HCA Healthcare Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 22, 2022

There are 19 speakers on the call.

Operator

Welcome to the HCA Healthcare First Quarter 2022 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.

Speaker 1

Good morning, and welcome to everyone today's call. With me this morning is our CEO, Sam Hazen and CFO, Bill Rutherford. Sam and Bill 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 This call contains any forward looking statements that are based on management's current expectations. Numerous risks, Uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Speaker 1

More information on forward looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. Is included in today's release. This morning's call is being recorded and a replay of the call will be available later today.

Speaker 1

With that, I'll now turn the call over to Sam.

Speaker 2

Good morning and thank you for joining our call. The COVID-nineteen pandemic Continued to influence our results in the Q1 with the Omicron surge, which slowed in the middle of the quarter. More significantly, the challenging labor market pressured margins as the cost of labor increased more than we expected as compared to the Q1 of the prior year. In the face of these challenges, however, we had a number of positive volume and revenue indicators that were encouraging. Compared to the Q1 of prior year, same facility admissions increased 2%.

Speaker 2

During the quarter, we provided care to approximately 49,000 COVID-nineteen inpatients, which represented approximately 10% of total admissions consistent with prior year. Non COVID admissions grew 2.2%. This growth occurred in February March. Inpatient surgeries grew approximately 1% And across our inpatient business acuity levels and payer mix continued to be strong. Out Patient volumes also rebounded strongly in the quarter.

Speaker 2

Same facility emergency room visits grew 15%. Same facility outpatient surgeries grew nearly 7% and outpatient cardiac related procedures grew by approximately 7%. We continue to believe that overall demand for healthcare remains strong in our markets across most categories With favorable population trends and other contributing factors that developed during the pandemic driving it. Total revenues grew 6.9% compared to the Q1 2021. Same facility inpatient revenues grew 5.4% And same facility outpatient revenues grew 10.6%.

Speaker 2

Bill will provide more color on our revenues in his comments. I realize that our bottom line financial results were not what we expected, but these top line metrics were positive. Diluted earnings per share excluding gains on sales of facilities were $4.12 which was down $0.02 from the prior year. In the quarter, we experienced higher levels of contract labor expenses than planned. As compared to the 4th quarter, We saw modest improvements in certain contract labor metrics.

Speaker 2

We expect further improvements in the remainder of the year as we align the workforce appropriately by reducing both the utilization of contract labor and the associated hourly rates for these contracts. In some situations, the challenges in the labor market also constrained our capacity, Preventing us from delivering hospital services to certain patients. By the end of the quarter, we were able to overcome some of these capacity constraints And for the most part, our transfer centers were able to operate normally and move more patients to the proper setting in our networks. It is important to understand we are doing what we absolutely have to do to take care of our patients and we will always do that. This past quarter, our teams continue to show up and deliver on our promise to provide high quality care to patients who need our services.

Speaker 2

I want to thank them for their commitment and hard work during these challenging times. We do, however, have numerous initiatives underway around However, we now believe improvement in our labor costs will be slower than originally anticipated. This factor primarily influenced our revised outlook for 2022. We will continue to invest in our people, In our relationships and in our networks, we believe these investments are appropriate and should help us address the long term opportunities for growth that exists in our markets. At the end of the quarter, we had approximately 2,500 facilities or sites of care and HCA Healthcare Networks.

Speaker 2

This represents a 15% increase over last year. Recently, we published our annual impact report for 2021, which highlights the tremendous impact our colleagues had on the patients and communities we serve. You can find the details on our website. Before I turn the call over to Bill, let me end my comments with this. Over the past few years, We have demonstrated an ability to adjust effectively to whatever our realities are, and I'm confident We will do it again.

Speaker 2

With that, I'll turn the call over to Bill. Thank you.

Speaker 3

Okay. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter, then address our 2022 updated guidance. First, let me provide a little more commentary on our revenues in the quarter. We are encouraged with certain trends we saw in our non COVID activity during the quarter.

Speaker 3

Same facility non COVID admissions grew 2.2% versus the prior year and our non COVID revenue per admission Grew 2.4% as a result of maintaining our acuity levels and a slightly favorable payer mix as compared to the prior year. Within our COVID activity, our same facility COVID admissions were slightly above last year and represented approximately 10% of our total admissions, but we did see lower acuity and intensity with the Omicron variant this year. Our COVID inpatient revenue per admission was down approximately 15% from the Q1 of last year, which resulted in approximately $150,000,000 less COVID revenue this year as compared to the Q1 of last year. Let me transition to discuss some cash flow and balance sheet metrics. Our cash flow from operations was 1,345,000,000 as compared to $2,000,000,000 in the Q1 of 2021.

