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

All right. Welcome, everyone, to day 3 of the Stephens 2025 Annual Investment Conference live and in person in Nashville. I'm Raj Kumar, health care services analyst here at Stephens. We're closing out our conference with HCA Healthcare, who's the largest for-profit operator of acute care hospitals in the U.S. with 191 hospitals and an extensive network of 2,400 sites of cares across 20 states and the U.K. Overall, kind of framing HCA's presence, they saw 44 -- or they oversaw 44 million patient in [ encounters ] in 2024. And from the company, we have here presenting is Mike Marks, Executive Vice President and CFO. And in the audience, we have Frank Morgan, John Hackett, Jon Connor and Luke Elliott as well. I want to thank the HCA team for joining us at the conference today. And I think if it's all right with you, we'll just jump right into Q&A.

That's it.

All right. We've been starting off kind of these conversations with essentially a year-end review and maybe just kind of talking about updated guidance. 2025 is set to deliver another year of revenue and earnings growth that's above the long-term guidance that was set at the 2023 Investor Day and clearly support from policy tailwinds, but also underlying operational initiatives that have kind of helped that around caseload optimization, LOS and service line optimization as well. So maybe diving deeper into kind of the operational aspects of the kind of performance and thinking about the ever-evolving needs of stakeholders in your communities, can you just walk us through some of the big changes that your health systems have incurred, at least when we think about kind of retrospect to pre-pandemic, where kind of the health care environment has broadly changed?

Sure. Well, first, welcome to Nashville. It's always good to have you -- all of you folks here in our hometown. It's a little easier, too. So we're a 10-minute drive instead of having to fly. So this is great for us. So thank you. When I think about the work of the company, I always try to remember that our job is to take care of patients. And so when I think about kind of long-term guidance demand, that just reflects the fact that in our 43 markets here in America and in Central London, we see a continuing demand for health care services. And I think that reflects the strength of our markets. So we have markets that have above-average population growth that tend to have strong economies and produce pretty strong levels of employer-sponsored insurance. And then we approach those markets with this idea of network. We are a hospital-centric health system, but we surround our hospitals with a network of outpatient facilities to really meet patients where they are and provide a convenient and easy access when they need outpatient care and then a network that makes it easy for them to access acute care when they need acute care. And so this idea of network development from our capital investment programs and for our acquisitions allows us to really do 2 things in terms of taking care of patients. One is it allows us to serve that demand growth because we're adding network facilities. We're adding beds every year. And so that's important. But by strengthening those networks, it makes us more competitive. And so it allows us to take market share. The combination of that in our long-term plan speaks to this idea, we believe in our markets that we get somewhere between the 2% to 3% volume growth, as a reflection of both the strength of the markets we're in and the strength of our networks and the competitiveness of our networks. And then we couple that with a lot of operating discipline. And so we operate at scale. We have significant shared service platforms that allow us to be really operationally excellent. And so you see that in the operating leverage of the company. And we're pleased this year as you kind of think about where we are here at the end of the third quarter with our margin performance, our cost management performance. And you've seen us really be able to leverage that volume growth, cover our fixed cost and produce leverage. So broadly, things are going well, and they're going well from a finance perspective, but more importantly, from an operations perspective. And if I look at our trends on things like quality and patient experience, employee and physician experience, broadly, the work of the company is performing really well right now as we sit here through the first 9 months of the year.

Great. Great. And just maybe just following up on that front. It's like what is the kind of embedded runway on some of these initiatives that you've previously called out that are underway to sustain that 2% to 3% from -- at least thinking about it from a same-store perspective because clearly, there's a development pipeline that's very intensive as well. But how should we think about what still remains from that -- from what's been disclosed? And has that been really realized in '24 and '25? Or is there still kind of some of that legroom that can extend beyond into 2026?

