HCA Healthcare (HCA) Q2 2026 earnings call transcript

Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Haven and CFO Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take questions.

Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they're based on management's current expectations. You must risk 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 pilots.

On this morning's call, we may reference measures such as adjusted EBITDAW, which is a non-gap financial measure. A table providing supplemental information on adjusted EBITDAW and reconciling net income attributable to HCAE Healthcare 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. We believe that access to healthcare and affordability for Americans begins and ends with health insurance coverage. Most people need support to secure it whether that is through an employer, the federal government, or some other means. Throughout 2025, our teams advocated for extending in some form the enhanced premium tax credits for those individuals who needed it. Unfortunately, the enhanced premium tax credits expired at the end of the year, and the effects as expected were that many people became uninsured and still needed emergency care from hospitals.

As we look at the first half of the year, our expectations proved accurate, although the impact was greater than our estimates. Our colleagues, however, have continued to deliver high quality compassionate care to an increased number of patients during the first half of the year while managing well through the various headwinds we faced. On behalf of our board and our senior team, I want to thank our colleagues for their great work.

When I look at the company's mid-year results, I focus on three factors, but before I get to those, I do want to indicate that the company had solid diluted earnings for shared growth of 11% in the quarter and 11% year to date.

First, we experienced an unfavorable payer mix shift, which created most of the financial pressure for the company. Overall, adjusted admissions for patients who were formerly covered by the health insurance exchanges declined by 15%. We expected some of these patients to shift to other forms of coverage, but this did not happen. Instead, these patients migrated almost one for one to uninsured. We had three of our 15 domestic divisions that had outsized effects from this payer mix shift, and they accounted for around in the quarter. We had an incremental net benefit from Medicaid supplemental payment programs primarily related to Florida. These programs, which are fundamental to our providing services to Medicaid patients, play an important role in supporting access to care.

Support has been especially important for hospitals as they are now providing more uncompensated care to uninsured patients. Our updated guidance for the year incorporates what we have learned through the first six months with respect to patients who lost their coverage on the exchanges. We believe most of the attrition this year is attributable to the expiration of the enhanced premium tax credits. The second factor was the strength and demand. Despite the payer mix shift, we were pleased with our volume growth.

Ensured volumes excluding exchanges across many of our services were solid with improving trends over the course of the first six months. Emergency room visits, cardiac procedures, and rehab volumes help drive these improvements. With respect to surgery volumes, the primary explanation for the decline was from reduced demand in elective surgeries across both inpatient and outpatient settings. We believe there are several factors contributing to this dynamic, including declines from patients who were previously covered through the exchanges.

Emergency inpatient surgery volumes, which account for approximately two-thirds of our total inpatient cases were up as compared to last year. As stated, we continue to be encouraged by the overall backdrop in demand. We believe our longer-term assumptions for demand growth of 2% to 3% are supported by market factors and population growth rates that we see in the communities we serve.

To meet this expected demand, we have continued to add capacity and facilities to our networks this year. Additionally, we have approved more than $7 billion in capital expenditures that should come online in the next three years. We believe these investments will increase offerings and quality for our patients, improve our competitive positioning, and help us grow.

HCA health care has produced strong returns on investing capital over the years, and we believe there will be opportunities to do more in the future. We expect to use our cash flow and balance sheet strength to invest further in our business while also returning capital to our shareholders through our capital allocation plans. The last factor I want to focus on is the advancement of our financial resiliency program. We continue to see improvement in cost metrics as we move through the first two quarters. For years, HCA health care has found ways to create economies of scale, increase operational efficiency, and enhance margins. We believe the resiliency program we are advancing now has more capacity through digital transformation, global capabilities, and enhanced workforce development programs.

We believe our program will continue to add value this year and on into subsequent years. I close with this, HCA health care has a strong track record of effectively responding to challenges, regardless of the event. From these experiences, we have built a culture of discipline. This culture has helped us stay true to our core mission to care and improve human life.

Next, it has allowed us to allocate resources productively to generate solid returns for our shareholders. And lastly, it keeps us focused on execution to deliver the outcomes necessary to make the company stronger.