Speaker 3

We did pay $344,000,000 of deferred payroll taxes from 2020 during this quarter, representing 50% of the total amount deferred. Capital spending was $860,000,000 as compared to 650,000,000 in the prior year period and we completed just over $2,100,000,000 of share repurchases during the quarter. Our debt to adjusted EBITDA ratio at the end of the quarter was slightly below the low end of our target range and we had just under $7,900,000,000 available liquidity at the end of the quarter. We plan to use approximately $2,600,000,000 of this amount to redeem our 2023 bonds in the Q2. Finally, I will mention as noted in our release this morning, during March of this year, CMS approved the directed payment portion of the Texas waiver program.

Speaker 3

As a result, we recognized $385,000,000 of revenue and 160,000,000 of additional provider tax assessments related to this portion of the program from the period September 1, 'twenty one through March 31, 2022. Of these amounts, approximately $244,000,000 of the revenue $90,000,000 of the provider tax assessments related to the September through December of 'twenty one period. As noted in our release this morning, we are adjusting Full year 2022 guidance is as follows. We expect revenues to range between $59,500,000,000 61,500,000,000 We expect net income attributable to HCA Healthcare to range between $4,950,000,000 $5,340,000,000 We expect full year adjusted EBITDA to range between $11,800,000,000 $12,400,000,000 We expect full year diluted earnings per share to range between $16.40 $17.60 And we expect capital spending to remain at $4,200,000,000 for the year. So let me provide some additional commentary on our adjusted guidance And 3 primary areas that we have considered.

Speaker 3

First, our cost of labor was higher than anticipated in the Q1, primarily due to the utilization and cost of contract labor. We now believe the disruption of the labor market and the pressure this places on labor cost inflation Will be slower to moderate than we originally anticipated. 2nd, as I previously discussed, we saw reduced acuity And revenue from Omicron COVID patients in the quarter and this lower acuity has been factored into our guidance as well. And lastly, we made assumption around increased inflationary pressures and expect that to have greater impact on us going forward, including for professional fees, energy procurement, cost of utilities and other purchase services. So let me close with a brief discussion on some of the initiatives we have underway to respond to these current market dynamics.

Speaker 3

We've spoken in the past of our resiliency efforts, which now include 3 main focus areas. First is around staffing and capacity, as Sam mentioned in his comments. We have teams working on and focused on multiple work streams in this category. These work streams center around investing in In addition, we are exploring new delivery models through our care transformation initiatives. All of these are focused on supporting our care teams and easing some of the current labor pressures.

Speaker 3

2nd, we have our original resiliency programs that are continuing. Many of these are advancing efficiencies through our next generation of shared services. Examples of these include a consolidation and alignment of laboratory operations, Facility Management, Environmental and Food and Nutrition Support Areas. And then the 3rd major effort underway is an initiative around advancing our capability to benchmark key performance metrics across the organization. This is intended to identify variation and opportunity to share best practices across several areas Such as supply utilization, provider support costs, discretionary spending and other similar cost area.

Speaker 3

Many of these were factored into our original planning assumptions and we remain focused on these efforts to help offset Some of the contract labor and inflationary cost pressures we are experiencing. So with that, I'll turn the call over to Frank to open it up for Q and

Speaker 1

Thank you, Bill. As a reminder, please limit yourself to one question so that we might give us as many possible in

Operator

Thank Your first question today comes from the line of A. J. Rice with Credit Suisse. Your line is now open.

Speaker 4

Thanks. Hi, everyone. Maybe just try to drill down a little bit more on I know within the range you've changed your outlook for EBITDA by about $650,000,000 at the high end, dollars 750,000,000 at the Low end. There's a lot of moving parts in the Q1 with what's happening with Texas supplemental payments. Can you tell us how much of that adjustment was due to what you saw in the Q1 and how much is your changing in your thinking For the rest of the year and particularly maybe just drill down on the labor comments about maybe what you were thinking before versus what you're Thinking today in terms of use of contract labor rates and so forth if there's anything that can be shared there?

Speaker 3

Yes. A. J, this is Bill. Let me So as we're looking forward and we're trying to take what we saw in the Q1 to Make some assumptions and revision of our assumptions going forward. Let's talk about the 3 areas.

