HCA Healthcare, Inc. (HCA) Earnings Call Transcript & Summary

[Audio Gap] Next with us company's CFO, Bill Rutherford; VP of IR Frank Morgan, I want to give Bill a minute to give us a healthy business [indiscernible]. So...

Thursday, we gave a pretty in-depth update on the business. Hopefully, you guys had the opportunity to see that. So I'm not so sure I have a whole lot to add to that.

Look, I thought the Investor Day was incredible, especially the next generation of leadership there. You're division President, COO. I was with Mike Marks and it looks like Bill Rutherford here with me.

Pretty solid.

He certainly looks like maybe the next generation. So...

Our goal was to give people some appreciation of the depth of HCA and the capabilities that we've developed over the decade. So hopefully, you got to look into that. Secondarily, give them insight of the depth of the management team. And then probably, just importantly, share with the investors our outlook on various aspects of our business, especially in a post-COVID environment. So hopefully, we accomplished those 3 primary objectives.

There was -- tell me if I'm wrong. My impression and the feedback I've gotten from investors, there wasn't a lot of change, right? You're going to take market share, you're going to keep running a fairly similar playbook, roll out more outpatient, more it might continue the in-migration of [indiscernible] services, right? And it was more kind of going as how you continue to get.

I think that's right. And we think if you look at the 10-year value creation over that time, it's been a pretty good formula for value creation. Combine our operational performance with capital allocation, invest into the business, being able to establish our networks as important community assets. It's a formula that works, and we're going to stay to it.

Look, I'd say the -- a couple of things I came out of the Investor Day wanting a little bit more of it is probably more around the near term, right? You and I have been talking for 20 years. And I do feel like usually, Bill, at least in the first 18 or so, it felt like more of the pressures were up. Like when something would be cost that typical trajectory, it was all for a period of time, somebody did an amazing job of kind of reacting, but typically the cost was on the revenue, in my mind. It was more the volume moderate a bit, payer mix changed a bit. It feels like it's definitely -- all of that feels pretty good, and it's now on the cost side, right? So the latest cost issues are labor and now transitioning to specialty. So maybe you could just give us an update there. But my recollection on labor was that we really saw a -- first, we saw a big temp labor kind of get out of hand. Probably did a very good job of getting your hands around that quickly, right? And the industry as always, but had to make investments in the existing labor, right? And I think it would be the second and the third quarter where you start kind of ramping those. So we annualized them in 2Q, 3Q, and I think we started seeing some of that. We -- what do you think the -- when you think about your 2024 expectations? What do you think about for labor relative to the typical 2% to 3% price? Labor kind of start to get back to that trajectory? Or is it still low level?

I think labor, if I -- all in or SWB, our salary, wages and benefits, I think returns to our historical trend. And to your point, the labor market, the clinical labor market, in particular, was disrupted during COVID. Just all the supply and demand that affected as people moved into these temporary agencies. We had to have the nurse to meet these COVID surgeries, and inflation escalated through the utilization of premium labor. And to your point, that was an area we focused on. And then within a couple of quarters, we were able to moderate. And by the second half of '22, we were in a pretty good spot, and that's continued through the course of '23. So I think overall, the labor market has settled significantly since that point in time. Turnovers back to nearing pre-COVID layers -- levels or recruitment is providing, I think, adequate amount of staff. So I think overall, as -- I think I got asked question during Investor Day, overall 2.5% to 3%, pretty good planning horizon for us for the most part. And then obviously, the current day is the professional fees on there. And just we, as a management team, feel confident we'll continue to mitigate that and make inroads on it just as we have other issues in the past. We've got a number of initiatives underway. I can't give you an exact '24 landing spot for that until we go through our planning process, but we have every expectation we'll continue to see improvement sequentially in the rate of growth of those physician efforts, not only through utilizing scale platforms, but to try to make some programmatic changes. And we're not sitting still on that. And in my experience, any time as a company, we focused on addressing a particular cyclical challenge, we do a reasonably good job of getting after.

I couldn't agree more. The -- so when you say the rate of growth improved sequentially, remind me, what was it 1Q to 2Q and 2Q to 3Q.

So Q3 to Q2, our rate of growth, I think, was down around 5% sequentially. I think we were seeing mid-teens in the Q2 level, so it kind of peaked on us. And so I don't know where it's going to settle in. I can't call an exact number. But I think our pro fees we've stated are up about 20% year-over-year on there. And we have full expectations that won't be the case next year.

