Welcome to the HCA Healthcare Third Quarter 2026 Earnings Conference Call. Today's call is being recorded. After today's prepared remarks, we will host a question and answer session. We kindly ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Frank, please go ahead, sir.

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

Good morning, and thank you for joining the call. The company's results in the third quarter reflected improvement in key areas of our business. First, demand for our services continued to grow at a solid rate. Adjusted admissions on the same facility basis grew 3% compared to 2.3% year-to-date. Inside this growth, insured volumes grew faster in the quarter than in the first half of the year. The third quarter reflected the 22nd consecutive quarter of volume growth for the company. Second, revenue per adjusted admission for our insured business, excluding supplemental payments, increased at a higher rate than in the first half of the year. This increase partially offset the payer mix pressure from continued volume declines for patients who were formerly covered in health insurance exchanges and are now uninsured. Additionally, we had a modest incremental net benefit of $50 million in the quarter from Medicaid supplemental payment programs, primarily related to a recently approved Virginia program. These factors, coupled with improved cost results, contributed to solid financial performance in the quarter that slightly exceeded our expectations. Diluted earnings per share, as adjusted, increased almost 4%. I've often mentioned that HDA has strong staying power because of our scale, the important role we play in providing critical services to communities, and our disciplined culture. Despite the challenges this year brought about by federal policy changes, we have continued to move the company forward and believe we are positioned to end the year positively. As we look ahead to 2027, let me share a few preliminary observations around certain aspects of our business before we provide our full year guidance in January. I'll remind everyone we are still early in our planning process and there are several important areas that remain fluid, including the policy environment. First, we expect demand for services to remain strong with volume growth forecasted to be 2-3%. This range is consistent with our long-term thinking. Within the demand environment, we believe it's reasonable to assume for 2027 that fewer people will lose their coverage on the health insurance exchanges than we experienced in 2026. However, we do expect that there still will be a meaningful impact on payer mix. We need to get through the fourth quarter before we can provide more details. We expect to receive approximately $550 million to $650 million less in Medicaid supplemental payment net benefits due to various state programs that received grandfather approvals in 2026 and reimbursed us for services we provided in prior years. Last, we anticipate favorable cost performance primarily due to our ongoing enterprise-wide resiliency program and the operating leverage from the expected volume growth. When we aggregate these preliminary observations, we anticipate our earnings in 2027 will be generally consistent with 2026. Beyond 2027, we anticipate performance more in line with our long-term growth targets. This view makes three important assumptions. First, we move past the most significant effects on payer mix from the exchanges Second, we assume no material policy changes beyond H.R. 1. And finally, we have a set of strategic initiatives, including digital transformation, network development, and ongoing resiliency programs that generate significant value. I'll reiterate, it is still early, but we believe these preliminary perspectives provide context for how we currently see the company's growth prospects. Let me close with this. Our colleagues continue to provide high quality care to our patients and execute our strategic plans. I appreciate their efforts in delivering on our mission and I want to thank them for their good work. As we get further into the execution of our plan, we believe it will enhance access for our patients with our capital spending, create a better work environment for our caregivers with our AI transformation initiatives, and deliver value for our shareholders with our enterprise-wide resiliency program and balanced capital allocation. As we look to the future, I'm confident that HCA Healthcare has the right people, The right process and the financial position to achieve our long-term objectives. With that, I'll turn the call over to Mike for more details on the quarter.