Speaker 3

And first, as I mentioned, the pressure on the labor cost. What we're seeing is it's higher than we originally planned. It's primarily related to the use of contract labor, but we're also adjusting our base wages to be responsive to the As I would think about it, our original plans was to kind of manage our overall cost per FTE somewhere between that 3% and 3.5% level. What we saw in the Q1 is our cost per FTE was about 1.5% higher than we expected. So as we forecast this going forward for the balance of the year, It can have a $400,000,000 to $500,000,000 impact.

Speaker 3

So we factor that into our guidance. The second area is regarding the Omicron variant, the less acuity in revenue, not only that we saw in the Q1, but to the extent that we continue to see some COVID at a reduced level than what we saw in the Q1, we factored that in. And then lastly, as I mentioned, just some inflationary increases above what we originally So I think the way I would characterize it, approximately 2 thirds of our revision, I would apply to kind of our wage and inflationary cost pressures and a third Of that due to the revenue acuity primarily to the COVID patients.

Speaker 4

Okay. Thanks a lot.

Speaker 1

Yes. And my next question?

Operator

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

Speaker 5

Embedded on the guidance reductions, can

Speaker 6

you walk us through the contract labor Percent of nursing hours in 4th quarter and the first quarter and how you assume that rolls off throughout the year? And then the same question On the rates for contract labor and just because stocks had a big move today, any chance you guys can give us sort of a range How should we be modeling 2QE EBITDA?

Speaker 3

Yes. Peter, let me give it a shot at that. I think we talked about on our Q4 call, our contract labor as Nursing hours was around 11%. In the 1st quarter, it was about that level too. We were 11.4% specifically in the 4th quarter, about 11.6% in the second quarter.

Speaker 3

We are experiencing elevated cost Per hour of that contract labor principally, we believe related to the COVID surges. Our plans going forward To continue to reduce the utilization of that contract labor and eventually moderate the average hourly rate that we're having to spend for that contract labor. So we think that moderation will be slower than we originally anticipated. So that's what's based in our assumptions and it's basically influenced with what we saw in the 4th quarter.

Speaker 2

Yes. And let me add to that. Pito, this is Sam. I think as we have gone through 2 years Up and down periods with surges, short cycle normal period, surges, another short cycle normal period. We saw in the surges an acceleration in both turnover and the use of contract labor.

Speaker 2

As I mentioned on my prepared comments, We do what we got to do to take care of our patients. What we're anticipating is no more significant surges as we move through the rest of this year. And we that gives us some opportunity and some level of confidence that we can moderate the use Contract labor and some of our other initiatives should provide support recruitment, some of our retention efforts And so forth, given us an opportunity to wean ourselves off the high levels of contract labor. And we saw that in the short Cycles to a certain degree, but we never were able to sustain it simply because it was just that a short cycle. So as we go through the rest of this year, we think the cycle will be longer with respect to no surge and that will give us an opportunity to gain some traction With some of these initiatives, our teams are working diligently across the facilities to make this happen.

Speaker 2

And again, I'm confident just as we've done in the past that we can make these adjustments over time and get us to where we need to be.

Speaker 1

Okay. Next question.

Operator

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

Speaker 7

Thanks. Good morning. First, just a quick follow-up on Pito's question. Can you give us a number as to where you expect to end the year on contract labor as a And just to confirm, does that fit in operating expense or other operating? Because that was the line item that looked like was a bit off.

Speaker 7

And then my actual question is, Sam, as you take a step back, right, there was a huge improvement in margins During COVID, Dave, it looks like they take a step back here. I'm just curious, do you think this is a sustainable margin or a Sustainable EBITDA level to kind of think about jumping off for next year? Or do you think some of those improvements could help you close the gap versus where you were When you guided the year originally.

Speaker 3

Thanks. Hey, Justin. This is Bill. Let me start with the first part of that. Without giving any specific numbers, You've heard us talk about we expect to decrease the utilization.

Speaker 3

If I look before COVID, we would be Hovering around 9% to 10% of ours. I don't know exactly. There's so many uncertainties, but we expect it to sequentially improve Going forward, that does come through the SWB line, not the other operating. You did mention the other operating. It was primarily influenced with the provider Tax assessments that I mentioned in my prepared remarks?

Speaker 2

Yes. I think this is Sam. Just with respect to the Margins in the Q1. I think the margins in the Q1 were clearly pressured as we've indicated here with Somewhat unprecedented levels of costs on the labor side. Again, those costs We're driven in some respect by the surge that we were reacting to, and that Pressured them in a very significant way.