So I think -- the way I think about this is really in kind of 2 major buckets in terms of sustaining growth and where we are kind of using the baseball analogy, like what inning are we in. On a capital investment program standpoint, you've seen us deploy between $4 billion and $5 billion of capital for several years in a row now. We'll be right at $5 billion this year. And I'm really encouraged. I mean we continue to see significant opportunities coming up from the field to continue to invest and expand our hospitals and our networks. And so we have $6.7 billion of capital in flight and the pipeline of project requests that we continue to get from our hospital operating teams are really good. So I think we have a good runway. We have markets that are growing, which allows us to continue to invest and strengthen those networks. So that's really good. The second thing I would add would be the work we've done on network development. And so if you go back in time, we had something like 10 outpatient facilities for every hospital. We're sitting here today at about 14 outpatient facilities for every hospital. Between now and call it, the end of the decade into the next decade, we will probably be at 2:1. And so the reach of the company and adding things like urgent care centers and freestanding emergency rooms and surgery centers and physician clinics to continue to deal with the growth that we see in our marketplaces is good. And so I see that as being a continued driver of the volume growth or demand in our markets. It's a little bit of like what we said at Investor Day. I mean, there is a durability in HCA. And I think that's a representative of both the markets we operate in and how we operate and the strength of the company in driving that market share growth.

And speaking to the durability, I think it's kind of important since 2026 has unique dynamics that still are uncertain from a broader perspective, but you have resiliency initiatives that you have in place that you're going to speak more towards on the fourth quarter earnings call. But maybe just kind of from a qualitative perspective, what kind of some of the things that we could expect on those types of initiatives and maybe bucketing them in terms of what are revenue drivers and what are cost optimizers.

Sure. We have 3 major buckets of resiliency. And the first one is really our organization. And so we continue to invest heavily in our leaders and do things like workforce development to really help strengthen our organization. So HCA has great management teams and continuing to invest in their development and the pipeline process of that's important. We continue to work hard on workforce development. So think about the Galen School of Nursing. Think about the GME residency programs for physicians coming out of medical school. Those investments that we've made and are going to continue to make in workforce development builds resiliency in our organization. The second area of resiliency for us is our networks, our operations. And we continue to make significant investments there. We've talked about the capital investments and things like the acquisitions that we do, a lot on the outpatient side. But we also work hard on just overall operational resiliency. And a great example of that would be asset utilization. So we are several years in now into a length of stay management plan. That has allowed us to reduce length of stay and our performance this year has been really good, call it, 2% length of stay reduction. That is a way to add capacity and give you staffing capacity without spending a dollar of capital. And so we're still in kind of early to mid-innings using baseball again for our length of stay initiative, our case management initiative. We still see a lot of opportunity over the next few years to continue to use our assets in an optimal way. And that applies to emergency rooms with ER turnover and operating rooms with the way we schedule and operating our operating rooms. So this idea of asset utilization is a key part of resiliency. Then you have financial resiliency, which we've spoken about. And I really think about it in 3 buckets: one being revenue. And we've worked really hard and are continuing to work hard to clear our revenue and to have revenue integrity. And so a lot of that is pointed at denials and underpayments from payers. And so that's a piece of that work. But end-to-end, making our revenue cycle more efficient and more effective is a big part of that. So revenue is a big chunk of what we're working on. And then variable cost and fixed costs are the other 2. We broadly approach these areas with things like benchmarking, which we -- have a very robust benchmarking capability in the company, adoption of digital tools and AI and really a fairly significant component of our digital agenda is pointed at our administrative platforms and our operating platforms. and then the third being clinical platforms. So that's important. And then the last one I would say is shared services. I mean it's a hallmark and a strength of the company, our 5 big shared service platforms. And we're always finding new ways to leverage that and giving them more scope, more functions to manage and then also investing them to drive more process improvement as they go through their work. So broadly, we have been hard at work over the last several years, especially over the last 12 months to get prepared for '26. And I think these resiliency domains have put the company in a good position, the best position we really can be as we go into a period of time where we're all waiting to see do EPTCs get extended or do they expire? And the job of the company has been to prepare for either outcome. And so that's what we've been doing.