Right. So the -- it seems to me the expectation would be just the annualization of that big pickup in 2Q and then a further pickup in 3Q. Even as that moderates, that's going to be a headwind next year?

A little bit.

So you have got up 20% year-on-year, but it's going to be up materially more than 2% to 3%.

Yes, potentially. Yes, I think I can't escape that. And clearly, we're going to have a year-over-year tail effect of that. But we have a number of initiatives underway, not only on pro fees but other efficiency initiatives that we're confident in kind of the broad kind of range of targeted expectations we gave. So were you not hearing...

I was not miked up. I think I can project that.

I think they probably pick [indiscernible] on there. So yes, our overall goal is to keep those growth within revenue growth. If it grows a little above revenue growth, then we're going to find initiatives or other initiatives to offset that.

Right. For instance, you talked about -- and forgive me, I think it was maybe $600 million to $750 million or $700 million, $800 million during, I think it was Mike Mark's presentation on...

Got a lot of notes, yes. Efficiencies being driven, $600 million to $800 million over the next 5 years, yes.

And so should we just divide by 5 and think about that as...

No, I don't think it's as easy as that. It's kind of going to ramp up as these programs develop and mature. Some of them, as he talked about, are depending on some of our technology and innovation initiatives as we can operate our facilities in a much more efficient. But they're already beginning. They've been part of our success going forward. We also said we see opportunities to drive efficiencies and outcomes through our technology investments. And we're committing a significant amount of resources to our technology over the next few years. And our resiliency efforts, our efficiency efforts will largely pay for those investments in the early years and I think provide meaningful contribution in the out years. It's not as easy as straight-lining them, but they'll start providing meaningful benefit to us in the near term.

Got it. One of the areas that was a benefit in the third quarter was these Medicaid DPP PNS, right?

Yes.

And as I think you know, we met with a friend of yours, David Dill, down in Nashville before your Investor Day. He's the CEO of LifePoint. And he mentioned to us that there's a pretty big check coming his way from North Carolina, right? And I think I asked you this at the Investor Day, right? Is that in the guidance? So first of all, the North Carolina...

It is in our '23 guidance, yes, and '24.

So North Carolina is in '23. And Nevada plus North Carolina reoccurring, I assume, is in 2024.

Yes, in the range of our expectations. A lot of these programs, you think, are just part of our operations right now. There are some new states coming in, to your point, North Carolina. Nevada, as I understand, is not approved yet. We typically wait for those programs to be approved and for funds to start flowing before we start recognizing. So I don't have an exact timing on when they bought it, but I do think it's a '24 event.

And just the -- we -- I tried to put some numbers around it. Now what I want you to do is [indiscernible], right? I'm not looking for an exact dollar amount. But David Dill said $50 million, and you guys are more than twice as big as he is, right? Now I know he's got more Medicaid. And then Steve Filton said $100 million to $150 million, and I know they're a little bigger than you and Vegas. I kind of told investors, it's like probably $75 million to $100 million for each state. Anything you would just wave me on in those numbers? Am I way too high?

We haven't sized it.

That's a good answer.

You're -- we haven't sized it yet, but your sanity...

That's a good answer. That's a good answer.

You're still sane today. How about that?

Okay. That's all I wanted to hear.

Is that fair? Can I usually say that?

Not too often that someone doesn't tell me I'm wrong. So that's very kind of you. All right. So the -- then just thinking about the potential there going forward, right, these things are impossible to forecast, right, in terms of new states. The -- but you have them in Texas, I believe, in Florida, now North Carolina, Nevada. Which states aren't they in? For instance, one of your peers mentioned Tennessee is a place where it doesn't exist today, at least not to the extent that it does in others. And that's a potential an area of lobbying for 2024.

I think every state has a little nuance to how the program works and so forth. And I think Tennessee has an existing program. I think we've heard some discussions there may be some expansion to that. I don't really have any further insight into that. If you take our footprint, some of those states have Medicaid expansion, which is kind of the process is -- in an effort to gain more Medicaid funding. Some have used the 1115 waiver programs for years like Texas. Some have used some of these new directed payment programs, all to basically supplement Medicaid and uncompensated care funding on there. So I think most states have some form of that to a degree or another. Some may be expanding like North Carolina, Nevada, and I think those are -- I think that's substantially the majority of the states that we're in.