Speaker 2

I do believe, over time, we can recover some of that lost margin As we continue to appropriately align our workforce with more permanent workforce or more efficient Workforce coming from the contract labor category. As setting a target, we don't necessarily have a target For contract labor, obviously, in 2019, we were maybe half of what we're running today, Somewhere in that zone, I don't know if that's realistic in the short run, but I'm hopeful in the intermediate run with the number of initiatives that we have Plus our Galen College of Nursing expansion program that we can start to get back to those kind of levels. But I do think the Q1 was uniquely pressured from a margin standpoint simply because of the Elevated levels of contract labor and the cost thereof. Okay, next question.

Operator

Your next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.

Speaker 8

Great, thanks. Just want to maybe follow-up on that question there. I think last You were talking about something like a 20% to 21% margin is kind of ultimately being sustainable. Is that the right way Think about it or have some of these things changed your view? And it sounds like for the most part, you talk about recapturing margin, you're talking about Cost savings, is there anything on the rate side that is part of that equation?

Speaker 8

And if so, does that take Couple of years to play out or is that something that we can think about more normalized margins as soon as next year? Thanks.

Speaker 3

Well, Kevin, if you look at our guidance, I think it would apply close to those 20% margin levels. Obviously, we've had to Adjust some of our thinking given kind of these inflationary cost pressures that we're seeing. So we're doing everything we can to operate the company as efficiently as Well, there's a lot of variables that we know go into margin, volume, acuity, payer mix, continuing to manage our cost structures appropriately. I would use that 19% to 20% level in the short run and over time we're going to continue to find ways to continue to operate efficiently. On

Speaker 2

the payer contract, we are having more discussions. Obviously, the payers understand the inflationary pressures that providers have. And there's early Discussions, it doesn't change our revenue mix in the 2022 period because we're Largely contracted for 2022. But as we move into 2023 2024, Kevin, we have opportunities To utilize our payer contracts to get some relief from the inflationary pressures and as we Further, our discussions with those commercial payers, I'm optimistic that we can gain some escalators that are more in line with the inflationary pressures of today versus the inflationary pressures of the past. Okay.

Speaker 2

Next question.

Operator

Your next question comes from the line of Whit Mayo with SVB Securities. Your line is open.

Speaker 9

Hey, thanks. Bill, what are you assuming in your algorithm this year for the guidance around COVID and non COVID? I think you were assuming non COVID was I don't know, 2% to 3% of the total. How is that shifted? And is there anything that you can share on how Non COVID, either inpatient, outpatient or anything is tracking through April that might just give us a sense of the run rate?

Speaker 9

Thanks.

Speaker 3

I can't say April with at this point, but we said in our prepared remarks non COVID was up 2.2% And that was really in February March. In February March, we were seeing 4.5% to 5% potentially in those levels. So again, that's why I said we're encouraged by those Trends, I don't think really what we saw in the 4th quarter really in broad terms affect our volume outlook. We still see good volume Demand in the marketplaces. So originally, we said 2% to 3% volume growth.

Speaker 3

COVID still be in between that maybe 3% to 5% of our total emissions. And I think right now, I think that's mostly in line with our current expectations.

Speaker 1

Okay. Next question.

Operator

Your next question comes from the line of Ben Hendricks with RBC Capital Markets. Your line is open.

Speaker 10

Hi. Just a real quick follow-up on the comment you made just a second ago, Sam, about improving efficiency of contract Labor, we've always kind of characterized this as kind of the labor backdrop as the contract being the kind of transitory piece and wage inflation being more permanent. Is that can we read that, kind of improving efficiency comment as maybe your expectation that contract labor Utilization at higher rates is more of a permanent construct now going forward in the labor market?

Speaker 2

Well, I think it's higher than it was in 2019. I don't think it will be higher than it was in the Q4 or the Q1. I think rates will Naturally come down as the surges subside and as workforce is aligned with more permanent staff and so forth. And so we're dealing in the Q1 and the Q4 and a little bit in the Q3 as well, Very high cost per hour for contract labor, and we do not believe that is sustainable. And so we're anticipating improvements in that.

Speaker 2

Additionally, I think we will see reductions in the number of contract labor Personnel that we use, again, as our initiatives gain traction, we've invested heavily in our recruiting function And really improve the candidate experience inside of that. We have some improving retention Efforts in compensation programs that we think are going to support that component of our Set of initiatives. So all of that leads us to believe that we can get the cost per FTE down from where it was in the 4th quarter And the Q1. And so that's our thinking.