Great. And kind of on that, just we touched on the operational efficiencies and initiatives and kind of how that's driven 2025. Now maybe touching on the policy tailwinds with Medicaid supplemental payment programs. There's a couple of states that are still on the docket, Florida, Virginia, Georgia kind of come to mind that may come to fruition in this year, although TBD on that front. But maybe firstly, any updates on how CMS is progressing through the approval pipeline now that the government is kind of back in or back online? And if these do kind of get pushed into 2026, how would you kind of frame the initial DPP-related headwind tailwind in '26 if we try to bridge from the kind of what we have from a benefit perspective in '25 and then relative to if these programs kind of get approved in '26?

We'll give '26 guidance on the fourth quarter call. So I'm not going to size what the benefits or tailwinds or headwinds yet in terms of state supplemental payments. But what I would say in making sure we provide context is part of the one big beautiful bill that was a positive. Every bill has some positives and negatives. And clearly, this bill had -- was mostly using cuts to Medicaid to pay for the individual tax cut extensions. And so over a long period of time, there's pretty significant reforms to Medicaid included in this bill. The good news about those reforms is they were bifurcated depending on expansion states versus non-expansion states. And the reform was less impactful if you're in non-expansion states. So for HCA, 60% of our Medicaid revenue is in non-expansion states. So that was a bit of a helpful piece of context there. The other thing I would say, the fact that the reforms generally don't start taking impact until 2028 fiscal year, and then get phased in over a fairly elongated period of time, call it, 5 to 7 years from '28. Generally, for HCA, we believe we're going to be able to manage the Medicaid reform components of the One Big beautiful bill generally well. And I don't think it's going to take us off our long-term plan related to the Medicaid reforms in the bill. The positive aspect of this bill, though, was the fact that they allowed states, if they filed on time to get approvals to enhance their programs and is under the grandfathering provisions. And so HCA had 5 states that are more material for us. There are a few others, but 5 states that met the deadline had their application filed on time. Two of those 5 have already been approved, and that's Kansas and Texas. And based on our understanding of the review process from CMS for those 2 applications and a few other states that we're just not in, but that also had gotten approval. It feels like to us that these are active reviews. They kind of shut down with the government, now reopened and the reviews are continuing. You may have noticed that Virginia got approved this week. So from what we can see, it looks like CMS is continuing their reviews, and we've now -- or the 3 states that have been approved. So the other 2, I know are in review, and we're waiting to see the timing and what happens.

Great. And kind of -- you talked about [ HCA ] subsidies and we just kind of don't know, but you're budgeting kind of for the scenario that if they do get extended if they don't. So maybe...

We're preparing.

Well, preparing Yes. But I guess when we think about the kind of viewing the impacts of kind of how it might impact your beneficiary base, when we think about 2025 guidance, is there an embedded view that you see more kind of that Medicaid redetermination type of dynamic where utilization kind of spikes up as people get notified that their premiums are going to go up and likely exit the market?

Well, I really can't talk about fourth quarter yet. But when we look at third quarter, which would be the most current quarter that's public, we did not see any significant sign that demand had been pulled forward into the third quarter on the exchanges related to people's concerns. I think from the broad population perspective, they're going to start experiencing this as they start going through the enrollment process. And so that open enrollment started November 1. There's this kind of time period where people generally come in and start doing that work. And so we'll see. I mean it's a legitimate question to ask, would we have some pull forward in demand, and we'll tell you on our fourth quarter call. But we did not see any significant sign of that in the third quarter.

Okay. And maybe just kind of focusing on the patients that you serve and kind of that within the HICS population. Any kind of sense of kind of a conversion to Medicaid or commercial employer sponsored or any kind of breakout in terms of where you think the beneficiary pool kind of breaks out if the enhanced subsidies aren't extended?

Yes. So if they expire, I think there will be a time line where people start making adjustments. There will be a group of people, we believe that will stay on the exchanges for sure because there are some people who need to stay on the exchanges. They need coverage, maybe people with chronic diseases and the like. So they may go a metal tier, but we think there will be a group of people who choose to stay on the exchanges in a pretty material way. For the ones that leave the exchanges, there are a group of people that we believe will go back to employer-sponsored insurance and are eligible for that. And I'm not going to size it for you. It's an estimate no matter who's predicting it. But yes, I do think there's a component of people who will be able to go back to employer-sponsored insurance. Our view of it is that there will be no return to Medicaid. To be eligible for the exchanges, you have to not be eligible for Medicaid. So I don't think people broadly are going to be going back to Medicaid as it's just a matter of the way the policies work or the way the structures work. And then there'll be a group of people who become uninsured. And our view of that is that when people become uninsured, it's not like they quit using health care. It's just -- they just use ERs, emergency rooms. So I think there's a little bit less volume when someone loses coverage and becomes uninsured. And I think the access point changes to being really heavily weighted towards emergency rooms. But it's not like they go from having coverage and using and demanding health care to no utilization overnight.

