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

Okay. We're going to get started with day 3 of the Stephens Annual Investment Conference. I'm Scott Fidel, I'm the health care services analyst. Saving some of the best for last here on day 3, we've got HCA with us today. HCA, as all of you know, is the largest operator of acute care hospitals in the United States as well as having a pretty vast arsenal of outpatient ambulatory and other services as well. Here from the company today to my right, we've got Mike Marks. Mike is the Executive Vice President and Chief Financial Officer; and Frank Morgan, who is Vice President of Investor Relations. So first of all, gentlemen, thanks for coming again to the conference. It's great to see you.

Mike, I think what we want to do just to start out, and we've been trying to do this just with -- unsurprisingly, just given the timing with all the companies here this week is just sort of talk through the elections and some of the implications for HCA and your views on some of the key areas to focus on. Clearly, we've been getting some updates on some of the staffing decisions, which unsurprisingly, I guess, as well are a bit unconventional. But certainly, it's going to -- I'm sure these folks, if approved, will be leaving their mark on the health care system. So Mike, I think maybe just to sort of start out with, obviously, now we've had some of the initial reactions in some of the stocks and investors are still absorbing the information here. We've spent -- maybe to start out sort of the opposite direction because there's been a lot of focus, obviously, so far on the exchanges and then on the Medicaid supplemental payments and certainly do want to give you guys an opportunity to talk about that. But also just curious from more of the second derivative effects as well. It's certainly likely that we'll end up seeing more impacts beyond that. So why don't we start out with that. Clearly, any incremental comments you want to make on the exchanges and on the state supplemental payments, definitely happy to hear that from you. But also as you've all been sort of working through your thoughts around the elections, any other incremental, I guess, impacts or potential implications that you're considering as well?

Sure. Good morning, everybody. So what we know now is the Republicans are going to sweep, right? They're going to have all 3 branches of government. I think it's important to note that the majorities in the House and the Senate are going to be tight, 53 seats in Senate and maybe even tighter in the House, where obviously a few races left to be called. So I think that's part of the understanding of what can get done is just the very slim majorities in the House and the Senate and then how does legislation move through this. I think from our perspective, the President-elect Trump and the administration, they were pretty silent as to health care policy as we went through the election process, starting to learn a little bit more as they make their selections and nominees for key health agencies. But I think other than health care exchanges, which we'll talk about here in a second, obviously, and we can talk about supplemental payment programs as well. What we always pay attention to is government reimbursement, right? If you think about kind of 50% of our volume is Medicare and 17% or so is Medicaid. So we're keeping a very close watch on things related to governmental reimbursement and potential changes. Not aware of anything moving in that regard that's material. But just like you guys, there's a lot of unknown still, right? We've got to get the nominees through Congress and then they got to start articulating what their goals and objectives are as it relates to health policy. So other than exchanges and the like, supplemental payments, really, that's the third leg that we'll be watching carefully, Scott. And I'm happy to talk about exchanges if you want to do that now or whenever.

Yes. Yes, I think we should, just since we're in that topic. And maybe we don't have to just talk about '26 and beyond as well, maybe sort of layer in 2025, and you've talked about maybe just to sort of set the baseline there, expectations or a projection for potentially around 8% to 10% growth in your markets in terms of the exchange population. We've had from the payers a bit of a range that we've seen come out from some of the companies that focus on that market at the higher end. Oscar has talked to up to around mid-teens type of growth. Centene came out with a bit more of a conservative view walking through sort of a mid-single-digit growth outlook and brought up a few different considerations around their expectation. Clearly, you've been in markets, you're levered to markets that have had outsized exchange growth, a number of key states that haven't had ACA Medicaid expansion and have really leaned into that. So maybe can you talk to sort of that projection, the 8% to 10%, how you arrived at that? And I know there's not much data out so far for the open enrollment period. But to the extent that you may have some types of indicators that you're tracking based on whatever you're seeing, how you feel about that expectation.