Speaker 1

Okay. Thank you, Ben. Next question?

Operator

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

Speaker 11

Hi, good morning. Can you tell us when I look at inpatient admissions and adjusted admissions versus 2019, they're still down about 3%. Can you tell us what's embedded in guidance for 2022 versus the 2019 baseline trends, please? Thanks.

Speaker 3

Hey, Anne. This is Bill. So as I mentioned before, we still believe we'll end up seeing 2% to 3% admissions for the full year 'twenty two. You're right, we are down a little on 19%. I'd have to take a moment to see what that represents to 2019.

Speaker 3

It's about 1% is what I think that would be Our 2021 number versus the baseline 2019 would be down about 1%.

Speaker 2

Yes. Let me color that in a little bit more, Bill, if I may, please. I think a couple of things when it comes to our same store 2019 versus our same store 2021. Our uninsured volumes are down 11% from 2019. So that's a very significant point.

Speaker 2

The second point I would We've had a fairly significant shift of orthopedic total joint surgeries go from inpatient To outpatient from 2019 to 2022, again, that's put pressure on the admissions. Our surgeries were actually up over 2019. And then again with our emergency room visits, if you look at the categories that are the paying categories, we're slightly up, But our uninsured activities were way down. So I think you got to look at the components of the business and understand the different components. And so the mix slightly better shift inpatient to outpatient, which we've talked about over the last couple of years And that influences the 2022 to 2019 comparison.

Speaker 2

Okay. Thank you, Ann. Next question?

Operator

Your next question comes from the line of Gary Taylor with Cowen. Your line is open.

Speaker 12

Hi, good morning. Wanted to think about seasonality of revenue and EBITDA, If you can hear, do we go back to sort of pre COVID and think about Q1, Q4 EBITDA Always being higher or do we think about J and J and some of the other device companies have said All time high cancellations in January, things really started improving in March April and obviously you've got some So are we back to normal EBITDA seasonality yet? Or is the year still more complex? And can you help us at all?

Speaker 2

I think a couple of things, Gary. Thank you for that question. The seasonality, we talked about this in the 4th quarter Call was really difficult for us to discern because again, we were weaning ourselves off the delta variant and then Ramping up on the Omicron variant. I think the seasonality again with our volume is a bit Uncertain to us right now. My sense is this could be a more normal period on seasonality For volume in 2022 than any that we've had over the last 2 years, obviously.

Speaker 2

But the seasonality on our costs, As we've indicated, I think they're going to be different. And they're going to be different because we're at a high watermark on labor cost per FTE in the Q1. And typically, our costs would go up seasonally, but we think as we Work through the initiatives and the alignment of our workforce will have a different pattern to our costs in 2022 than what we've had in previous years. And then hopefully, 2023 gets back to normal. So That's how we're thinking about it.

Speaker 2

Obviously, there's still months to come here for us to understand In fact, if that does play out, but that's our thinking at this point.

Speaker 1

Thank you, Gary. Next question?

Operator

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

Speaker 13

Hey, good morning. Sam, just to follow-up some questions On labor, right. So one question we're getting asked is why now? Like you guys have done a great job managing through labor over the last year and a half and maybe any color you can share on what you're thinking in terms of turnover on your perm nurses? Then I guess for Bill to follow-up to that is, you called out acuity as a driver of the revenue guidance cut.

Speaker 13

But As we pull back on temp staff, is there going to be an impact on labor or on volumes that we should be thinking about? Thanks.

Speaker 2

So the first half of last year, our costs were not in what I call an elevated State from the labor. And we mentioned this on our Q3 call. We also mentioned it again on the Q4 call. And now we're mentioning it on the Q1 call. So we're working ourselves out of some comparisons, number 1.

Speaker 2

But our cost of labor We're dramatically disrupted in the Delta variant for a couple of reasons. One, we jumped our census From the Q2 to the 3rd quarter by 8.5%. We had record census levels in the company in the 3rd quarter, Not for the Q3, but forever. And that forced us to respond To those patients in an appropriate way, the market, the labor market was being tremendously impacted during the summer of 2021. And we had to use more contract labor at that time than we had in previous periods.

Speaker 2

Well, that's continued into the Q4 and into the Q1. Again, we think some of that is influenced Significantly by the surges. So that's part of what we occurred. As Bill alluded to it, the Delta variant was the most Intense revenue patient population that we had. So the 3rd quarter covered a lot of that cost because the revenue intensity of the Delta patients was quite high.