Thank you, Sam, and good morning, everyone. As Sam noted, demand for our services continued to grow at a solid rate. Compared to the prior year quarter, on the same facility basis, admissions increased 2.7 percent, equivalent admissions increased 3 percent, and ER visits increased 5.1 percent. Inpatient surgeries were down 1.4%. Outpatient surgeries were down 3.7%. Regarding surgical volumes, consistent with the second quarter, we continue to see solid growth in our emergent surgical volumes and pressure collected. Same facility equivalent admissions in our insured population, excluding exchanges, increased approximately 3% in the third quarter versus prior year. Exchange equivalent admissions declined approximately 19% versus prior year quarter. For context, the third quarter of 2025 was our high watermark for exchange volume, making for a difficult comparison. However, we did see sequential improvement in exchange volume from 2Q to 3Q of 2026 of approximately 8%. Like the second quarter, we continue to see patients who have lost coverage on the exchanges migrate almost one-for-one to uninsured. This one-for-one migration makes up approximately 80% of our uninsured volume growth, with the remaining 20% primarily related to a decrease in Medicaid conversions and mostly in taxes. Our uninsured volume in third quarter 26 represented approximately 10.5% of total equivalent emissions versus 8.5% in the prior year quarter. We estimate the payer mix shift from exchanges to insured resulted in an unfavorable impact on adjusted EBITDA of approximately $400 million and a quarter. We now expect the full-year unfavorable impact on adjusted EBITDA from payer mix shifts to be at or slightly above the upper end of the range of our previously updated estimates. For Medicaid supplemental payment programs, the company recognized approximately $50 million of incremental net benefits during the third quarter. We now expect the incremental net benefit from Medicaid supplemental payment programs to be between $600 million and $800 million for the full year 2026. This increase in our estimated range was driven equally by the grandfathered application from Virginia and one-time payments from across our other programs. We were pleased with our cost results in the quarter. Same facility cost for equivalent when excluding Medicaid supplemental payment programs was essentially flat versus prior year quarter, and it improved 40 basis points sequentially. As we typically see an increase sequentially from second quarter to third quarter, this outcome reflects strong operating discipline from our teams. Moving to capital allocation and cash flow, capital expenditures totaled approximately $1.36 billion in the quarter. Additionally, we purchased Approximately $3 billion of our outstanding shares, and we paid $165 million in dividends for the quarter. Cash flow from operations was approximately $4.5 billion in the quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet remains strong and well-positioned for the future. We currently expect to complete most of the existing authorized share repurchase program by year-end. subject to market conditions and other factors. As noted in our release, we are reaffirming our estimated guidance ranges for 2026. Given our third quarter performance, we currently expect to be in the upper half of our guidance ranges for the year. I will now hand the call back to Frank Morgan for questions.

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

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

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

Well, AJ, I think what we tried to do in preparing our early book comments is give you the best information we have at this point. As Sam noted in his prepared comments, We still are in the early stages of our planning cycle, and as we kind of finish fourth quarter, we're really studying two key components. Number one is our results in fourth quarter and how the strength of our core performance continues to mature. I think it's clear in third quarter we were pleased with our core growth, and we feel like we have momentum. We need to validate that in fourth quarter, and that will give us a really good sense of our core growth as we kind of step into 2027. The second thing that we've got to study is the exchange environment. And as we go through the fourth quarter first, we'll have better information about how our exchange volumes perform here in the last quarter of the year. But we'll also have better intelligence about enrollment. The enrollment period starts on November 1st and it goes through, you know, mid-January. With those two things, we'll be in a much better position to give you our best sense of this on our January call, our fourth quarter call for 27 guidance. But I think as you think about core growth, you think about the headwinds that we have disclosed related to Medicaid state supplemental payment programs, and then what ends up happening with the exchanges in 27. Those are the big moving parts, and we'll give you further guidance as we get on our fourth quarter call.

on the cost side. AJ, let me add to the cost. We see our resiliency agenda broadly as an ongoing strategic program for the company. We now have new capabilities. We have new technology. We're expanding our shared service platform as a result of that, and we're able to move the cost agenda systematically as a company today. And heretofore, we didn't have that ability because we didn't have the capabilities nor the technology and I think the mindset to accomplish it as a result of that. So when we start thinking about costs in 27, as I mentioned in my My comments, we do anticipate more value coming from our resiliency program broadly within our networks and from a cost standpoint overall for the company. And so that is more of a strategic agenda item that will carry itself into the future and be a part of our programmatic efforts as we move beyond 2027. I think the other point, Mike, is the Medicaid supplemental payment program is related to some payments from prior year, as we think about 27 also.

Our next question comes from the line of Anne Hines with MISUO. Anne, your line is now open.

Great, thank you so much. I just want to ask about 340B. I know there's a regulation out there that if it goes into effect as is, should benefit the for-profits that don't participate in that program. And I know that would probably be challenged at some point to the legal system, but does that flat guidance assume, you know, any change in that program or any potential benefit? And if it does, have you sized that? Thanks.

Thanks, Anne. So this is part of the Medicare OPTS rule that's proposed at this point. We were pleased with the construct that is a part of the proposed rule as it relates to a budget neutral reallocation on 340B. It would benefit us. We have not, we're not signing that publicly at this point. And, you know, as we think about kind of our early look statements, keep in mind the idea of being generally consistent. is where we are standing here at third quarter. We'll give you much more detailed information as we get on our fourth quarter call. But I would say, I mean, we view the OPPS rule as proposed, and we're hoping that it gets finalized here soon as a positive factor for ACA as we head into 2017.