Yes. Obviously, just as you would expect, and we refine our projections based on our markets. And so for us, 50% of our hospitals are in Texas and Florida. So that heavily weighs on our thought process around understanding what could happen with health care exchange enrollment in 2025. And then you think about other, I would call them even kind of red states, pretty Republican-dominated states that also did not expand Medicaid, Georgia, South Carolina and like. So in these states, we are studying not only our current enrollment levels in health care exchanges, but all the public data, and we don't have access to a lot of data that you guys don't, right? But if you just kind of tailor the projections data for our specific states, the 8% to 10% was our best estimate or range. I mean, you can get higher than that, but that feels right. So if you think about Texas and Florida as an example, it's about 5 million of the 21 million enrollees now in the health care exchanges. So those 2 states are already pretty heavily supporting the health care exchanges. And so I think 8% to 10% is our best guess right now of what enrollment growth would be for health care exchanges in 2025. And just to put that in context or perspective, this year, we're up over 30% in enrollment in our state. So when you kind of drill down to our specific markets, that 8% to 10% feels right to us based on all the data that we can pull.

Okay. And then -- so I guess when we're thinking about that sort of exit rate for mix from the exchanges, you're generally in sort of that mid- to high single digit, maybe closer to high single digit sort of run rate in '24, right, on sort of the revenue basis, revenues being a bit higher than volumes, just given that the exchanges are a solid payer, maybe not at par with commercial group, but probably the second best payer after that, right? So I guess that would sort of imply basically around a high single-digit type of exposure. As your -- I mean, obviously, we have a tremendous amount of, I guess, over the next year, developments still to play out. But I'm curious just as your sort of baseline operating assumption because obviously, HCA is a company that looks out more than 1 year in terms of your planning process. How are you approaching thinking about 2026 for the exchanges? Are you assuming that the enhanced subsidies will stay fully intact? Do you assume that there will be some type of reduction, but still maybe remain at some level higher than prior to the increases that we saw in the American Rescue Plan or more likely, you probably have several different scenarios that you're gaming out, right, and then sort of having contingencies around each of those.

I mean clearly, if you think about us like any other health care provider right now, our focus is on working through getting the enhanced premium tax credits on the exchanges extended or continued in any way possible, right? So I think that's the key -- our focus right now is working with a coalition of health insurance companies and providers to advocate for that. I mean -- and the way I think about it is this, these are voters that I don't think would appreciate getting a tax increase right before the midyear election. And so our view of this is that this has been really important to increase coverage in the marketplaces. And so we're going to advocate heavily to try to get the premium tax credits that were enhanced during the COVID time line, further extended or at least extended in some modified way. And so that's our first focus. Until we get a sense of that, it's pretty hard to really estimate potential impact, but if you think about what would happen if the premium tax credits were to sunset or be reduced significantly, the modeling assumptions that we're working through that I'm sure you guys are as well is how many people stay on the exchanges and drop down a metal, go from silver to bronze for example, I think there'll be a fair amount of that. There will be individuals that will go back to employee-sponsored insurance coverage. There will be some of that. And then there will be folks that end up uninsured, right? And so we're still studying that. But until we really get a better sense for the potentials of getting an extension of the enhanced premium tax credits, it's going to be difficult to understand what the impact is on the backside. So our focus right now is really focused on working through a coalition of partners to try to advocate for that. And I think, again, if you take our big states, these are states that have benefited mightily from the health care exchanges. And so I think we're going to have some receptive audiences to at least make it part of the conversation. The last thing I'll say is if you think about kind of the way the timing of this lines up, the individual tax cuts also sunset at the end of '25 from the original term. And so it is -- I think the timing is interesting that both of these key programs sunset at the same time, and you're dealing with really thin margins in the House and Senate. So we're going to be advocating for a deal that kind of addresses both at the same time. And we'll see what pops out of this. But it's still early, and that's how we're thinking about it.