And maybe this is -- that maybe hasn't been framed like this, but I guess we've seen the expansive population increase in the health care exchanges. But is it just a function of volume growth that it's -- because there's more people, there's more volume? Or is it the more chronic population portion of the exchanges are using their benefits more?

Yes, it's an interesting question. Here's what I would say in the last couple of years would be illustrative of this in our view. So in '24 -- 2024 versus 2023, exchange enrollments in our states went up 30%. Our volume went up 40%. And so just to give a sense if we had 30% enrollment growth and 40% growth in volume. And then in this year, our enrollment went up about 13%, and we're up about 10%. And so there seems to be a correlation between enrollment and volume. Now how much of that volume is coming from people with chronic diseases versus people who are covered but don't use it as much is a very difficult question. But the way I see it is we have seen in the past good alignment between enrollment and volume. So that's the way I would answer that.

Got it. And kind of going from the exchanges to a different payer, looking at Medicare Advantage into next year. Clearly, a lot of significant changes on the -- around cost sharing and benefits as we look into plan year 2026. Perhaps too early to tell the impacts just given how [ AEP ] is trending and there's a difference between plan projections and what will actually happen from an enrollment perspective. But just kind of curious if there's been changes around utilization management kind of preceding this open enrollment period that will kind of continue into 2026.

I always like to start when I'm talking about Medicare at the macro view. As we sit here today, about 58% of our total Medicare business is Medicare Advantage. The rest is traditional. And when I look at 2025 and '26, the number of people in America that are aging into the program is at a pretty high level when you compare it to the past 20 years, right? I think it's a function of the baby boomers retiring and the like are aging into the program. And so I do think next year, you're going to see another year of pretty big overall enrollment growth in Medicare, at least compared to a 10- or 15-year trend and probably at least consistent with this year. And then there will be some movement as there always is. But in '26, there will be some movement between traditional and Medicare Advantage and within Medicare Advantage by payer as each payer kind of designs their benefit plans and sets their premiums and the like, they'll be moving through all that. And so broadly, I think our Medicare volumes should be pretty durable because of the overall enrollment growth that we're expecting. Within Medicare Advantage, I mean, our view in working with our payer partners is they've been pretty active at utilization management in the last several years, really active. And so this idea of moving people from PPO to HMO are changing the utilization criteria, which if I were them, I would do too, right? I think there are going to be efforts there. But I think it's coming off of a pretty high baseline of utilization management that's already been in place. And so I'm viewing it as being maybe a little more incremental, but we're just going to have to wait and see. I don't think they're going from a scenario, though, where they had no utilization management to where they're going to have more utilization management. I think they're going to try to continue to improve their processes. And I suspect it may be a little more incremental.

Yes. And kind of speaking to one of the aspects of utilization management, just kind of pre-auths and denial of claims -- some of your peers have kind of called out an acceleration in that. We didn't really see that for HCA in 3Q, just kind of still heightened, but not anything beyond the realm of what has been discussed over the course of the year. But I guess I'm curious on where HCA stands in terms of a denial rate relative to the industry and kind of how you've kind of been able to drive that differentiation from a blocking and tackling perspective, especially as payers continue to comment on upcoding pressures from especially inpatient and outpatient settings.

