enhancing it with new capabilities within our shared service platform, as Mike alluded to, and we’re further enhancing it with development of our people.

Operator: And your next question comes from the line of Whit Mayo with Leerink Partners.

Benjamin Mayo: 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 I just wanted to take your temperature on preliminary thoughts. And then I think what I mean is like where do you think you will be spending differently versus prior years?

Samuel Hazen: So, this is Sam. We’re not ready to give you our financial plan for 2026 yet. I think it’s a reasonable assumption to assume that our plan is going to be somewhat consistent with the methodologies we’ve used in the past. And so we need to get through the planning process that we’re 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’s done this year and in past years.

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

Justin Lake: A couple of things here. First, I think you mentioned payment 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 DPP. It sounds like your DPP number for 2025 benefit will be somewhere in the — if I’m right, the $2.3 billion, $2.4 billion range billion this year. Is that the right number? And before any of these additional state approvals come through, what’s the right run rate that we should think about going into 2026 when we normalize for stuff that might have been out of period?

Mike Marks: So let me walk through NRA real quick, and then we’ll talk a little bit about supplementals. When I think about our net revenue per equivalent admission growth, in the third quarter to prior year, first thing, and I mentioned this in them comments, Justin, but the first thing is about half of the growth was related to state supplemental payment increases in revenue. And so that’s a piece. I also mentioned and it’s the next biggest driver is payer mix. I mean, as we noted, with very strong payer mix in the quarter, and that’s the next biggest driver for sure in our overall growth in net revenue per unit. Case mix index was pretty consistent. It was just up a tick, about 30 basis points to prior year. And then we’re — as we’ve 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 — as 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’re going to be about $250 million better for the quarter. And so 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’re expecting it to be $250 million to $350 million, favorable full-year ’25 to full-year ’24. And that gives you a sense of our kind of our early thinking as we kind of finish guidance right here, this is where we think the year will come in at this point.

I did note, and there’s 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: Your next question comes from the line of Andrew Mok with Barclays.

Andrew Mok: 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?

Samuel Hazen: So we did mention that we had 2 of our 16 geographic divisions that had some challenges in the second quarter. One of those, I’m happy to say, has recovered. But within our portfolio, we’re fortunate that we have a very diversified geographical base and a very diversified service base. And we’ve 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’re confident that we’ll be where we need to be as we push into 2026. I think an important point here is the third quarter over the second quarter is always a challenging period. You 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’s an encouraging seasonality aspect to this particular year versus some of the other years that we’ve seen. And I’m 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.

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

Matthew Gillmor: 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 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, our 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 mills use for delivering care to our patients, all of it sort of works as a system to create again the enterprise performance that we’re able to produce. But those are some of the categories that moved favorably. We had a couple that weren’t as positive. Again, that’s par for the course from one quarter to the other and not really indicative of anything structural.

Our gynecology business on an outpatient in the third quarter was slightly down. So that’s one item that was down, but it was covered by some of these other areas. And then within the inpatient side, our neurosurgery business was down modestly, and that impacted the inpatient business, but it was overcome by some of these other areas.

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

Samuel Hazen: One of the things we talked about at our investor conference back in November of ’23 was what I term the staying power of HCA Healthcare. And that staying power is really connected to 3 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’re 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.

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

Scott Fidel: 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’re seeing in the volume trends within those 2 categories of Medicare.

Mike Marks: So Medicare Advantage was up 4.8% in the quarter over prior year. And then I think look what was traditional over there. [indiscernible] 90 bps, yes. Traditional was up 90 bps. Case Mix Index, the traditional Medicare case mix index was actually up a bit and Medicare Advantage was pretty flat to prior year. So those would be the 2 components of Medicare in the quarter. I think one of the things that we noted, and I’ll go kind of more of a macro statement here is the improvement in our volume trends in third quarter to prior year versus second quarter to prior year. We saw that in Medicare. Medicare combined was up 3.4% on adjusted admissions. 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, really with the one exception of being self-pay.

Operator: And your next question comes from the line of Ryan Langston with TD Cowen.

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

Mike Marks: So you’re right. I mean there’s been a lot of commentary around this idea of utilization intensity and maybe coding intensity and the like. And I think it’s important to note, we can’t speak to all of the dynamics that the payers see across their various geographies and line of insurance. We’ve already noted from a pure volume perspective, what we’re seeing volume-wise. I do think that both Medicare Advantage, the exchanges, you are seeing pretty good volumes this year, at least from HCA, and that’s 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’s pretty consistent with prior year and with trends. I think it was up 30 basis points in third quarter of ’25 versus third quarter of ’24 and actually down a little bit sequentially from second quarter.

As we look at the individual lines of insurance, whether it’s Medicare Advantage, Medicaid, exchanges and commercial, we’re really not seeing any material changes in case mix index compared to the prior year at the detailed line level as well. It’s 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, we’re deep into our efforts around digital transformation across our company, including in our revenue cycle. Our focus in terms of AI automation and our revenue cycle right now is really specifically focused on working to respond to the growing denial and underpayment activities from the payers. 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’s a quick update of what we’re seeing in the utilization space.

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

Raj Kumar: Just kind of maybe 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 kind of bridge towards ’26 and think about Valesco and how that’s 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 4Q and 2026? And what kind of opportunity is still there to maybe potentially achieve breakeven in ’26?