With that, I will turn the call over to Mike for more details on the quarter.

Thank you, Sam. Good morning, everyone. Let me start by providing time period on second quarter, same facility volume compared to prior year. Admissions increased 2.5%, and equivalent admissions increased 2.7%. Inpatient surgeries were down 2.3%. Outpatient surgeries were down 3.4%. VR visits increased 3.6%.

Regarding payments, same facility equivalent admissions and our insured population, excluding exchanges increased 3.2% in the second quarter, at 2.2% year-to-day versus prior year. Exchanges declined 15%. The Sam noted, these patients losing coverage on exchanges migrated almost one-for-one to uninsured. This one-for-one migration makes up approximately 80% of our uninsured volume growth, with remaining 20% related to the decrease in Medicaid conversions, mostly in Texas, which has had a modest financial impact. Our second quarter net revenue per equivalent admission growth of 6.4% was processed payment benefit during the quarter. In addition, our contracted rate increases and governmental payment updates offset the negative rate impacts on payer exchanges relating to the exchanges and to a lesser-extended service mix, letting now transition to the impact of the exchanges and Medicaid supplemental payment programs in the quarter.

The significant payer mix shift related to the exchanges has had an unfavorable impact on adjusted EBITDA of approximately $400 million. This amount includes an increase of approximately $75 million related to our previous estimate, our first quarter exchange, and during the second quarter, the company recognized approximately $400 million of incremental net benefit from Medicaid supplemental payment programs. This included a $540 million incremental net benefit related to the recently approved Florida program from October 1, 2024 to June 30, 2026. This benefit was partially offset by retro payments received in second quarter of 2025. Sam touched on the advancement of our finance resiliency program.

Resiliency is core to how it operates in business. Our resiliency program is a long-term, multifaceted, enterprise-wide set of initiatives designed to generate efficiencies across the organization. We were pleased with our cost results in second quarter. Same facility cost per equivalent mission when considering Medicaid supplemental payment programs was essentially flat versus prior year quarter, and it improved 1.4 percent sequentially.

Let me add a note on our year-to-day performance. Given the challenging policy and reform backdrop, we are pleased with our operating performance at the halfway market the years. When we consider the impacts of the exchanges, Medicaid supplemental payment programs, and the impact from the respiratory season and winter storm in the first quarter, our year-to-day operational performance has moderated from our 2025 growth and our initial guidance assumptions. Our revised guidance in 2026 is more in line with our long-term adjusted EBITOC growth rate target above 4 to 6 percent.

Moving into capital allocation to cash flow, capital expenditures total 1.2 billion in the quarter. Additionally, we purchased 2.1 billion of our outstanding shares, and we paid 171 million dividends for the quarter. Cash flow from operations was 2.3 billion in the quarter, which is a 45 percent decline from prior year quarter. This decline was primarily due to time differences in cash flows related to Florida's Medicaid supplemental payment programs.

As well as the prior year deferral of federal income tax payments to the fourth quarter of 2025. Our debt to adjusted EBITOC leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well-positioned for the future.

So with that, let me speak to our revised 2026 guidance rankings, revenues between 77 billion and 79.5 billion adjusted EBITOC between 15.4 billion and 16.1 billion. Net income attributable to HCA healthcare between 6.3 billion and 6.7 billion. Deluded earnings for share between 28 dollars and 70 cents and 30 dollars and 50 cents. We also included revised key assumptions related to the expected unfavorable impact on adjusted EBITOC from payer mix shifts due to the health insurance exchange, as well as anticipated incremental net benefit from Medicaid supplemental payment programs as follows.

Health insurance exchanges between the negative 1 billion and 1.2 billion. Medicaid supplemental payment program net benefit between 300 million and 500 million.

The variables on the exchanges are difficult to predict and require significant judgments. We have now revised our estimated impact to adjusted EBITOC based on the updated information through the first half of the year. Specifically, the key change in our updated estimate is driven by our evaluation that almost all of the individuals losing coverage on the exchanges are becoming uninsured versus our original assumption of 80 to 85 percent. In addition, our original assumption around declining utilization for patients that become uninsured due to the loss of insurance coverage did not materialize.