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

Great. Thank you very much. I appreciate the demand comments for next year and the expectation for 2% to 3% volume growth. I'm wondering how the surgical backdrop is fitting into your thoughts there. I know you had said that you didn't expect any recovery of the kind of weaker elective trend through the end of this year, but as we think about next year, is there pending demand getting pinned up there that they could unwind and would that be upside to that two to three percent or would that be considered in there? Any thoughts on how you're thinking about surgical progression for next year? Thanks.

Thank you for joining us. I think our emergent business, as Mike spoke to, continues to be strong. We see some macro forces impacting the elective business, coverage being the primary macro force, and then just sort of general affordability across the economy being a second one. So I think from that standpoint, we haven't landed on any surgical viewpoints. I think it's important for everyone to understand that our composition of volume is fairly diverse. I mean, we have cardiac, we have women's, we have NICU, we have transplant programs, we have surgery, yes, medicine, critical care, all of these components are Thank you for joining us. are surgical declines that we're experiencing. For example, our neonatal activity in the quarter was very strong. Our cardiac business continues to be strong. Our trauma business, strong. EMS traffic to our hospitals, up significantly. So there's all of these elements that go into our volume assumption. We're not ready to sit there and call out surgery specifically for 2027 until we get a better viewpoint of it through the seasonality patterns that typically exist in the fourth quarter.

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

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

Sure. And that's part of this answer is consistent with our sequential notes we had in my prepared comments, Ron. You know, typically when we go from second quarter to third quarter, that is the timing of when we do a lot of our merit adjustments in labor. And so we typically see, you know, even 100 basis point increase in our expense per AA overall. And that's one of the factors. And so we were actually really pleased when we looked at our expenses per equivalent emissions, you know, obviously excluding state supplemental payments. You know, one, they were essentially flat to prior year, but two, they were 40 basis points sequentially down, you know, from second quarter to third quarter, which, you know, we think really reflects the strength of not only our resiliency plan, but also the operating leverage we're getting from state supplemental payments. I mean, if you look at SFBV on a margin basis to prior year, even with, you know, the softer overall revenue, we had a 40 basis point margin. So we were... We were pleased with that. And same thing, you know, we had good performance in supplies as well. You know, in other operating expenses, you know, if you just look at third quarter to prior year, you do have a bit of cost related to the state supplemental payments.

Keep that in mind. Professional fees continue to be a pressure point for the company.

We were up about 12% versus prior year quarter. And professional fees now represent about 24% of other operating expenses. and I would note that those, you know, continue to be driven by radiology and anesthesiology. So that's a, Brian, that's a bit of a rundown on the call side.

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

Hey, good morning, guys. Thanks for taking my question. I'm going to ask AJ's question a little differently. You know, you quantified at $600 million you know or 550-650 less Medicaid supplemental payments. You talked qualitatively about exit Medicaid impact next year and the you know core mission growth of two to three percent. Can you confirm that 2027 adjusted core EBITDA growth is still in the four to six percent range? The other piece is impacting that or is core running hotter or lower? How much is resiliency driving that core growth? Thank you.

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

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

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

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

Yeah, thanks. Good morning. Maybe just on the 2026 guidance, Mike, you said you're now pointing to the upper half of the range. I think that still implies and many more. Thank you.

Well, first I would say, I mean, I think if you look at the upper half of our guidance ranges, that largely implies a core growth fairly consistent in fourth quarter and third quarter would be the first thing I would context. And then I think the drivers are similar. You know, number one is we did see strength in volume in third quarter. And so that's encouraging for sure. We've already mentioned a little bit on the net revenue per unit side. There tends to be a step up from third quarter to fourth quarter. in normal course. And so we expect that normal seasonal trend to apply broadly. And then we do believe, as even Sam mentioned, not only in his opening, but as we were talking about in the first question, that our performance around our resiliency plan, our ability to manage costs, we continue to see strength across our resiliency plan in third quarter, in fourth quarter, and into 27, 28 and beyond. So I think those are the key components. Sean, that are kind of making up our guidance comment for fourth quarter of 2026.

Your next question comes from the line of Whit Mayo with Lee Rink. Whit, your line is now open.

Yeah, thanks. Did the Hicks headwind get larger in any particular market and any comments around AR Collectability, Balance After Collectability would be helpful, and any of the $400 million. Is that related to prior quarters? Thanks.