Well, these are 2 different things, right? But let me cover denials first. Over the last several years, we've seen the payers, broadly, not just in Medicare Advantage, but broadly, increase their activity levels around denials. Their investments in their resources, their processes, their technologies and the like, and you've seen it, and we've seen it. HCA, given our scale and our ability to resource initiatives, we've been working really hard as a company in responding to that trend. And so the investments we've made in our contracting teams and efforts, the investments we've made in Parallon and our revenue cycle efforts have allowed us to respond to denials in a much more advanced way. And I think that our response is what's creating a different outcome. In other words, when I look at 2025, and I just kind of look at kind of concurrent denial levels, the new denials that come in, they're not slowing down. And if anything, they continue to see more and more activity. I think our response is allowing us to manage that environment in a way to where it's not having an overall incremental net impact to the company. Now it's having an impact, but not any more than last year. And so you've seen us say that like when we look at our net revenue per equivalent admission growth, that growth rate is not being impacted by denials because of our response. And so that's my thought process related to the denial trends. The activity level keeps going up. Our response keeps going up with it.

Great. And maybe speaking broadly to just kind of the aggregate mix of -- on the rate side. Clearly, commercial [indiscernible] is a larger book of business, but I think you don't really break it down by payer segment. But in the past couple of years, we've seen roughly 3% to 5% kind of rate increases across this aggregate payer base. But longer term, the algorithm for HCA is 2% to 3%. Does that kind of -- do we start seeing a normalization towards that as we kind of head into 2026 from a rate perspective?

Well, let's deconstruct that a little bit just for clarity. Our long-term plan on net revenue per equivalent admission growth is 2% to 3%. But when I think about our net revenue per unit growth, there are several drivers, right? You have the rate equation from both the payers in Medicare and Medicaid...

Yes.

You also have payer mix, you also have acuity and then you also have things like denials under payments in the adjudication process. So that 2% to 3% growth in our long-term plan is the accumulation of all those drivers, not just rates. When I think about the payer rate environment, what we've said publicly is that we're about 80% contracted on the commercial book for 2026, and we're still in our target rate range of kind of mid-single digits.

Yes. And I think it's -- maybe we should kind of break down the kind of that rate component that's related to some of the service line optimizations made because I think it kind of gets muddled up in the broader scheme of things as you try to drive more acuity or higher acuity case loads, that might not yield more volume, but it's kind of more on the rate side. So I think kind of that balancing act when we think about it, how much of that contribution on the rate perspective in terms of 2025 year-to-date has come in from the case load optimization that you've done?

Well, this year, we are pretty consistent on our case mix index. And on the inpatient side, we measure this with case mix index for the most part. So our case mix index, I'll use third quarter, it was up about 30 basis points to prior year. So we're pretty consistent. And it's been pretty consistent kind of broadly across most of the major payer categories as well. So over time, the way HCA thinks about our service lines is part of our networks. And so we try to both deepen and broaden our service capabilities that we offer to patients in our networks. With the idea that we want to be as comprehensive as we can. And so that patients don't have to leave our system for complex care. And so you've seen us over the last decade, and you will continue to see us over the next decade, both broaden our service lines. What does that mean? That means taking service lines and taking hub hospitals, but adding those capabilities in our feeder facilities as well, cath labs, open heart programs and the like and then deepen our service lines where -- and I'll use cardiology as an example, where we'll have kind of hub hospitals with really deep complex capabilities in things like structural heart and open heart and valve replacement and electrophysiology and the like. And so I think that work over time has allowed us to also increase the complexity of our revenue composition, especially over the last 5 or 6 years. And as I think about into the future, that work of service line development will continue. And so I think it's a piece of the story on overall net revenue per unit growth.

Okay. Great. And I think just maybe focusing on the policy, but instead of kind of ACA, let's think about kind of Medicare fee-for-service. By this point in time, we usually have the outpatient prospective payment system rule, but we still kind of haven't had that. But one of the biggest items in that was the elimination or the drawdown of the -- or the phaseout of the inpatient-only list over a 3-year time frame and largely focused around MSK procedures in year 1 and then kind of there on and therefore. I guess, how have the conversations progressed during the comment period around the elimination of that? Clearly, the physician fee schedule came out during the government shutdown, but it seems like the CMS might be doing some more legwork in the background before the final rule comes out. So just curious on if there's a kind of ability or notion that CMS kind of treads back on that elimination of the inpatient-only list aspect of that rule.