Regarding Medicaid supplemental payment programs, our updated guidance implies a 100 to 300 million dollar hit in the back half of the year. This second half headwind reflects program approvals and retro payments received in 2025, which are projected to exceed the incremental benefit of the Florida program.

As we think about the quarterly progression for the remainder of 2026, we believe the fourth quarter adjusted EBITOC growth rate compared to the prior year may be higher than for the third quarter. This is based on our assumptions around the timing effects of exchanges, Medicaid supplemental payment programs, and our resiliency programs. We are maintaining our stated CAPEX range of 5 billion to 5.5 billion and currently planned to complete most of the existing authorized share repurchase programs subject to market conditions and other factors.

But we now hand the call back to framework and request.

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. Abby, you may now give instruction to those who would like to ask a question.

Thanks. Thanks, Ben. It's Mike. You know, if you think about first half the year, we've gained a lot of the exchanges better. We adjusted our estimates accordingly. You know, if you go back to our original set of assumptions, the volume declines that we are seeing in first and second quarter on the exchange, which are 15% in both first and second quarter, are in line with our original guide assessments in terms of exchange volume decline. What's different as we had gone through second quarter is that, you know, we originally assumed that about 80 to 85% of the patients who lose exchange coverage would become uninsured. And our data is telling us now that it's closer to one for one.

And so that's really the biggest driver of the updated estimate of the impact. When I think about kind of first half versus second half, you know, first we are providing a range. And so, you know, this one to 1.2 billion range that we're calculating for the first, for the full year of 20.6, you know, considers a variety of scenarios. But to come up with that estimate for second half, we're using what we've learned through the first six months of the year.

And we've also studied our past attrition rates over the last several years. In addition, we have pulled, I'm sure, just like all of you have, you know, all the external data that we can with updates as we've gone through the year. So based on that, that is the driver of our full year guidance update. I would note though, as we look back to last year, we began to see some slowing exchange volume in the fourth quarter of 25. Historically, over many years, our exchange volume would typically be in fourth quarter. But this is not the case last year. In hindsight, we now believe that the exchange reforms that actually started late last year started having an impact and specifically in fourth quarter.

I'll give you one example. The pausing of the low income special enrollment period during the early 2025, we thought, we think now in hindsight, have an impact. Our fourth quarter 2025 exchange volume growth to prior year was only 2.5%. The full year 2025 versus 2024 was over 10%. So that gives you a sense of it. So we do think when we think about second half flash, you got the 26 compared to prior year, that fourth quarter has a bit of an easier comparison. So Ben, that's a wrap on the exceptions and our second half guidance.

Only to see if I can sort through a condensed answer here. I think it's important to understand our surgical business. We have on the inpatient side two sources of channels, if you will, for surgery. We have the emergency room, which represents about two thirds of our inpatient surgeries, trauma programs, cardiac events, general surgery, you name it. That continues to grow. We've seen in 25 over 24 our emergent inpatient cases were up 2% year over year. And thus far through the first six months of this year, that particular component of our surgical business is also up 2% year over year. So that's a stable component of our surgical business. And we continue to invest heavily in our emergency room capacity in network offerings to enhance opportunities for patients to enter our system and get the care they need.

That's number one. The other piece of our inpatient surgery is clearly elective, which represents about a third. And we are down this year, more than we were last year. Last year we were down on elective 2%. This year we're down on elective 6%. We do believe that HICS demand, which is a big piece of our elective decline on both inpatient and outpatient, is a part of it. So this discussion that Mike just referenced around HICS, it's cutting across all aspects of our business. We're seeing it in the ER. With our payer mix there, we're seeing it in outpatient surgery from an elective standpoint. And we're seeing it on the inpatient. On the outpatient, it's predominantly all electives.

As you would expect, there are some cases that do migrate through the emergency room, but 9 out of 10 patients are roughly elective. Here again, HICS demand was a big piece of it, not the sole piece of it, but a big piece of it. We do hear from our physicians that their activity flow is off a little bit this year.