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

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

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

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

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

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

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

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

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

Thanks. Good morning. A couple quick number follow-ups. First on 2027 DPP, appreciate the 550 to 650 number. I was hoping you can isolate your estimate here of how much of that number comes from the Q4 DPP cut as HR1 gets implemented versus the 2026 out of period that doesn't reoccur. And then on the exchange impact for Q4, Can you tell us how much your guidance assumes that that sequential exchange volume growth occurs from Q3 to Q4 this year? I know you just gave us the Q2 to Q3 number. I'm curious on Q3 to Q4. Thank you.

Well, let me start with the first part of your question. So, as Sam noted in his comment, we expect to receive approximately 550 to 650 million less and Medicaid state supplemental payment net benefit in, you know, in 27 versus 26. And that's because of the grandfather approvals that happened in 26 that were really related to prior years. The predominance of that, Justin, was related to Florida, which we previously disclosed. You know, the rest is really related to the other grandfather states like Virginia, Georgia, et cetera. That's really the makeup of those kind of the out-of-period state supplemental payment programs. If I think about what the guidance implies over the fourth quarter, we are finishing September 26th year to date with $650 million of incremental net benefit from state supplemental payments. So if you think about the full year guidance range that we just updated to $600 to $800 million, that would give you a sense for what we're thinking about fourth quarter. At midpoint, it would be another $50 million net incremental benefit, and then you can see the range. And so that's kind of how we're thinking about that for fourth quarter. And then on exchanges, not ready to quote a sequential move from Q3 to Q4 at this point. I would note, and we noted this on our second quarter call, I would point you back to fourth quarter of 25, where we did see a slowdown occur in our exchange volumes from Q3 to Q4 last year. And so we do think there's a bit of a benefit comparison benefit in fourth quarter of 26, given that fact.

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

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

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

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

Hi, thanks. Good morning. The question is just first on the, I know there's been some questions around it on the third quarter and next year, but on the fourth quarter, just maybe the visibility and expectations that you have around elective procedures and sort of how scheduling seems to be playing out in terms of just normal seasonality. And then I just wanted to also ask in terms of the headwinds that you've laid out for next year relating to OB-3, whether there's anything specifically relating just to the CMS policy that now is requiring all the 1115 waivers to be budget neutral from a federal perspective and just whether your intel from the states, are you seeing any change in sort of approach or in terms of applications or, you know, sort of anything that you think could be sort of play out, you know, relating to that policy that could impact fundamentals in 27. Thanks.

On elective, Scott, and I think Sam mentioned this when he was answering the previous question of surgery. At this point, we did not assume, you know, any pickup on elective demand related to, you know, co-pays and deductibles in the fourth quarter. I think, you know, we expected normal seasonal move from Q3 to Q4, but we did not build into our guidance thinking some kind of improvement or full form of demand from an elective standpoint in the fourth quarter. When I think about H.R. 1 for 2027, and we continue to monitor all the rulemaking We know that our states continue to file their applications and feel good about the processes that we see in flight. I would mention on HR1 that the big change is really work requirements for able-bodied adults in our expansion states. I might mention just for context that expansion states are 40% of our Medicaid volumes and revenues. And when you think about work requirements targeting able-bodied adults in those expansion states, you know, when you take out the seniors and the disabled and the kids and those that are medically frail, we think that work requirements would be, you know, kind of applicable to about 15 to 20 percent of our Medicaid body. And so, you know, the net of all of that, while we're not quite ready to size it in terms of earnings impact, we do think that work requirements specifically would have a bit of a modest impact in full year 27. So that's the main things we're watching for HR1 next year. And I think that wraps both of your questions.