Got it. And around that, obviously, it's going to be a big year around the tax program updates, extensions. I assume there's going to be a lot of jockeying around that. And certainly, the enhanced APTs are going to be right in the middle of that conversation. Around how are you thinking about, I guess, some of the other programs, health care programs, and how they may interface as well into this conversation. It feels like certainly publicly Trump and his crew have spoken pretty firmly around wanting to protect Medicare and not go there as a source of funds. They definitely have been sort of less, I would say, committed around Medicaid as a potential pay for. How are you thinking about that? I guess, is that going to be something that HCA is going to be looking to advocate for in terms of trying to protect both programs? Or do you think that from a pay for perspective that there is more risk around Medicaid, not necessarily being cut, but the way the budgeting works, that a freeze or a slower rate of growth can turn out to be a pay for too. So I guess, is there a baseline assumption? And then from an advocacy perspective, how you're thinking about the Medicaid side?

Well, Medicaid is such an important program for the entire American health care system, not just HCA in our states. But I think about the durability of things like supplemental payment programs. And I think that's one of the topics that you would include in your question, Scott. These are programs that have been in place for a long time. We have programs that are going on 15 to 20 years old. They've been supported and enhanced in both Republican and Democratic states, and they've been supported in both Republican and Democratic administrations. And so everything I can see would say that they're durable. They feel pretty durable to me. And I also think about kind of what it would take to make massive and structural changes to Medicaid, either the base program or the FMAP percentage or supplemental payment programs. And getting legislation of that size and complexity through really thin margins in the House and Senate are going to be complicated. Passing legislation of that size is not easy. So the other thing I think about when I think about Medicaid generally, and I just said this, but let's kind of double-click on it, is the importance of this to the safety net hospitals. So if you think about governmental owned hospitals and the not-for-profits that exist out in the marketplace, they really heavily rely on both supplemental payment programs and on adequate Medicaid reimbursement. And so changes that would be contemplated in that world would affect the rest of the health care market significantly on the provider side. It would impact us, too. But we have the margins and the operating scale to manage through disruptions like that in a way that broad swaths of the not-for-profit hospital community may not, which I think also gives a little bit of support to the probability of massive structural changes to Medicaid or the supplemental payment program. So there's always risk, and we're watching it carefully. And I would never describe any situation as being completely risk-free for things like big Medicaid reimbursement changes. But I think the risk of that are lower than some of the other changes that we've talked about. And then we'll see. Again, I think we're still learning both from the nominees and from the Trump administration of what their priorities are going to be. And so we'll have to all watch it together.

Yes. And I would -- I personally largely agree on the state supplemental side on the Medicaid. I think it's often overlooked around basically how purple those supplemental programs have been when you look at. A lot of those programs really gained momentum during the first Trump administration. We've seen -- this is the way that red state governors get an opportunity to cultivate and craft their Medicaid programs to have more of a look and feel of how they want those programs to be operated. So I think there's -- from the bottoms up, there's probably going to be a lot of support. Obviously, overall, the question is going to be just -- do they just sort of have a big round number around Medicaid more broadly.

We'll see. Again, I think the risk on this side is less than others, but everything is at play. The other thing about supplemental payments, I think, are important, and you guys get this, but the other reason I think that there's been a lot of support in this world is that the provider community participates. So remember that we incur a lot of expenses to participate and help fund the Medicaid supplemental payment program. And those expenses show up in our operating costs, not as a deduction to revenue. And so when we go to support and work with a state to enhance supplemental payment program, it always involves the provider community participating through provider taxes and other sources of expense that helps fund that federal matching. So I think that's the other thing that the Republican states have appreciated is that the base funding comes from the provider community to participate. So it's -- I think it also speaks to the durability.