They're attributing it, as you would suspect, to sort of the general affordability and pressures that people are experiencing with the economy as a whole. It's hard for us to tease that apart, but that's the best feedback loop that we have. And then I think there's just a handful of other things that are connected to it. Obviously, the Medicare inpatient rule change has had an impact, and we've seen some cases move from inpatient to outpatient. We do capture some of those, and we lose some of those, as you would expect, because the outpatient surgery market is a little bit larger than the inpatient surgery market. So those are some of the factors that we see. We have a response to this, as you would expect of us.

We are investing in our ORs to make sure they have the equipment that they need. We're optimizing our operation so that the patient and the physician has the flow and efficiency that they require. And then we're aligning with a connection to our network. With our ASC business, our ASC division actually had earnings growth over the first six months of this year. We have roughly the same number of facilities in that division, and for both surgery and what we consider non-surgical cases like endoscopies, colonoscopies, lipotrypsy pain, our overall volume in our surgery center due to more units is up slightly year over year, but the acuity of those cases is growing. So we continue to add to that network also, as you would expect, so that we have multiple offerings for our patients, multiple offerings for our physicians, and making our network more resilient with additional capacity.

So we're obviously sorting this out, and we think that we're in a good position competitively, and we'll have to see AJ as we move through the balance of the year, whether or not we see a recovery from some of the early indicators that we've seen in the first six months.

Okay, and thank you. This is Sam. Let me see if I can pull all that together and respond to your questions there. If you look at our company over the past, you know, let's just say five or six years with our capital spending, we have added to our inpatient chassis. Just to give you some numbers on that, we had roughly 37,000 beds at the end of 2018 operation in operations. We have 42,000 today, our occupancy level since that time has grown from 71% to 75%. So in addition to adding roughly 15% inpatient capacity to our company, our utilization of that capacity has grown by five points. Within our 7 billion that I referenced earlier, we do have another 1,000 to 1,200 inpatient beds that we're adding.

But in addition to that, we are also adding to our outpatient network. In the second quarter, 2026 as compared to the second quarter of 2025, we have 5% more sites of care than we did last year. And that's roughly 250 or so if I remember correctly. In our pipeline, we have another 250 to 300 outpatient facilities, either in our capital plan or in our acquisition plans that will come online, we believe sometime later this year and early next year. So that will add roughly 10% to our overall network capacity more units on the outpatient as you would suspect. The 7 billion dollars includes components for all of that. It includes new beds, actually new hospitals in some cases, a number of outpatient facilities, some of which I just referenced, and all of that goes to help us compete.

We are losing no competitive positioning. We have judged through our mid-year reviews, through our market share analytics, that our competitive positioning is stable to growing net net. There may be a market or two here that has had a competitor do something that we have to now respond to, but that's fluid and dynamic always. And our touch points with our dynamics. And so we do believe we're gaining market share where in many of our markets, some are flat and some are modestly down. That is a normal course for us. But overall, we feel good about our programs that are necessary to extend our networks and create convenience and more offerings for our patients. And then the investments back in our hospital centric components of our facilities, increasing capacity, increasing technology offerings for our physicians and patients, and then creating the kind of availability so that patients can get into the systems.

It's positive because we see, again, demand growing. And our job, given our position in these communities, is to meet that demand. Let me make this last comment on our market because I think this is a very important component. And we shared it with our board, with our mid-year review just this week. The demographic trends that we see in HCH markets, we believe are as positive or more positive than they were during the COVID migration that we saw to the southeastern and southwestern parts of the country. Through our study, through our understanding of other people's studies, we believe those trends are going to be supportive to the overall growth that we expect in HCH markets, Florida, Texas, Utah, Nevada, South Carolina, Georgia, Tennessee.

All of these states are targeted for growth that we think is going to support these investments, provide for more healthcare demand and create great opportunities for HCH to grow.