Mike Marks: So our same-facility professional fees increased 11% over the prior year in third quarter ’25 versus third quarter ’24. I’ll note it’s about a 1% sequential increase to second quarter of 2025. So professional fees continue to run hotter than just average inflationary levels across the rest of — if you think about our cost structure, I might note that this is a bit more related to anesthesia and radiology this year. And so that’s a bit of an update on pro fees. Professional fees on an as-reported basis still represent about 24% of total other operating expenses. Remember, Valesco was an acquisition. It’s in part of our employee base. And so we don’t really call that out separately other than just to say generally, and Sam might note additional commentary here, but we’re pleased with our work around integrating Valesco and really making Valesco a strategic asset for the company as we’re thinking 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 case management, to improve our length of stay and the ability to manage our emergency rooms and drive really good emergency room efficiency. So the work around Valesco continues to mature and really proud of our operating and our physician management teams for the really good work around Valesco. Sam…

Samuel Hazen: Yes. 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 haven’t finalized their budgets yet either. And so we don’t 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’re excited about what the prospects are.

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

Benjamin Rossi: 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 as we think about 4Q and the typical seasonal uptick in utilization, how would you characterize the incremental cost to manage additional throughput or free up additional capacity? And then are you seeing any variance across your markets and being able to ramp up this capacity in a cost-effective manner?

Samuel Hazen: Well, the short answer is we don’t 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 don’t have that issue today. We’ve 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’re 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’re 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’re 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’re creating and put the company in an even better position to accommodate the demand that we anticipate.

Mike Marks: I might add as well that the work that we’ve been putting forth to manage length of stay has also been very helpful. 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.

Operator: Your next question comes from the line of Jason Cassorla with Guggenheim.

Jason Cassorla: Just wanted to ask about the hurricane-impacted facilities. I know you left that the same in guidance. There’s 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?

Mike Marks: Yes. So let me walk back to just quickly the way the hurricane markets 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 ’24 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 to ’23. As we’re now updating guidance, we’re — we believe that we’ll recapture, call it, $100 million of that in 2025. The real impact here now is just the continued and lingering effects of that storm and mostly in our North Carolina markets. While volumes have recovered in North Carolina, the payer mix has deteriorated, and we’re having to use a significant amount of premium labor to staff those facilities.

And so that’s the driver there. It’s too early to give 2026 guidance. But just to give you a sense of kind of how it’s moved through the first 3 quarters of the year, first quarter of 2025 was about flat to prior year. Second quarter was a bit negative, modestly negative in third quarter ’25 to ’24 combined for our hurricane markets on EBITDA was again about flat. So that’s why we said in 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: And your next question comes from the line of Stephen Baxter with Wells Fargo.

Stephen Baxter: I appreciate the early commentary on 2026. I’m wondering if there’s 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’d be below the range this year. So I’m sure you thought about that even with an extension, exchange volumes could potentially be flat to down next year. But wondering how you’re thinking about what the other moving parts are, whether that could be more level — more normal levels of Medicaid or self-pay growth in there, too.

Samuel Hazen: I realize the past is not prologue here, but we’ve had 18 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. So our ambulatory outreach is growing. We’re building new relationships with physicians. All of that’s 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’s 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: Your next question comes from the line of Craig Hettenbach with Morgan Stanley.

Craig Hettenbach: On the $600 million to $800 million resiliency program you laid out a few years ago, can you just give us a sense on kind of how you’re tracking to that? And then how you think about any additional levers to extend that further over time, whether that’s technology or increased AI adoption?

Mike Marks: Yes. So at our Investor Day back in 2023, we highlighted our resiliency plan, including that target of $600 million to $800 million. We’ve been working hard on that. And — but the other thing that we highlighted, so yes, some of those dollars helped us in ’24 and in ’25 — but as we’ve gone through really the last 12 to 18 months, we’ve been focused at 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 execute on them and then we roll them out to scale. And then literally, every day, we’re hunting for new ideas.

And 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 with all of our benchmarking work with all of our digital technology and development. We have 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, onetime event.

It is a program that allows us to develop financial resiliency well into the future as well.

Samuel Hazen: I think, Mike, some of that’s 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’s improved. And so we’re experiencing some of that in the margin advancement that you’re 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’s static.

Frank Morgan: Priela, let’s take one more question. We’re running up close to the end of the hour.

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

Joshua Raskin: I appreciate that. So I wanted to ask about cash flow conversion. We’ve 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’re 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 sub payments? And I guess, most importantly, do you think that’s sustainable over the next couple of years?

Mike Marks: There’s 3 or 4 things I would note that are driving our strong cash flow from operations as we think about it. One certainly is just we’ve had really solid adjusted EBITDA growth. And that strong operational performance that we continue to highlight as we think about the strength of our revenue cycle operations with Parallon, we turn that revenue into cash. And so that’s a piece of that. And you’re seeing that in kind of our working capital management plans. We have a pretty robust working capital management strategic plan that includes not only net days in ARR, but includes things like inventory levels, prepaid levels. And that work around working capital continues to assist us as we think about growing our cash flow.

The other point, and I made this on the call, but it’s 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. And so keep that in mind as well. But when I think about the long term, this idea of clearing out your revenue with cash and the strength of Parallon and our revenue cycle operations and the strength of the working capital management plans of the company, I think, puts us in good stead for continued strong management and performance around cash flow into the future.

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

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

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