Well, we don't know yet, right? So we'll know when you know and when it becomes public. We commented. Clearly, we were disappointed in the proposal. And not only just on the inpatient-only component, but also the acceleration of the 340B recoupment were the 2 components. So just to note though on the inpatient only. So this is traditional Medicare only. And within that, what it does is it helps physicians to use their judgment on where the patient needs care. And for some of those cases, they very easily could continue to say these patients need to be inpatient. Others may need to be outpatient. So if they get rid of the inpatient-only list, it's not like all those accounts automatically go to outpatient, right? It becomes the physician's judgment on what the patient needs instead of a rule. But broadly, and especially when I think about next year, the inpatient rule was actually favorable to ACA and more favorable than our past several years of updates. And for our traditional Medicare book, 70% of the revenue is inpatient. So for '26, the combined of the inpatient and outpatient rule, if it gets enacted as if it was proposed, which we hope it doesn't, but even if it does, we're going to still have an overall Medicare update that's equal to maybe even a smidge better than the past several years. And so that's how we think about it broadly. And then we'll just work through these components if they end up getting finalized into the bill.

Great. And then on the Medicaid side and with the kind of One Big Beautiful Bill, something that came out of it that's kind of beneficial for the industry is that the rural health transformation front. All 50 states applied for it. I know kind of when we think about HCA's network, also housing the outreach networks, right, that may be eligible for these kind of funds under the programs criteria. Would you kind of frame that benefit being material if there is kind of funding that is available to those outreach networks?

We think maybe 15% of our hospitals would be eligible in some way for -- potentially eligible, I guess, I should say, for these funds depending on how the applications get reviewed and approved by CMS. A lot of unknowns yet in terms of what they fund, what they don't fund. If you read through the applications on kind of the other half of the money, there's a lot of ideas in there beyond just handing money to hospitals. So it's a little too early to tell whether it will be -- how much of an impact it will be to HCA. So too early to judge. But at the end of the day, it's still a good thing, right? So it could be a potential upside for HCA depending on how that goes. A little early to size it yet.

I know I've been rambling for 30 minutes. I want to make sure if anyone in the audience had a question. All right. Great. As we kind of get towards the latter half of our conversation, maybe I just want to focus on 2026 on a few broader topics, maybe starting with the development or potentially M&A pipeline under the new administration, there might be kind of more leeway on that front. But any update on the approved capital projects in the current pipeline and kind of how those investments pan out across the different asset types? I know you touched upon this on our kind of opening questions and remarks, but I think it would be helpful in terms of where some of the investments are being focused around.

Sure. On the capital investment side, it's always a mixture of inpatient and outpatient. We have been averaging about 600 beds a year of additions on the inpatient side through our capital investment program. I mean, that's kind of our program at this point. That will continue into '27 -- I mean, '26, sorry. And so that's important to deal with hospitals that get into a high occupancy scenario so that we can make sure that we have the capacity to service the demand growth, take care of patients, say yes to transfers and the like. So we will continue on the inpatient side, adding beds. Within our inpatient program as well, our acute care program as well, we're making investments to expand hospital emergency rooms, operating rooms, cath labs and the like. And all of that's also based on volume and occupancy and capacity. So inpatient projects tend to cost a little bit more than outpatient, a bit more, a lot more. And so on the dollar standpoint, when you look at our growth capital, more of the dollars go on the inpatient side just because of the cost of those projects. But we have a significant pipeline of outpatient development as well. And so you'll see a number of units getting added every year on the outpatient, again, urgent care centers, freestanding emergency room, surgery centers, clinics. And so that work continues, and it's in concert with that network development plan I walked through earlier. And so I think largely, that idea of taking care of inpatient and expanding our outpatient facilities over time will be what you see from HCA on the capital investment side. On the acquisition environment, we're acquisitive now. And the way I would say it, though, it's been tilted a bit more to outpatient where there is a bit of more of a competitive market. In other words, these are tend to be more for-profit private businesses that you can acquire. And so we've had a number of acquisitions in the outpatient space over the last 2 years, and we will always be looking to add outpatient capacity in our markets when attractive acquisition opportunities come up. On the inpatient side, especially in-network, there's still FTC friction. Now I think that the current administration's FTC is better for private companies than under the Biden administration for sure. But there's still friction, right? So what we see more in our current markets are tuck-ins. We've done 2 this year. We bought a hospital in Manchester, New Hampshire. It's part of our New Hampshire market and one in Florida in the Fort Myers area. So when we find opportunities in market, we still take them. But the bigger the end market competitor is, the harder the friction is. So you just have to accept that. And move through it. In terms of new markets, we tend to be pretty disciplined in entering new markets. We've done it before, and we'll do it again. But you've got to find a meaningful hospital system in the right kind of market for HCA that is for sale. And so we take a look at all of them that come available. And the current policy environment may change the market a bit over time, but that's the way we think about it. And I think everyone appreciates this. HCA is a really disciplined allocator of capital. And so on the acquisition side, it's going to have to be the right market and the right asset for us to dive in.