Yeah, Brian, thank you. As I mentioned in my prepared comments, you know, when you kind of consider waiver and you're right, I mean, our other operating expenses are being inflated because of the provider tax associated with our waiver benefit, for sure. But I'll pull up and just look at our total cash total cost per adjusted addition to prior year, you know, in the quarter or the second quarter. And think about that. And that would, that would be, you know, SWB supplies and other operating expenses combined, Brian.

When I look at that compared to prior year, we're only up about kind of call it flat, slightly up over prior year. That really reflects, you know, really good work in second quarter related to our resiliency plan. You know, Sam noted his comments and as I reinforced in mine, resiliency is really core of the business. And it's something we've been working on for a long time. You'll remember that we've been highlighted this in our investor day back in 2023.

And resiliency has been in the company's results going back to the pandemic. And as we look at all of the work in flight with resiliency, the gaining maturity of these programs, we're confident that we're going to be able to, to bend the cost curve and bend the cost curve, improve our cost trends, if you will, in the second half of the year and into 2027. And then from the next generation of that work, when you think about digital transformation, building global capabilities and all the work we're doing to expand shared services, you know, we believe this will produce multi-year benefits for the company as we go out in town.

The only other thing I would mention to your question, if I think about, you know, kind of other operating expenses would be potentially professional fees that are in other operating expenses. They're up about eight and a half percent on the same facility basis prior year, which is which is moderated and is pretty flat sequentially to first quarter.

And so we're pleased with that work.

It's still a little elevated from our other cost trends, but we believe we've made progress here in terms of our professional fees. Yeah, and Mike, let me add to that for one minute. You know, I've been with the company for 43 years and I've seen our approach to our business grow when it comes to complexity of services that we offer, whether that's trauma, bone, marrow, solid organ transplant, whatever the case may be.

If I juxtapose our resiliency program against sort of our service components and how complex and sophisticated our services are in our hospitals, that's exactly where we are with our financial resiliency program. We are getting more sophisticated. We're getting more sort of capabilities to execute on this piece of the agenda. And this has been an opportunity for us for years. We just didn't have the tools to get after it. And the tools that in capacity that Mike just alluded to reminds me of where our networks were maybe seven or eight years ago, where we didn't have a full array of services, or we didn't have the outpatient capabilities that we needed to build out a network.

Well, global capabilities corporately to support all that. That's why we think this particular program has durability and capability to add value for the company as we push into the future.

And on the bottom line, you call it any savings and initiatives that are coming online in details around those initiatives.

Sure, Pitoch, Mike. First, just a couple of background statements. One, we do have a range, so it's always important to note that when we gave our updated, you know, full-year guidance, we gave a range to ensure that it contemplates a variety of scenarios. And then, you know, inherent in your question, we did think about in the second half of the year's assumptions that were making related to health insurance exchanges and incremental net benefit from the when we think about the risk of this. I really think about three drivers that give us confidence here in our guidance for the back half the year. The first one is really volume. And, you know, our second quarter of a soul profile, you know, solid volume growth, particularly in our insured population, excluding changes.

And we do believe that that demand momentum will continue through the balance of the year. The second is our cults. And you noted that, but it's clear in second quarter we have really good performance in our cost trends. From what we're seeing in our resiliency plan and the visibility into the execution of that plan. And as well, if you think about the operating leverage that we generated in second quarter from volume growth that we believe continues, we are confident that we will be able to improve our cost trends in the back half of the year. And into 2027 as well. And then lastly, I think it's important to say we have an excellent management team in the field and a corporate and our management team has demonstrated through many past challenging cycles the ability to handle challenges and exceed and thrive during environments like that.

And like the one we're in now. And so I'm confident that as we kind of go through the year, our management team.

Can you give some context in terms of either the geographies or just the commonalities in terms of those those divisions and why they're seeing a bigger impact? Yes, this is saying, Hey, we we have three divisions. Our Gulf Coast Division, North Florida and South Atlantic Division are the three that had a lot of Hicks exposure going into the year. And they've had dramatic impacts from the Hicks exchange volume shift. Their composite adjusted admission decline in Hicks is somewhere between 25 and 28% for the first half of the year. And that has obviously created a lot of pressure. We didn't expect it to be that much in those markets. And the teams have tried to adapt to it as you would expect as best they possibly can, but that's fairly sizable impact.