Sure, sure. And just on the exchanges, I wanted to ask, I guess, more of a sort of near-term sort of question just on trends. And again, sort of using your formal 2024 guidance as the framework for that and what would be implied around the fourth quarter. Just in general, I guess, sort of thinking about some of the -- against that sort of normal seasonality that we tend to see with the exchanges. Obviously, that is a program where you can have some meaningful utilization typically occur in the fourth quarter, just given the design and the deductibles that are often associated with that. And then implications from special enrollment periods as well, which have been pretty strong this year, year-to-date in terms of enrollment that's come off of that. So basically, the question for you, Mike, is, I guess, embedded into your outlook, how are you thinking about exchange volumes this year relative to sort of the normal seasonality? Would you say that it's largely consistent with what we've seen in prior years? Or is there any nuance to that? And anything that you've observed that would influence that thought process either to the positive or negative side?

As you know, Scott, we don't generally give comments about the quarter that we're in. So I'll stay away from that a bit. But generally speaking, the hypothesis that we've been looking at through the first 3 quarters, and we've even discussed this in answers to questions in our calls, is whether or not on this exchange population, will we see a tick up in utilization in fourth quarter as people kind of burn through their co-pays and deductibles, right? And we've seen that before in the commercial book for sure. And we'll all know the answer to that question in January when we're on our fourth quarter call. So we'll give everybody an update on what we saw related to fourth quarter on the exchanges. And so we'll withhold for now in terms of an early look. As it relates to our early observations for 2025 that we shared in our third quarter call, what we said was that we do think exchange enrollment will be good next year at that 8% to 10% level. And that's part of one of the reasons why we had confidence to go ahead and give a bit of an early look on demand. And so as you recall from our third quarter call, we said for next year that we think demand will be -- our volume growth will be a little higher than our long-term growth targets. Our long-term growth targets for volume are 2% to 3%. And I think it will be a bit over that at 3% to 4%. And part of that calculus is exchanges.

Got it. One other policy question I want to ask you about is site-neutral payment proposals and definitely seeing a sort of consistent, I would say, tempo of literature coming out. Even this week, there was another study that came out, providing, I guess, some estimates around that. Can you bring us up to speed in terms of to the extent that you've gathered intelligence, I guess, around some of the new players on the board that are coming in with the Trump administration, not necessarily sure if I remember Dr. Oz having talked about site neutral, for example. But just in general, maybe where the GOP tends to stand on that topic? And just as we think about that sort of broader context that we've already talked about in terms of where the focus is going to be clearly with the tax bill extenders being a major area of focus. And I guess, some of these vehicles, do you think that, that particular policy discussion gets folded into a 2025 conversation? Or maybe it's not clear that, that's going to be a near-term priority?

Yes, it's still pretty unclear. I mean it's clearly a tonic being discussed. So well aware, just like as you've noted, that there is definitely some discussion going on and has been for a while. I mean site neutral is a topic that's been out there for a fair amount of time. This is connected to traditional Medicare reimbursement, right? So the idea here would be that you would take hospital outpatient reimbursement and make it equivalent to kind of freestanding outpatient reimbursement in some ways. I think about it as a bit of a spectrum. And so on one side of the spectrum and the area that I think probably has had the most conversations are things like physician provider-based clinics and outpatient infusion sites. And in that version of site neutral, it's pretty immaterial to HCA because of the way that we structure and operate our employee position practices. We do not operate those as clinic departments of a hospital. And so we're not as exposed to that definition of site neutral. As the idea gets extended further into like surgical procedures or other imaging type procedures, then it becomes a little bit more material to HCA. And so we're going to advocate heavily against site neutral. I can assure you the not-for-profits and the big governmental owned and academic medical centers are going to be arguing heavily against site neutral. It impacts them significantly. But I put it as like a distant third or fourth on the universe of risk level. I mean it's -- I wouldn't say depending on how far into the spectrum it goes that it becomes no risk. We would certainly have some reimbursement implications if it goes super far into the list of procedures, but it's pretty far down the list of concerns at this point. And it's also -- we got to figure out what comes out, and what do the various nominees and again, the Trump -- kind of more detailed policy position look like at this point, we just don't know.