Got it. And when you say expanding like North Carolina and Nevada, my understanding is that the -- historically, these programs where you're getting massively underpaid on Medicaid, right? Everyone loses money on Medicaid. They are trying to get you like in the ballpark in Medicare rates or some somewhere in that range. Some of these new programs are pushing -- trying to push you closer to commercial rates, right, is my understanding. Is that the way you view Nevada and North Carolina?

I've heard that with Nevada. I don't have exact knowledge on that yet. But yes, I've heard some will be in that neighborhood. I don't know -- I don't think North Carolina is necessarily there yet. But I think that your premise is right. I think these programs are designed to help make up for what's historically been shortfall of Medicaid funding to one degree or another. I think each state has a little bit different approach to how they do that, maybe a little bit different targets of what they're trying to achieve with.

Got it. So to your point, I guess, just to add one more layer, right, every state has these, right? It would seem to me like the right side of the curve would be to move toward try to get you to commercial, right? And you make up for other areas that you're losing money and like uncompensated care? So the -- do you feel like Florida and Texas have kind of pushed to that extent? Or is this more Nevada feels like an outlier, right?

I don't know is my honest answer, but I don't think Florida, Texas are necessarily geared to necessarily try to do that. There's a lot of complications and a lot of variation about how these programs work. There's generally a funding pool. There's generally some limits. There's an allocation methodology that each state has a little different. All of them are subject to CMS approval. So I'm hesitant to categorize them a broad brush because each state has a little different structure and a little different objective, I think, they're trying to accomplish.

Got it. And just the -- do we think ahead, my assumption is a Democratic administration that's trying to add more coverage, trying to get more access to care might be a little bit more open to these types of programs than Republicans at running CMS. Has that historically been the -- your experience?

I'd say traditional that was right, especially when you think about the early days of the Affordable Care Act and the intention of expanding Medicaid through maybe different mechanisms. And maybe these states in lieu of expansion have used these other programs in place. But the programs are so important now to the broader provider community. They're always subject to some adjustment, I understand. But they're a large part of the funding mechanism to a lot of community-based hospitals. So you think even if there was an administrative focus to try to adjust those to some degree, there'd have to be some compensation somewhere else to not put a major issue into the safety net of community hospitals across these different communities. So it tends to maybe buffer a little bit of the risk that may be out there in the event they get a little more...

Got it. And when you see that scrutiny historically on any of these programs, does it usually result in a potential decline? Like do we worry if there's a Republican in the White House that they cut back on them? Or my history with the government is there, usually loathe to take anything away? So is it -- do you think more of the risk is just they'll get a little bit more scrutiny on the next one? Or do you think there's some risk to the existing program?

I think it's the next one. I think it would be hard-pressed to do anything retroactively on approved program. But that's my take. Someone may have another one. But I think definitely, it would be a go-forward scrutiny versus...

Got it. One of the things that has been a real positive for the company has been beyond the acuity changes that you've had on pricing, right? I know some of that is the market and sites of care. And some of that's all the great investment that you're doing, right, that you kind of highlighted at the Investor Day. But payer mix has been trending in the right direction.

It has, yes.

And so can you walk us through what you think is happening there? Do you think that's part -- do you think you're getting better share growth on the commercial side? Or do you feel like it's just the mix that's out there, and we're getting our fair share of it?

I think there's a number of factors that are driving it. And we've been pleased with those trends. I think it starts with the macro environment we're in was better than we probably anticipated going into the year. We're still in our markets in a very strong economy, almost record-low unemployment in a lot of places and still strong employer-sponsored coverage. And that fundamentally, I think, is a positive driver for us. And that was supported with strong enrollment in health insurance exchanges with the enhanced subsidies. So those 2 factors are really important to the payer mix here. I think we continue to capture share and position the HCA market a network to be competitive in the market. So that's part of the equation on there, some of our expansion of service lines on there. And our network development. A lot of our outpatient network development is -- gives you access to those lives. And so I think it's hard to call out any one of those is better or worse than the other. But I think the combination of those factors has led us to be in a pretty strong payer mix environment. And in our view, I've said this before, it's one thing looking at mix a percentage job, but we're seeing strong growth in the commercial segment, we're seeing good growth in the Medicare segment. And as long as both of them are growing, one may be growing faster than the other, that may change our mix number. But as long as we continue to see reasonably good growth in both of those segments, both of them, I think, contribute positively to us.