So it has had an outside effect on the company. Obviously, we're all in on all of our divisions. And typically, we have a more balanced performance across the company. But in this instance, it's been a bit imbalanced with those three situations. And so we're reacting to it appropriately in two of the three divisions. Actually, we have more volume than we did in the previous year in total.

But again, the pair mix of those divisions had been compromised by the expiration of the enhanced premium tax credits. And that's produced a significant move from Hicks to uninsured in those markets.

Sure. You know, obviously, there's a proposed rule out Medicaid work requirements. You know, just a couple of notes. One, we believe work requirements will have an impact in non-expansion states. I'm sorry. They don't have an impact in expansion states way more than non-expansion states because of this focus on working adults.

As a reminder of all of our Medicaid revenues, about 40% of our Medicaid revenues are in expansion state, 60% or not. We are monitoring this proposed rule. As you can imagine, we're going to have to see how it plays out. I mean, there are some litigation and legal challenges around the way that CMS is implementing the work requirements left to see how they move through the system. And we're also monitoring how our states implement these plans. Most of these, if not all of these expansion states, tend to be a little bit more blue, a little bit more democratic.

And we are working with those states to make sure and try to support the notion of a good supportive approach towards implementing work requirements within the laws of the rule, of course.

And so our Caroline teams are also getting really organized here. I think about, you know, the coverage benefits, supported teams that we have embedded in all of our facilities in these states and the work that they do with patients to help them work through the Medicaid application process and help them work through the work requirements process. So we've bigged up those teams with and we were preparing the best we can. You know, we'll say when I just think about the distribution of our assets, you know, between expansion and non-expansion states and the work that we're doing to prepare, you know, we still think that on balance while Medicaid work requirements are going to have an impact, an impact, we do believe we'll be able to manage through those in a reasonable way.

Thanks a lot. Yeah, I don't have a different explanation for the second quarter versus the year to date. I think, you know, it's hard sometimes in short cycles to make judgments about demand in 90 days is a short cycle. So I think from that, Sam point, I don't think the explanation varies much from quarter to quarter. And so a mid-year review, I think is a more relevant perspective on that. So I don't really have anything to add additionally to the commentary on surgeries. And then Justin, if I look at same facility, equivalent emissions in second quarter of 2026 compared to prior year.

All in, Medicare is up 3.6%. Medicaid is up 2.7%. Commercial excluding the exchanges are up 2.4%. The exchanges are down 15%. And the total uninsured is up 15%. I would know the total uninsured equivalent emissions now represents about 10, a little over 10% of our total equivalent emissions and look at the payer mix, Mike, of the company on the inpatient side. This year versus last year, identical by payer class. And then when you put health insurance exchanges and uninsured together, and this is why we conclude that there's a bit of a one for one, it's the same number. And so that's what's happened here is our payer mix is actually the same in Medicare as it was last year, Medicaid as it was last year, managed care and other as it was last year.

And then Hicks and self pay uninsured together are exactly as they were last year. And so our conclusion on one for one is reinforced, we believe, by that sort of fact. And for us, obviously, that's not a good thing. We still have to take care of these patients. And our people do a wonderful job, but it does put pressure on the P and out. You know, Sam, to that point, you know, another way we've looked at this, and this again, junior today, same facility, it's very prior year. Our health care exchange equipment emissions are down about 22,000. And our uninsured equipment emissions are up about 26,000, 500. Yeah. And so, you know, we get the one for one migration from the exchanges.

And then with the uninsured, we also on top of that have a little bit of this Medicaid conversion slowdown in Texas. And so, to Sam's point, that is the payer mix dynamic ridiculous. And to put that into context, those 20,000 patients might that you referenced, we took care of about 1.1 million people. And so the implications for the company are really hinging on those 22,000 patients.

It is what it is. We understand that. But you've got to appreciate the context here in the backdrop of 1.1 million adjusted admissions and 22,000 or whatever that number was you gave represents about 2% of that. And that movement has had obviously a disproportionate effect.