Understood. And then just I had one more question on the elections, just as it relates more to some of the macroeconomic potential implications. I wanted to get your thinking on that. Two things, in particular, would be just, I guess, labor market sort of second derivative effects if administration does move forward aggressively with the deportation plans and sort of how that potentially can sort of play into the labor market in terms of if we do see, obviously, millions of undocumented workers who are embedded into the workforce right now, to some level, get sort of pulled out. So that would be the first question. And then from a, I guess, sort of a baseline operating assumption or planning assumption around interest rates. Clearly, there's a range of scenarios that can play out. I think the general view is that we've still got more cuts ahead, but then there's always the potential if the animal spirits really are ignited, and we get accelerating economic growth, does that change the calculation on interest rates for 2025. So basically, those are 2 things I'm thinking about, but really just wanted to give you the floor to sort of talk about some of these broader economic implications potentially from the change in Washington.

When I think about the labor market, and health care is a little bit unique in this way, although certainly it applied to other industries. But we're coming off a period of time of some of the most significant changes and stresses on a workforce that probably ever existed in U.S. health care as we went through the COVID pandemic. If you go back to early 2022, we were spending upwards of 10% of total labor cost on contract labor, on premium labor. And that was a reflection of the staffing challenges and just the sheer number of nurses and other clinical resources that have left the workforce for hospitals. And so over the last several years, HCA has put forth a really significant effort to stabilize our clinical workforce in the field. And we've seen turnover -- I'll use nursing turnover, but generally, turnover come down now finally to even being below where it was before we went into the pandemic. We've seen significant enhancements in our ability to recruit workforce. And the investments we've made in workforce development, things like the Galen School of Nursing, we're up to 20 campuses, almost 20,000 students now. By 2028, we'll have 30 campuses of the Galen School of Nursing and almost 30,000 nursing students enrolled. The work we've done on graduate medical education for physicians, we're up to almost 6,000 slots for residents as they graduate from medical school to come and get trained. And so we have been putting a lot of effort to really stabilize our workforce as we kind of come off the COVID challenges and moved into the current day and into next year. And so I'm feeling good as I sit here today that we're in a fairly stable operating environment for labor today. To your point, if I think about the -- maybe you call the lower skill mixes, the environmental service workers, the food, nutrition service workers, the patient care techs and the like, I mean that would be the segment of the population that you're talking about. Now obviously, we don't hire undocumented workers. So we would be -- but it could affect the competition for the workforce, and we appreciate that. It's an area that we put a lot of time, energy and effort now in terms of our ability to recruit and retain that workforce. I feel like we're a good employer with good benefits for that workforce. So I think that on the margin, I feel pretty good about where we are today and as we're heading into '25 about the stable nature of labor. And the work we've done to put ourselves in position to be an employer of choice. And so it's not on the top of my list of worries right now on the workforce side. On kind of the growth of the economy and maybe even secondarily, what happens to interest rates. I mean, health care hospitals have a little bit of interesting up and downs depending on what's going on with the economy. On one way, during kind of recessionary periods, we have a bit of safety effect in place. But in growth markets, what we tend to see is unemployment go down and coverage get expanded. So you just -- I think if the economy gets into a growth cycle, as you indicated, then that is supportive of coverage. And we're in a good spot today on coverage. I think in our markets, at least, which -- it's probably important to highlight. I mean, we're in 44 really good markets in the Southeast and Southwest. The markets are urban, suburban markets that have above-average population growth and pretty strong economies. I mean, we're very fortunate where we operate and the strength of those economies. And so if the economic output improves, I view that as being positive to support coverage and coverage supports demand and getting paid for demand. So I see that as a positive thing for HCA. If interest rates go up, then we would be dealing with the debt side. And so I feel really good about where our balance sheet is, our leverage ratios and the like. And so I think coming into '25, we're in a good spot from a balance sheet perspective and ready to navigate whatever happens in this new economy, and we'll see.