Got it. So let's drill down on the exchanges for a minute. Maybe you can talk about the percentage of your volumes, like percentage of your commercial volumes that are coming from exchange enrollment, individual enrollment programs today versus pre-COVID.

I think right now, we're -- 4.5% to -- 4% to 5% of our total volume is exchanges. Pre-COVID, it was probably 3%, somewhere around that number, I think, is about right. So still a relatively small piece of our total business, but it's contributed nicely to the commercial growth on there. And I think those are in the neighborhood of those right.

And how are you thinking about that into next year, right? There was a huge amount of enrollment growth this year as the subsidies kind of fully went into effect or an open enrollment period. Now we've got redeterminations with big subsidies out there. Some people are calling for another strong year of growth. How are you guys thinking about that for 2024?

I don't have a specific assumption on that one line item. But I think it's our belief the exchange activity and the enrollment will outpace averages for all the reasons that you talked about. I think there's good subsidies in the market. We are seeing Medicaid redeterminations occurring still early. I don't -- it hasn't been materially positive or negative, yes. But I think incrementally, you may find people who got disenrolled to Medicaid find subsidies in the exchanges that will contribute to that. So I think it will continue to be better than average trends for us. I don't know if it will reach what we've seen this year, but it should be positive for us.

Got it. And in the -- how are the programs that you put in place? I assume you put in place programs to help people get coverage, right? I mean that's historically been how people get Medicaid or get reenrolled in Medicaid, right? I assume now there's also the exchanges, right, so get them enrolled in the exchanges, throw in those subsidies. What have you put in place there? And how successful have they get?

So early on, we did a number of things. Historically, we've always had what we call this Medicaid eligibility or application counselor. So if you were at one of our facilities, you were uninsured, then we would work with you to find appropriate coverage for you. So we have a very robust operations underneath our Parallon organization that works with that. At different times, and we did this with the beginning redetermined, we would make outreach efforts. So we made a number of outreach efforts for people we've seen with Medicaid covers and let them know we were a resource for them. We also helped them direct if there were community resources they could apply for or go through. So we did a lot of outreach early on. I don't know how productive those were, but we e-mailed and outreached every one of Medicaid patient that we've seen over 2 years and gave them some opportunity to be in touch with us and other community resources. There are several communities we've partnered with others. Early days in the Affordable Care Act, there were these mostly not-for-profit entities that would help the communities gain access to certified counselors to go through eligibility. We did that where there were community resources. But I'd say the majority of our efforts were in our internal organization through our Medicaid eligibility. And when you show up, we will assist you in filling out applications and paperwork and exploring coverage options for you.

And I assume your 2024 guidance, the -- I know you haven't officially given it, but that 4% to 6% growth minus the onetimer doesn't include much benefit or any benefit from redeterminations?

I think that's fair. It's basically a push. We don't have any positive or negative built into that is fair.

And I'm sure you've done your own work. We published something a year ago that looked at that pretty in depth. What is your own work closure about that? Should it lean to the positive -- materially positive?

I think it should. It's still early. We -- third quarter was kind of the first quarter we did see some people show up that were uninsured that previously had Medicaid coverage. The one thing that was surprising to me at least is we are seeing about 2/3 of those were able to reenroll into Medicaid that they were disenrolled maybe more for a technical reason. They didn't fill out an application some level of paperwork. So once we go through our eligibility process, we're seeing a larger number of those actually continue coverage on the Medicaid. We are seeing some of those return with either employer-sponsored coverage or exchanges. But the numbers are still too small to draw any broader conclusions on. I -- especially after reading your report last year, hopefully, it would be a positive contributor for us. And I still think there's an avenue there. I don't yet see a material number at this stage. But we're working on every avenue we can to help people find appropriate coverage if they do find themselves disenrolled.

And we know Medicaid can be retroactive, so you can get paid for that visit. Could you get somebody signed up on the exchanges, the other 1/3 who don't get reenrolled and you get them signed up on the exchanges. You don't get paid for that visit at the moment, right?

My understanding, there is a 90-day window period post your disenrollment. If we can get you enrolled in a 90-day, it would be retro.

Even if you move over to the exchanges?