And we're responding to it as well as we can.

So as we think it's been raised for the exchanges in 2027, you know, we believe it's reasonable to estimate at this point, even with premium increases that we're starting to see that the loss of coverage will be left in 2026. You know, this estimation assumes the core premium tax credits, which are central to the original Affordable Care Act, will continue with no new enhanced premium support. Clearly, there are other factors for both a policy and a market standpoint that could change our thinking. But at this particular point in time, that that's where we are. We again believe most of the attrition this year is directly attributable to patients who were benefiting from the enhanced premium tax credits.

Now that those have gone away, we think we'll be in a normal course as we push into 2027.

Thanks. You know, the set context here at the quarter, we recognize 400 million in incremental net benefit from state supplemental gains in the second quarter. That includes 540 million incremental net benefits related to the recently improved Florida product. And the time period that's October 1 of 2024 to June 30, 2026. So that's 21 months worth of benefit booked into the second quarter. Now in the second quarter, that that that Florida benefit got a little bit netted down because there were some retro payments in the prior year of second quarter 2025. If I just think about Florida specifically, you know, the other that make maybe two other notes here, you know, the new year that we have an approval on clearly is the time period of October 125 to June 30, 2026.

And we did approve benefit into that. Given that the Florida program is a long standing program, this approval is an enhancing that program, given that the program was approved for state fiscal year, you know, 2025. And the state recently submitted the fiscal year 2026 program for approval. We felt comfortable going ahead and making that approval. And then just as a note, as we kind of gone through July, we are receiving cash against that approval and feel good about the status of that.

Obviously our guidance also implies that we booked an approval for 2026 as well. It's part of our overall guidance for the year on the lake.

Thank you. We don't comment about mid-quarter progression. So I'll pause on that. I will mention the proposed rule. You know, if I think about both the inpatient and outpatient rules that have been recently proposed, we are generally pleased with the proposed payment updates, you know, in the aggregate. So generally, generally, please, especially on the outpatient rules to your point, but even in aggregate, we think they're positive. Now, obviously, we've got to get them from proposed files. So that's what we're waiting for. I mean, it's difficult with the month by month because of business day alignment and it sort of skews a comparison and you have to normalize for that. That's why I again, you need some longer runs to really judge what's going on as you push through, you know, the different month to month.

And that's why it doesn't really make sense. We believe to give you sort of an indication on the second quarter because there were different movements. And I don't think we haven't in here.

Well, thank you for that question. Let me pull up first and give you some backdrop. I think it's important to our philosophy when it comes to our relationships with our payers. I mean, largely, and I mean, almost universally, we are an in-network participating provider with all of our facilities. There are a few one-off situations with provider-owned health plans in California or Utah, where we don't participate. And there's only a few other commercial contracts outside of the exchanges that we don't participate in. Within the exchanges, roughly 85%, 80 to 85% of all available payer contracts we participate in those. And that's a very important part of our strategy. With our acquisition of Flesco, we have gained control of many of our hospital-to-hospital-based services.

And through that control, we've been able to integrate them into our contracts appropriately with reimbursement that's improving and aligned with what those services need to operate. So as a company, we have very few of our accounts go through the IDR process. And it happens at times with some of the exchange contracts where we don't participate or in a few commercial contracts here or there that we don't participate in. We do not use the same methodology that I think appropriately work the process inside a pair line with the payers following the protocols and so forth. I don't have a good viewpoint into the full impact that it's having for the payers through these other situations that are developing.

Like any early stage regulatory solution for a marketplace, it takes a while to sort those out. And maybe we're in that period where the regulatory framework that was established for the IDR process still needs refinements. In order to balance out the process, I don't know. We're not that active in it. And so I've read some of the same stuff you've read and so I can't really speak to the full effects on the industry as a whole. But I can give you our viewpoints on it from what our experiences have been. And we're hopeful in many of those instances we can get the contracts that we need so we don't have to use that process. But that's a very important point.

Thank you.