Great. I'm going to shift away to some other topics, but maybe let's take a pause here. If anybody has any questions on the elections or some of these macro topics before we move on. And then, of course, if you do have something pop up, raise your hand, and we'll get to you. All right. Why don't we sort of move over to -- maybe we'll sort of frame it around the hurricane recovery. Probably I just want to make a comment first that clearly, there's going to be things that happen that are going to affect HCA in any given year that are out of your control. I think one thing to emphasize is just that the track record that HCA does have and sort of addressing and then recovering quickly from these types of circumstances has always been historically quite strong. And as historically, we also provided investors with a window of opportunity when you see the stock react in the short term. Again, in any given year, Pro fees and Valesco would be a good example. For last year, some initial sort of impacts that you had to work through and then quickly got back on the recovery trajectory. I wanted to get an update from you, obviously not trying to sort of circumvent sort of getting -- sort of asking about the quarter, but clearly, from where we last spoke on the earnings call, you've been implementing some of your processes around recovering from the hurricanes. To the extent that you can maybe give us an update on sort of what areas have been sort of in flight in terms of recovery, execution, more recently, sort of bring us up to speed on how things have been going. And then as we think about the balance of this year, what are going to be those sort of key, I guess, sort of initiatives that you're going to be looking to execute upon?

So thank you. I will say -- I mean, I've been with HCA 28 years. And I spent probably 10 years of my career in Florida, right? So I lived through a fair number of hurricanes. And HCA's capabilities through our emergency operation command centers, our supply chain, our plant operations capabilities are really impressive even for someone who's inside and the focus that we put on making sure that we help the communities that we have the privilege to serve of preparing for storms, dealing with during the storm and then recovering from storms is very impressive. And so I would echo your statement. Even from an inside perspective, I'm really proud of the work that our teams have done in North Carolina and Florida to help our patients, our colleagues and our communities deal with these challenges. We're on track with the work to repair. I'll start in Florida. I think you'll recall from our third quarter discussion that we had one hospital that got damaged pretty significantly during Hurricane Milton. It's in the Tampa area, just kind of halfway between Clearwater and St. Petersburg. It's called Largo Medical Center. We've had literally hundreds of contractors on site repairing that facility. The main emergency room has reopened now, and we will have the hospital reopened for inpatient care before the end of the year, which was our target. And so we're excited about that. And then we expect that market and that facility to recover as we kind of go through 2025, which would be great. In North Carolina, our facilities actually weren't heavily damaged, but the communities were seriously impacted with mostly the flooding from the rain events and all the flooding that occurred in Western North Carolina from that. There was a lot of wind damage too that impacted that area. And so given the topography in that community, I do think that there will be lingering effects of the hurricane and the recovery of that community and just from a health care perspective, the recovery of demand in that market that will probably linger into '25. And so that's what our projections are. As I mentioned on the call, the effect of that is this. We think that the recovery in Largo and in Florida will largely help offset the lingering effects from North Carolina. And so I think, one, on the financial picture, the recovery in Florida will offset the year-over-year earnings declines that we probably would expect from North Carolina. And so that's how I think about '25 from those regards. And then just the only other note I would make financially, and we mentioned this on the call as well, is that, all the numbers we provided for both the fourth quarter impact, third quarter impact and kind of the early look for next year, do not include insurance recoveries. And so these are going to be pretty complicated claims. I think insurance recoveries will probably more be in 2026 and not in 2025. So just a note on insurance recoveries. But the teams are working hard and supporting our communities and so far so good.

Okay. Got it. I want to talk about a couple of the key sort of underlying trends that we've been seeing that have been impacting the sector and that you need to execute your business against or within. So the first would just be around that long-term sort of shift from inpatient to outpatient and just the tempo of that in terms of -- as we think about basically what you've been seeing in 2024 year-to-date, obviously, there's many different factors that play into that. We did have, for example, in 2023, there were some of the CMS coverage determinations that had bolstered some of the AAC type of underlying sort of volume shifts, curious in terms of how you see that sort of from that, anything that you would call out in terms of being more unique to 2024 or thinking out to 2025, that could either accelerate, maintain or decelerate that trend relative to what we've been seeing as sort of the average run rate of that playing out for literally 20 years now.