That's my understanding. I may be wrong on that. I'll clarify it. But for others, you're right. We wouldn't be paid for that encounter. It would be next time. I think you're...

Got it. And typically, an exchange member, just to kind of level set, what kind of compensation you get there? We talked about in our report, the way I've always thought about it is Medicare pays $1, let's say, right, they're 100%. Medicaid pays $0.60, $0.70. And commercial pays -- employer pays like $2.50. And somewhere between $1 and $2.50 is where kind of exchanges right? Not as good as commercial, but better than Medicare. Is that kind of still the...

Yes, you're in the neighborhood with that. We're the only qualifier -- some -- in some states with the supplemental programs, the gap on Medicaid's improved isn't as great. They're getting closer to Medicare. So you're not -- you don't have the net-net as much as maybe you would have historically believed you did.

Got it. So let's stay on pricing there for a minute then. The commercial improvement that we've seen, right, that reflects some of the inflationary pressures, right? It's a lagging event. But -- and remind me if -- or tell me if I'm wrong, but my recollection was you were 3% to 4% before the inflation. Now you're getting more mid-single digits, 5%, 6%.

Mid-single digits.

Okay. Yes, north of 5 or...

Mid-single digits. Good try.

You gave me the DPP number. I appreciate. Okay.

No, I didn't. I decide, I gut check you. I didn't give you -- just for the record, I did not give you...

All right. So the -- so you're in the mid-single digits now. One of the things I've tried to think about is your contracts are typically 3 years in nature, right?

2 to 3 years, yes.

Okay. So if you're getting -- let's just say mid-single digits, that's mid-single digits on new contracts? Or is that mid-single-digit yields on average?

On new contracts. So the way -- and we've talked with other groups. So if you -- we began that process, say, middle of '22. At that point in time, maybe 2/3 of the book was under old rate, 1/3 under new. So the book blended up incrementally. We're basically 70% contracted for next year, we've said, maybe a little more than that at this point. But maybe 2/3 of that under new rates, 1/3 lingering at old rates. And then going forward, and hopefully, after that period, most of the book has been contracted under new rates. So the book blends itself up based on a staggered time line.

So in '23, you had 1/3 of the book get repriced...

I'm saying broadly speaking.

Broadly. '24, you'll be at 2/3, '25, you'll be fully mid-single digits?

That's a broad way to think about it.

Okay. And the other thing I was trying -- and I asked this at the Investor Day, but I don't want to ask the follow-up or 2, so let me do it now. At the Investor Day, I said, look, if you're signing a 3-year contract, if you're getting mid-single digits on average, is that just the first year? Or is that mid-single digits on average for the 3 years?

Each contract varies. And all of our contracts will have an annual inflator after the first year. I think I can tell you, generally, the annual inflator isn't as much as the first year step-up, but there's still inflators in those year 2 and year 3 that we factored into our thinking.

I'm just saying, are they above the typical 3% to 4% that we were seeing? Or -- because like in my mind, either you're going to keep ramping up or if they go back to 3% to 4%, you're going to kind of stay at this level and kind of annualize.

All of them vary. Some are above that, some are in that number. As it averages, I'd say probably at the higher end of the range you just said.

Okay. So the net-net is our commercial rates yields on the total book could improve -- should improve in '23, will improve further in '24, going to improve further in '25?

That's a fair direction, yes.

That's really helpful. The -- any thoughts on -- one of the questions I get is just the volumes have been pretty good year-to-date, right, better than the typical 2% to 3%. How does that -- how do you think about that from a comparison perspective?

It's a great question. I mean our volume profile has outperformed our original expectations going into the year with typically 2% to 3% on equivalent admissions. I think we're around 5% year-to-date. And so as we go into next year, as I said, we're -- we haven't finished our budget. We're still early in our process. Our planning horizon right now suggests we're going to beat this 2% to 3% number. But we kind of assess the macro environment, and there's still a lot of positive. We're, like I said earlier, in really strong economy, good employment. We think our investments to continue to invest in our networks position us well to capture share. So we do everything to try to maximize our opportunities in that effort. But from a planning horizon over the long run, we still think 2% to 3% is a good number. And when we conclude our '24 budget and talk to you in January, we'll refine that a little tighter, but I still think there's good volume patterns there for us to capture.

Got it. One of the things that I noticed at the -- from a modeling perspective at the Investor Day was the 4% to 6% was not a surprise, right? That's what you've been saying over time. I think everyone expected going in. You gave an EPS number that was 8% to 12%.