Speaker 2

The 4th quarter had A blend of Delta and Omicron and it still was higher than the Q1. And so the labor costs Really haven't changed per FTE in 3 quarters. I'm considering that to be A good thing. And I'm also considering it to be the opportunity because we're using too much contract labor and it's still at elevated And so our rate trend has continued in the quarter to be reduced. I think our contract labor cost per hour in the Q1 was down 5% from the 4th quarter and within the quarter within the Q1 It was better each month, month over month.

Speaker 2

Again, it gives us some confidence that the assumptions we're making For the remainder of the year are reasonable. So that's part of why it doesn't look like we Managed through it in historical ways. Our productivity is at A very efficient level when it comes to employees per patient. So we're managing on that front as well as we possibly can. And as again we get these other underlying initiatives into a normal period hopefully of no COVID surges, We're going to gain ground on the pressure that we've experienced over the past three quarters.

Speaker 1

Thank you.

Speaker 3

Yes. Brian, you had a follow-up question to say. I think Sam mentioned too in his comments there. There's always the potential where the labor pressure What we've seen out is in COVID surges as we've managed through transfers. Again, I think as Sam alluded in Comments at the end of the quarter, we were really back to our normal levels, but we're continuing to manage through that dynamic.

Speaker 1

Okay. Thank you. Next question?

Operator

Your next question comes from the line of Scott Fidel with Stephens. Your line is now open.

Speaker 5

Hi, thanks. So we just had the Medicare IPPS proposal come back for 2023 and certainly had a couple of Moving pieces in that. So thought it will be helpful if you can give us the gross first net sort of projection for your rates From that proposal and then just more broadly, how you feel about CMS sort of factoring in this inflationary pressure and Ultimately, if you think that CMS will start to factor that in more accurately as we look out maybe to FY 'twenty four and beyond? Thanks.

Speaker 3

Yes, Scott, this is Bill. I mean, obviously, we're still assessing it. But I think on first blush, we thought kind of the gross increase we saw would be hovering just under 2%. And that's pretty consistent with what we've seen. But I think to your point, it does get netted out when we see the delay in the sequestration cuts Out there, so we'll still assess that.

Speaker 3

So it may move it closer to flat net net all in, but we're seeing at the top line just under 2% growth on that. So we'll see how the final rule comes out as we go through comments.

Speaker 2

Yes. And in forward years, typically it takes A little bit for the wage index to be adjusted to reflect what's going on in the industry. So I think as 2021 2022 start to get baked Into the formula for inflation around the wage indexes of the hospital industry, it will start to influence The reimbursement in slightly different ways.

Speaker 1

Thanks for the question, Scott. Next question?

Operator

Your next question comes from the line of Andrew Mok with UBS. Your line is now open.

Speaker 8

Hi, good morning. Just wanted to follow-up on

Speaker 14

the revenue And Terry, can you take us through the components of the lower revenue guidance in more detail, maybe help bucket the $500,000,000 decline between Volume, acuity and mix. And are there any other government related items that you would call out in that revenue decline? Thanks.

Speaker 3

Yes, Andrew, this is Bill. I would tell you it's principally related to the drop in the COVID acuity that I mentioned In my comments, and we're estimating it to be approximately $150,000,000 in the quarter. COVID obviously was higher at 10% of our admissions than We expect in the full year, but if you run that out, I would say the vast majority of that revenue decline would be due to the lower acuity that we're seeing With the Omicron variant, I expect to see going forward. And outside of that, there's no other really major item that I would call out, just the ebb and flow Of kind of normal volume patterns.

Speaker 1

Thank you. Next question?

Operator

Your next question comes from the line of Stephen Baxter with Wells Fargo.

Speaker 6

Yes. Hi, thanks. Just wanted to ask another one on the labor market. So I'm sure part of your process around this issue involves a great We have competitive intelligence about what's going on in your markets. I was hoping you could share a little bit about what you're seeing from your local market competitors and whether there are strategies around Contract labor or employed labor force or even maybe potentially putting certain service lines on pause or maybe exacerbating some of the pressures you're feeling.

Speaker 6

I guess big picture, do you think they're being as disciplined as you are? And if not, how should we think about the longer term implications of that? Thank you.