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

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

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

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

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

So if you start at the top here, I mean, it's our belief that there's sort of inherent demand growth in the markets that we serve coming from population growth, aging baby boomers, chronic conditions, new technology even. All of this sort of converges to create an upward movement in demand in the markets that we serve. And so that's a starting point, we do think, across a lot of our markets. We're gaining market share incrementally. We do have some markets that we have to adjust to different dynamics and respond at that level. But when you look at it in the main, over time we picked up market share. Our approach to our networks is continuing to advance. with respect to our ambulatory platform. We're up to almost 3,000 units through acquisition of urgent care, ambulatory surgery centers and other outpatient facilities that complement our hospital's ecosystem and create for our patients a more convenient and accessible location and efficient service. That continues to evolve in our Our networks and as we mature on that platform and leverage the restructuring that we did with one of our group presidents, Charles Gressley, I anticipate that we're going to be able to move our ambulatory platform forward and create even more growth out of it. Again, meeting our customers, our patients. where they live so that we can create convenience and so forth for them. A second important initiative for us is creating patient coordination once they do hit one of our ambulatory facilities. And through patient coordination, we think we can create a better experience for the patient and ultimately integrate them into our system. And if in fact they need acute care services, we're helping them achieve that Thank you for joining us. pushing 75% on our inpatient platform. We're benefiting, however, through patient flow initiatives where we're able to improve the flow for our patients and get them to the care sites they need. That's creating capacity for us as we evolve also. So all of these things combined are yielding growth for our company. And then lastly, it's how we engage with our physicians and support our physicians with their practices, meet them where they are, and find ways to invest in clinical capabilities, be very effective and efficient in how we process their patients, and then ultimately give them a voice in what's going on. That's allowing us to respond largely to our physician requirements as well. So all of those things, it's impossible to point to one thing. And each market's slightly different. We have to nuance our approach in each market to address those differences. That's why we're organized as we are with our divisions. But I think with 22 consecutive quarters of growth in volume which is quite impressive from my standpoint and then with the return on capital and then with the improvements in quality and service for our patients we feel like our model works and gives us again the staying power that I mentioned in my comments and allows us to push into the future with confidence and a belief that we can achieve our objectives.

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

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

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

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

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

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

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

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

Andrew, if I think about the inpatient-only list, obviously we're in year one of a three-year phase-out. This first year is focused a bit more on ortho and musculoskeletal type procedures. So that's what we're seeing. I think if I look at our elected book, I would say, you know, after these changes, which were the biggest driver of elective surgical volume weakness, the second driver would have been Medicare, especially on the inpatient side. So we are seeing some impact of the inpatient only list. I think it's fair to say that the outpatient market for surgery is a bit larger than the inpatient market for surgery. There's more competitors, and so that's a factor. When I think broadly, though, we look at ambulatory surgery centers, as Sam just walked through, as part of our networks. And building out our ambulatory networks, they play an important role. We are continuing to invest in And again, Mike, I think.

The fact that we have 25 different service categories that we focus on across the company that are different gives us an ability at times to invest, just like I said, in different markets. We can invest in different services depending on demand, forecasts, population trends, competitive dynamics, and so forth. And you see that in our volumes when it comes to some of the pressures we've seen on elective care. We've offset that with other services that give the networks a level of resiliency, give the demand sort of equation inside of the market support when it comes to our ability to provide patient care. And I'm not sure that is fully recognized in some of these isolated discussions about service A, service B. Clearly, there are always issues. We've had issues with stuff migrating from inpatient to outpatient. We've had new, over the years, we've had new technologies evolve that change the procedure approach for physicians and better for the patients. Obviously, we embrace that, but we've been able to backfill with other services, expand our markets get into new capabilities and ultimately keep the company moving forward in the face of those incremental changes that occur. And that's what I think is Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig, your line is now open.

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

When we think about resiliency, we largely think about four key focus areas that really make up this multi-faceted effort across the enterprise. The first one is really revenue integrity. working to ensure that we collect the revenue for the services we provide under the contracts that we operate. That's number one. Number two is asset optimization, Craig, and that's important. That's that patient flow that Sam was talking about, and certainly that's important on the inpatient side. It's also important in our emergency rooms, our operating rooms, our cath labs, and so we continue to see good performance on patient flow and and there's a lot of opportunity ahead. We are nowhere near the back innings here on asset optimization and feel good about the work ahead there. Third is variable costs, things like labor, supplies and even some of our variable operating costs, which are performing well this year. We have a number of resiliency plans that are driven to focus on variable cost. And when we look ahead, we continue to see opportunity and the variability across the company in our benchmarking tools and advanced analytics and taking that forward. And then lastly, our fixed costs, both at corporate and in the field, which are an important part here. So as I think about where we are today, we have good resiliency efforts that have been in our past and that are certainly improving our current year's performance We have a great line of sight now going into 27 and into 28 and beyond. And I think about things like the digital transformation is really being a key enabler that gives us that confidence that we're going to have resiliency benefits in the years to follow. We continue to build out our global capabilities. I think about the underlying work of expanding our shared service platforms. We have a number of expansions in flight where For example, Paralon is taking on additional administrative functions for the company and bringing shared service scale and expertise to broader parts of our work. So as I sit here today at the end of the third quarter of 26, we believe that we're in a really good spot. We have a multi-year, multi-faceted, enterprise-wide approach to resiliency, and we believe it's going to produce great results as we move forward.

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

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

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

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