Yes. The death of a hospital structure has been predicted for a long time and hadn't really happened, value-based care, managed care, et cetera, et cetera. I've been really encouraged about just the long-term durability of inpatient demand. I think we've highlighted that in our Investor Day last year in October. And clearly, 2024 continues to show that. We tend to have about the same level of annualized revenue growth on inpatient and outpatient is what we see except we're a hospital-centric health care system. So we're a little different than some of the other competitors that focus more on outpatient. We have a little over 2,600 sites of care. So we have a fair number of outpatient sites of care per hospital, if you will. And we believe in a network model. So you'll see us when we're in a community, Nashville is a great example of this. We'll have acute care hospitals kind of spread around the community typically, and then we'll have outpatient sites of care where we try to meet the patient where they are, things like physician clinics and urgent care centers and ambulatory surgery centers, freestanding emergency rooms. So you'll see us kind of go through a market and place assets where they're needed, where there is demand for those services broadly across the market with this idea of having a network of care sites. And so we're certainly interested, and we see good growth on outpatient in our communities and in our volume picture. But between our end-market network structure and the way that we provide service to the outreach markets, the surrounding areas, kind of the rural health care markets and our ability to bring volume in from those markets, we suspect that both inpatient and outpatient demand, given what we're seeing for the demand of health care services, are durable. And so if you think about the 2% to 3% long-term guide in volume growth and the fairly significant volume growth that we've seen this year, the population growth in our markets, the network strategies and our annual capital investments that we make into those networks allow us to capture that population growth, take market share and show volume growth each year. And if you think about kind of our early observations for '25, Scott, is what gave us confidence that we do think we'll see a continued -- a bit elevation in demand for '25. So we kind of slated -- it is probably between 3% to 4% growth next year. You already mentioned health care exchanges. That's a piece of that story as well, enrollment growth. Kind of interesting, we're in a bit of a period of time right now where there's a bit of an elevated move to Medicare. If you look at the number of people forecasted to age into the Medicare program in '25 and '26, it's at a little bit of a higher rate because of the retiring of the baby boomers. So that's another piece of that. And then if you just put it in the macro view of things, the aging of the population, the persistence of chronic diseases and the like, just continues to show that even as cases -- the lower acuity cases kind of leave inpatient and go to outpatient, they're kind of getting backfilled with more acuity. And so we're seeing pretty durable growth in our acuity. We do a lot of work to support that with service line development in our markets with cardiac programs and neurosciences and cancer and the like. But the combination of how we operate our capital investments into our markets and our growth and strategic plans allow us, I think, to be confident that we're seeing both demand for health care services and our ability to service that.

Perfect. Yes, that's exactly into my follow-up question because obviously, when I was referencing that sort of historical shift from inpatient to outpatient, you're not a passive bystander. And if anything, it frees up capacity to provide more of the higher acuity services and optimize your service lines. I had a couple of questions around this I wanted to ask you about. I guess, the first one would be just around that sort of overall trend of acuity case mix that feels like it's been on a steady sort of upward climb. Maybe can you talk about sort of year-to-date, how that trend -- has there been sort of a consistent tempo to it over the course of the year? Have you seen any type of intra-year nuances to that? And then within that initial framework that you provided for 2025, what the baseline assumptions are around that acuity and case mix assumption?