Speaker 2

So from a competitive standpoint, I mean, obviously, our wage programs have to be competitive. And That means different things in different circumstances. And we have made adjustments to our compensation programs really starting back And the Q3 of 2021 to respond to some of the market dynamics. We continue to be very fluid In that particular area of our business in responding to the different Circumstances from one market to the other. I would say that We think we're in a pretty good spot.

Speaker 2

We haven't seen any unusual maneuvers Broadly, we are fortunate again to have competitors that tend to be only local and in one market or 2 markets at the most. So we don't see sort of patterns that permeate all 43 markets for HCA Healthcare. And so that's a positive on that front. But we haven't seen anything unique yet from the competitive landscape with contract labor and so forth. But I've got to believe that they are facing many of the same challenges as we do.

Speaker 2

And I believe over time we've been able to use our operating discipline, use our systems, Use the learnings that we have across the company to create advantage for us, and I believe we will continue to do that.

Speaker 1

Thank you, Steven. Next question?

Operator

Your next question comes from the line of Joshua Raskin with Nephro Research. Your line is open.

Speaker 5

Hi, thanks. Good morning. Appreciate you taking the question. Quick follow-up on contract labor. How long are those typical contracts in place?

Speaker 5

And then my real question is, Are you having any issues with discharges, post acute discharges? Is that impacting length of stay driving up costs and obviously the same DRG or the same payment?

Speaker 3

Yes, Josh, it's Bill. Typically, those contracts range around 13 weeks. So it takes time to adjust. But Given the size, they're always flowing through our system on there. And relative to post acute and discharge planning, I would say, yes.

Speaker 3

I think that's part of our case management initiatives that I spoke to in my prepared comments. I think the Supply and demand dynamics in post acute, whether it be skilled nursing or other post acute settings, from time to time can cause a backup in our discharges. And that's why we're trying to advance and utilize some technologies, advance a common organizational structure around case management, so we can Continue to focus on that and improve that length of stay when patients are ready to go home and there's appropriate levels of discharges. But That is a dynamic out there. There is no doubt about it, but I think we're focusing a lot of effort and energy and resources to try to continue to improve in that area.

Speaker 1

Thank you, Josh. Next question?

Operator

Your next question comes from the line of Jason Kaczorla with Citi. Your line is now open.

Speaker 15

Great. Thanks. I just want to go back to your comments around the initiatives for retention, recruitment, capacity management and new care models. Can you just help in terms of what is different with these initiatives today, maybe compared to perhaps how you utilize these initiatives back 3Q 2021 when labor was picking up. Is it just more intensity there?

Speaker 15

Or are you leveraging incremental levers that maybe weren't considered or preview utilized And then if possible, can you help quantify the offset of these programs or initiatives related to the $400,000,000 to $500,000,000 net pressure regarding the higher wages and cost

Speaker 3

existing initiatives and new ones. One, I'll give an example, and Sam mentioned this earlier around recruitment. We've increased our investment in recruiters significantly, And that's been a really intentional effort. Same around retention, we're putting common And then the case management that I mentioned in my comments, we recently approved And Alfred, to really align organizationally around our case management strategies and we're investing in new technologies to give us better predictive assessments of patients' needs at discharge. So it's a combination of accelerating and Emphasizing existing efforts as well as implementing new ones.

Speaker 3

And it's kind of touches all bases, if you will, between recruitment, retention, capacity management And new care models, as you know, can we bring new support staff to support the care teams, whether it be through patient care techs, through patient safety attendants and the like. So we've got a Number of initiatives to try to just as I said in my comments, continue to support the team and ease those pressures. I would say in our guidance, in our original guidance, we had already factored in some impact of those and we're going to continue to Focus on those to try to, I think, counter some of the market pressures that we are seeing.

Speaker 1

Okay. Thank you for the question. Next caller?

Operator

Your next question comes from the line of Jamie Purce with Goldman Sachs. Your line is now open.

Speaker 16

Hey, good morning, guys. A question on volumes. Last year, the timing of the COVID wave was pretty similar to what it looked like this year. You had a really nice acceleration in 2Q last year in terms of volumes across the board. What are you seeing now in terms of volumes and Last year's experience a good proxy for how we should be thinking about the acceleration into 2Q.

Speaker 16

And then just one quick follow-up. Can you guys give us What percent of your managed care contracts are in place for 2023?

Speaker 2

So February March, which were obviously months post Omicron surge Behaved similarly to the holiday surge that occurred at the end of 2020 And on into the 1st part of 2021, again, we had solid non COVID admission growth In February March, as Bill alluded to, in the mid single digits. So we're encouraged by that. There's nothing to suggest that the patterns will be different. But again, We're learning obviously as we go through these patterns and we're hopeful that we won't have any more surges and we'll be able to judge Some of these patterns more effectively. With respect to our payer contracts, we're about 50% contracted for 2023 and about 30% contracted for 2024.