Yes.

Was that the first time you've ever given a long-term EPS target?

In my tenure, yes, I think it is. I think that's right. We want to highlight the capital leverage of HCA between EBITDA growth or operational growth and our earnings per share growth.

Right. So the 2 things I think about like just one sentence, it felt a little bit on the light side relative to what I think of as a normal model, right? If you're growing 5%, just a midpoint, right? In my model, just the fact that if I don't have the interest expense going up, right, just going to keep you get relatively flat, you get some leverage off of that, right? So typically 5% would get me to like 7% on the EPS line before you deploy any capital, right? So if we think about then the [ $1 billion ] a quarter of free cash flow and share repurchase, it'd probably get me to the higher end of that range, not the lower end. So I'm wondering if there's anything I'm missing there and then talk to us a little bit about capital.

So the only thing in that is a math equation. Here's the way I think about it. If you look at our 10-year average, we've grown EBITDA at 6% EPS, just under 15%. So it's been kind of that spread. Now we're growing 2x, 4% to 6% goes to 8% to 12% on there. The only real differential is you don't get the same share count reduction or our share repurchase as we've historically done. There's not as many shares coming out. But it's still, to me, a very positive story in terms of that kind of -- the way I think about it, this 2:1 leverage between the operational performance and the earnings per share side. Maybe not quite as much as historically, but in our model is if you project continue growing share price, free cash flow doesn't take out as many as the actual share count. That's the only differential in that.

I think we all expect you to grow free cash flow as well.

Yes, we do. It just won't be at the same level.

Won't be at the same level. And then your CapEx is approaching $5 billion. And one of the things I think people appreciate the most is the discipline there, the returns that you need to drive despite much higher CapEx levels you had 5, 7 years ago. Talk to us a little bit about how much of that is the growth CapEx that you expect to get that return on versus keeping on the walls, so to speak. Is it really going to generate a return you're just going to happen...

In broad brush, historically, it's been 50-50. I'd say going forward, it may be more 60% growth, 40% routine as the growth of the capital spending has been dedicated to growth programs on there. And to retain, to your point, we got to keep facilities up to date, you got to replace equipment and so forth. We got to invest in technology to -- by itself and provide as a distinct return as our growth programs. And of that growth capital, the dollar -- a high percentage of that is going to inpatient capacity. So some of those are long-lived assets, long-life projects that come on place. And you go into our network expansion, building out our outpatient setting, freestanding EDs, surgery centers, outpatient diagnostic. And then the third area goes really more amount program investments, maybe expanding robotics, maybe expanding emergency room departments or surgical suites or the like. But I think going forward, you can think maybe 60% growth, 40% routine is a fair assumption for us.

Got it. And one of the things talking about your outpatient investments, I think you said you had 12 outpatient sites per hospital growing to 20 over time. Was there a time period where you kind of were talking there that I missed? When do you expect to get to 20 for...

I'd say it's 5 to 7 years would be -- was kind of our planning horizon we're talking about when you think between now and the end of the decade, however you want to characterize it. If I go back about 5 or 6 years ago from today, the number we have is about 7 -- 6 to 7 outpatient setting. So you can kind of see that trajectory over a 5-year period of time. So I'd say 5 years is a good planning horizon for us. It may vary market by market. But I think we said that as just an indication of the opportunities we see to continue just to expand the network footprint in the markets that we're in as our geographies grow. And many of those, we can put a freestanding ED and outpatient setting in a growing part of a market. And as that market grows, then we can expand our services like we have with actually building hospitals on a couple of those. So yes, 5 years -- 5 to 7 years is, I think, a good planning horizon for that step.

And then in terms of -- one of the things I thought you might talk about at the Investor Day that we didn't hear was the percentage of your revenue, the percentage of your earnings that happen outside of the 4 walls of the hospital. As you make these investments, right, other companies kind of highlight that. And if you think about your ASC footprint and your -- I think it's underappreciated, right, the ex hospital footprint that you have. Anything you could share with us there in terms of maybe growth profile of that -- where we start today? What's the growth profile? And maybe even the margin, what the impact on margin is from that growth?