So far this year, we're up just short of 50 basis points on our case mix index. On the inpatient side, I think it's 40 basis points. It's in that zone. Third quarter was 50 basis points. It's been pretty consistent. If you think about kind of before COVID to after COVID, we've seen good acuity growth over the last 5 years, and we saw good acuity growth, kind of the 10 years ending 2023. Again, if you go back to the presentations at the Investor Day, we talked about what we have seen over the last decade related to acuity growth, largely being driven by 2 factors, as I see it. One is factors we control, which is our investments in high-acuity services, right? So we work every year to both deepen and broaden our service lines in the markets we serve. So if you think about deepening them, we take things like basic cardiac programs in our hospitals and then we add to our ability to provide those services. Think about going from a cath lab program, to an open heart program, to adding TAVR, to adding electrophysiology, structural heart and the like. So over time, we look to deepen the service line capabilities in our hospitals so that we can provide care to the patients who need it in our marketplaces. And then we also broaden our service line depth. So we'll take feeder hospitals that are out in suburbs. And as those suburbs continue to grow in population, we'll start adding additional service line capabilities to broader parts of the marketplace. And so this long-term strategy of HCA to be hospital-centric and to invest in our service line capabilities allow us to grow our acuity of the services we offer over time. And I think that will continue. The second thing I think you're seeing is the macro factors, and we've mentioned this a little bit, but you're seeing, over time, lower acuity cases kind of go from inpatient to hospital-based outpatient and in some cases, out to surgery centers and physician offices. But then those services get replaced with higher acuity services over time. The age of the population, the persistence of chronic diseases, people living longer time with chronic diseases kind of has shown over the last many years, we actually had a slide in the Investor Day deck that showed the various levels of acuity and what's forecasted on demand. There's pretty strong demand forecast for the higher acuity services over the coming years. And so I think the combination of our service line strategies coupled with the macro factors that we see in the marketplace tells me that I think acuity will continue to increase at a reasonable rate into the future. And that would be our predictions. And this year, call it, 30 to 50 basis points of case-mix index growth, I think, fits that pattern.

Got it. And I wanted to ask about one disease state in particular, which definitely feels like there's been a number of not only anecdotal, but just firm sort of data, which is oncology. And obviously, you have -- HCA probably has a perspective on this that's unmatched in terms of what you're seeing out there even into the third quarter, whether it's payers, whether it's providers sort of talking about trends around that. It certainly feels like there's -- maybe this is part of that post-COVID type dynamic. Maybe it's just those demographics that we're talking about with the aging population. But definitely we would be very interested if you could provide us with an update on sort of what the underlying trends are that you've been seeing around oncology across your markets and whether it does feel like there's been an incremental step-up, I guess, in incidence rates in 2024? Is it more overall, I guess, not as observable to you?

You know it's interesting. When I think about our service line volume kind of trends, we have seen growth in volume in our oncology service lines, both on inpatient and outpatient, definitely in the surgical side, that's more inpatient really, but it's outpatient too. But it's consistent with pretty deep and broad demand growth across our service lines. I mean -- so yes, we have seen growth in demand for cancer services in our communities. But when I look at across the service lines that we track on both the inpatient and outpatient side, we've seen growth in demand and volume growth across almost all lines. I mean, there's really only a couple of service lines that are off a little bit. One would be outpatient surgery that we've talked about broadly, which, as we've said, it's really kind of reflective more of Medicaid and self-pay volumes being down in that particular service line, outpatient surgeries. And then behavioral health on the inpatient side is down a bit. We did that a little bit to ourselves. And we converted several units in our hospitals from behavioral health back to MedSurg because we needed more MedSurg capacity. So when I look at the inpatient behavioral health volumes being down a bit, it's really reflective of a bed transfer from behavioral health to MedSurg. But other than that, we've seen pretty strong demand for health care services across a wide swathe of our service lines, certainly including cancer. So the answer is yes, but I don't know that it's outsized versus other components of the service lines or service offerings that we see.

Got it. Well, unfortunately, for me, it seems like that 45 minutes always goes too fast. But it looks like we're out of time here. So I want to thank Mike and Frank and the HCA team for joining us at the conference today. Really appreciate it.

Absolutely. Thanks, Scott. Thanks, everybody.