One of your peers called out the elevated growth here, particularly for anesthesia and radiology. But in those trophies, trend in two queue across those two areas specifically and how sensitive are anesthesia subsidies to the current slowdown among elected surgical procedures? Thanks. Well, as I noted in my previous answer, I think Mr. Bryan, what we're seeing now is about an eight and a half percent growth, same distillity on pro fees the prior year. And year to date, it's almost 10 percent. So we are seeing some stability here in our trophies. I mean, clearly, if you go back to our last couple of years, we've come off of two previous years where our trophies were inflated. We've been dealing with all of these hospital-based physician group pressures for sure.

If you go back in time, as Sam mentioned, the acquisition of the blessed-go joint venture and bringing in through that work, we've been able to stabilize our emergency room position component and our hospital medicine position component. And we're in a much better shape there as it relates to the cost side. And it's also, by the way, a great asset for the company. And we believe we'll drive strategic value in our facility. What we're dealing with now is similar to what you're hearing. The components of hospital-based proceeds that are still elevated are anesthesia and radiology.

And those are really the components that are driving even are called eight-half percent growth prior to your quarter, our continued pressures there. And we continue to work diligently through both of those, those lines of businesses, if you will, using the HCA Playbooks that we're working on, people processing technology, and our management teams in the field are hard at work in both of those components. It's our clinical services group here in Nashville. So I do think we have stabilized.

It's still the part of our cost structure that's running at above inflationary levels, for sure. But we feel better today as we sit here in June coming off the last couple of years.

But if you look at our growth in uninsured volume, about eight percent of that growth is coming from the one for one migration out of the exchange. About 20 percent of that growth in our uninsured volume to prior year is coming from this slow down in Medicaid conversions. So that'll give you a bit of sizing of the driver here. And we talked about this a little bit in first quarter as well. But there's really a couple of components that we're watching for that are frankly different than what we saw last year. The first one is the applications for emergency Medicaid. You know, people think I'm as mostly undocumented people are down. And so that is a piece of what's driving Medicaid conversions down, is the, you know, the slowdown on applications to emergency Medicaid.

You know, the other component is a general slowdown of people who are eligible for Medicaid. As we see the self-pay volume attributes, we're just seeing less people to qualify for Medicaid conversions as part of that. And so, you know, those are the two factors we see. And in Texas seems to be feeling the variety. I mean, it's not that we don't have any Medicaid conversions, but you know, in other components of the business that Texas is uniquely being affected here. And so those be the drivers that we call out.

Andy, I think we have to have one more question. Thank you.

I guess, you know, you guys lowered your, you know, overall EBITDA by 250. It was like you raised the SCP number by 550. So, kind of feels like the XSTP number was cut by about 800. And it sounds like 350 is because of the exchanges. So, I'm not clear to me what the other 450 is as far as the guidance reduction.

Yeah, you know, in Kevin, I tried to deal with that a little bit in my prepared comments. But as we've gone through the first six months, and you think about our update, guys, and to your point, you take into account the change in assumptions related to the changes and the change in assumptions related to say supplemental payments, you know, you're left with, you know, call it 500 million dollars roughly of reduction to guidance. And when I think about that, you know, that really reflects a bit of the moderation in our growth rates that we are seeing this year compared to where we were in 24 and 25. And where we started the year with our initial guidance, I would know, though, when you build it up from the bottom and think about kind of what that implies in terms of operating performance.

Again, considering those adjustments that we talked about, you know, it looks like, you know, kind of back to our long-term plan levels of adjusted EBITDA growth. And, you know, really even for a full year basis may be the top end of that range. So, you know, that's how I think about it, Kevin.

Okay, so it's just the view that the original guidance had a little bit above the long-term growth algorithm starting point and how you're back at the long-term growth algorithm. Yeah, and that's really, you know, what our experience to the first six months has helped us. And so we're reflecting that in our full year update.

Thanks.

I will now turn the conference back over to Mr. Frank Morgan for closing remarks. Abby, thank you for your help today. Thanks, everyone, for joining us on the call. Hope you have a good weekend. I'm around this afternoon. You have questions.

Have a great weekend. Thank you.