Speaker 2

Again, Those capacities in each of those years give us opportunities to adjust some of the inflationary expectations to the realities that we have today. Thanks

Speaker 1

for the question. Next question?

Operator

Your next question comes from the line of Sarah James with Barclays. Your line is now open.

Speaker 17

Thank you. So you've been talking about the majority of the pressure being on Temp labor, but I was hoping you could unpack that a little bit. Are you talking about 2 thirds, 1 third temp labor to kind of the longer tailed items Like wage inflation and bonuses or a more extreme split and you guys are in a unique position owning a nursing school. So are you seeing any shift in what field students are selecting and how is that influencing your strategy?

Speaker 2

I don't know, Bill, if we if I have the split right in front of me and to be able to answer the first Question, but let me speak to the second question and we can get back to you on that first question with a little bit more specificity, if we can. It's still early for us with the Galen College of Nursing programs and expansions. But just looking at some of the new schools that we've opened, Austin, Texas Nashville, Tennessee, Parts of South Carolina, the enrollment in a couple of those situations is record level enrollment In nursing program in the Galen College of Nursing. So we've seen a really robust Initial enrollment, that gives us confidence. We also believe that we have an opportunity to integrate those Students enter our organization to support current needs as well as hopefully create Synergy as they graduate the program and want to come to work for HCA Healthcare.

Speaker 2

So we're really encouraged by The prospects, but again, that's more intermediate run kind of a gain, although there will be some short run with Nurse externs and rotations and so forth that we can utilize hopefully effectively to support current day needs. But the initial enrollment in a number of these new schools would suggest that there's still a reasonable supply of Students who want to go into nursing school, maybe single bank.

Speaker 17

I guess I'm

Speaker 1

I think Bill has an answer to your second question.

Speaker 3

Well, no, I don't have an answer, Sarah. Well, I'll have to get I think our overall labor market is a combination of the temporary labor and some of the base wage inflation. I can't split it for you exactly. We'll get back with you on But it's a combination of both.

Speaker 17

Okay. Just to clarify on the nursing school, I was Trying to understand like the structural shift that's going on if your graduating nurses are selecting one field like Surgical versus home health versus psych, if you're seeing just like a structural shift in where Graduating nurses

Speaker 5

are going.

Speaker 2

No, we're not. Okay. Thank you for

Speaker 1

the question, Sharon. Next question?

Operator

Your next question comes from the line of Matt Borsch with BMO Capital Markets. Your line is now open.

Speaker 18

Thanks for squeezing me in. Question is off topic for the quarter, but there is I haven't been following this closely, but there's been obviously an ongoing dialogue around Compliance with the price transparency regulations, and I know there's a lot of complexity to the implementation. But can you just address where From your standpoint, you are with that and what when you would expect to get, if not already, to full compliance on that? Yes.

Speaker 3

Matt, go ahead, Shane.

Speaker 2

Well, I was going to say, we believe we are compliant with the CMS Rules which are tremendously complex and in many ways Difficult to implement because of the variations that exist from one commercial contract to another and from one Market to another. So we have through our an internal process Established a program that we believe in CMS is validated in certain circumstances, It's compliant and we continue to try to refine those Presentations in ways that again satisfy CMS's evolving interpretation as well as our ability to adjust some of our postings to meet the evolving Requirements.

Speaker 1

Okay. Yamal, that's it. Thank you very much. I'll turn it back over to Yamal.

Operator

Your last question today comes from the

Speaker 10

Just to get to that 1 third of the guide down that's related to the lower acuity on COVID volume, is there any way to give us an idea of Margin differential between the lower acuity patient you've seen through Omicron versus COVID patients historically and then versus a non COVID inpatient admission? Thanks.

Speaker 3

No. I think we'd have to follow-up offline on that. I don't have any specifics in front of me of the specific margins. But I do know when we have the acuity drop like we did, the revenue does flow through pretty much down to margin. But I don't have exact percentages that I could share with you between These various variants that we've seen.

Speaker 1

Okay. Emma, I think that's got it now.

Operator

That concludes today's question and answer session.

Speaker 3

All right. Thank you, everyone.

Operator

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

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Earnings Conference Call
HCA Healthcare Q1 2022
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