Well, if you break that down, I mean, still, we are hospital-centric and the related outpatients that are tied to that hospital, your outpatient surgery, your ED, your diagnostic on there. So then if you think if you're off campus, it's kind of your surgery center, your ambulatory surgery centers, which we've got 145, 150 surgery centers in there, a pretty significant part of our business. And we view it's valued added over our network. You have your urgent care footprint. You got a revenue profile. You got your outpatient diagnostic. But most of ours roll up underneath our hospital revenue profile as our -- departments of our hospital. And then you have your physician footprint, your physician clinics that you have on there. We believe the value is in the network and the synergies of operating as a network. And those other -- and the majority of the revenue is in that hospital-centric effort. So we haven't broken out those revenues specifically. I can do that for you. I don't want to do it necessarily on the fly. But those would be the other components outside of our hospital would be your surgery centers, your urgent care and your physician care. But by far, the majority of our revenue is in that hospital campus and the related activity.

So the last thing I want to touch on is the margin targets of the company, right? and that's kind of where I focused on your stock, right? The -- when I've seen the business over time have a hiccup, whether it's on the cost side or the revenue side, I'm not able to build a bridge from year-to-year, right, because I don't know what you're doing underneath the hood. I just know that you're doing it, right? That's been the history of this management. So as you think about that 19% to 20%, right, going into next year and beyond, one of the things that I look at is saying maybe it would change and this would moderate a bit is something like Valesco. So let's talk about that for a second. The Valesco piece is -- it sounds like it's 8 -- $1 billion of costs and $800 million of revenue, right? So that's just going to be a natural 20, 30 basis point [indiscernible], right?

Until we improve it.

Until you improve it. What is the -- what is your ability as you think about -- I assume '24 doesn't assume any improvement, right? It assumes that...

No, I'm not going to say that yet. I want to go through our planning process, then we'll give you our '24. We're working diligently to make efforts on that. And I don't want to give you a number yet because we haven't finished our planning yet, but we have every expectation we will improve that. I can't put a degree on it for you yet. We will, hopefully, in January, call bracket. But we're working very diligently to try to improve that run rate.

And so you kind of went through the levers, right, recontracting and getting...

Cost adjustments, programmatic changes. We have a kind of a robust effort, and we need a little time to see when they'll play out. And -- but we have every expectation as a team, we will improve the performance of that operation.

And we all know Sam and yourself are pretty demanding guys and laser-focused on the numbers. So what is the reasonable aspirational target there? Did it get it to breakeven? Or is it to have that be contributory in some way?

I'll take either at this stage. I think a fair expectation for us will be try to get it to at least a breakeven on its historical perspective. But I understand, historically, you were still paying subsidies into these programs. So there was still just an embedded run rate on those. So give us a little time to give you -- give our size. As we go through our planning process, we'll try to put the whole physician spend under context for you. I think historically, we'd say -- our goal is to keep our physicians spend underneath our revenue growth to avoid margin erosion from all of those line items that we could find. Valesco is just one piece of that aspect on there. Clearly, the marketplace has got some disruption. We're managing through it. We have expectations we'll address it just like we've passed other issues. But we expect to improve the run rate of not only Valesco, but our physician pro fees going forward.

So the last question there would be just -- I think I asked Frank this after the third quarter. But the -- when you're -- no one has visibility on what's going to happen. But one of the questions I've been -- I would be asking if I were in your shoes is just I'd be sitting down with these physician groups and saying like, okay, we just gave you -- there have been massive increases in, right, up 20%? So does that get them healthy? Or does that -- is that a band-aid to where they need to get, right? If you're dealing with a management company, that management company not only needs to break even, they need to make a margin, right, to be in existence? So have you -- any thoughts on where you think they are within that? Have you gotten them to breakeven? Have you gotten them to a target margin?

I think so. And then to the extent there's others out there, we have now a scaled operation where it gives us an alternative where historically, your only alternative was to either pay the subsidy or RFP it to another provider. And there are not a lot of those left. So now we have a -- we believe there's an opportunity for us to provide a scaled solution for other providers in there. So to the extent some aren't able to get to a margin production and they're coming to us for subsidy, I now have an alternative that we can incorporate these providers into. So I think, though, to answer your question, for the ones we've addressed, I think it's dealt with the issue. And I think we've dealt with the most acute issues here already. And then going forward, I think that's what gives us confidence we can sequentially improve that trend.

I'm going to leave it there. Bill, Frank, thank you very much for your time. Thanks so much.

Thank you, everybody.