And you've had this framing of kind of getting to 29% market share nationally by the end of the decade. So how much of that contemplates just existing market or in-network kind of growth relative to just pursuing growth in new markets to achieve that target?

Yes, it's tied to our existing markets.

Okay. Perfect. And then, as we think about just some of the cost dynamics heading into 2026, I think one of the areas that have been persistent pressures in the industry is professional fees. HCA made kind of the investment of acquiring or wholly acquiring Valesco, which was priorly a joint venture [indiscernible]. And so when we think about professional, one of your peers kind of called out September seeing heightened radiology pressure, which radiology seems to be more persistent than last year's anesthesiology. But I think -- are you kind of seeing that same type of pressure kind of hiking into 4Q or just kind of maybe broadly speaking? And as we think about next year, is that rate of growth expected to moderate on your end as you continue to make more leeway on kind of your Valesco acquisition?

Well, Valesco was emergency room physicians and hospital medicine physicians. And so we acquired that company, and I'm really proud of that team. We are now -- they've not only stabilized that operation, but that's going really well. And so all the work of our hospital management teams and our physician management teams and that group of physicians and staff have really produced a great outcome for HCA. And I think we're in better shape now in those 2 service lines, emergency medicine and hospital medicine to deal with not only the cost pressures in those areas, and it's not like they're gone, but we can better manage them now, but also to create a strategic asset for the company. And so things like managing length of stay and managing ER operations for effectiveness and efficiency, we now have a home team that's really aligned with that vision. And it's -- I think it's setting up the company well. The challenges really last year and this year are more in anesthesia and radiology. And so as we sit here today through third quarter, our same-facility professional fees have been up about double digits, about 10%, which was in line with our expectations as we started the year. And it does represent those challenges. There are supply and demand challenges in both anesthesia and radiology in terms of providers and physicians. And so we're still working through that. And we're applying all the same kind of HCA strategies that you would think of in terms of the way we build and manage the vendor relationships, the way that we manage the allocation of these scarce resources and scheduling and performance in the hospitals and the like, including in anesthesia building our own internal capability where when we have to, we can employ anesthesiologists. And so we're working on these areas. I'm not seeing any expansion of the pressure. But I think as we go over the next -- not only in '26, but probably in the next 2 or 3 years, we're still going to be working through anesthesia and radiology pressures. It's the one area of our cost structure that is still a bit challenged.

And then are there kind of other specialties that you've kind of been more proactive on since you've seen these pressures in anesthesiology and radiology from a contract perspective that are kind of maybe being forecast -- or not forecasted, but being showcased in a 2025 P&L as you kind of become more proactive on that front?

Well, I just would tell you that broadly, a lot of our growth in terms of this double-digit growth has come from anesthesia and radiology. And our work to manage emergency room, hospital medicine and the like have allowed us to keep those growth in a little better control. And it's not like we're not working on it. I mean '26, we'll talk about what we think the marker will be in '26 on our fourth quarter call. But I think it's still going to be a little more than just average inflation as we go into the future.

Great. And kind of now thinking about other cost pressures or not cost pressures, but cost items, supply expenses, drug expenses, clearly, economic policy have made those pricing fluid. And so you called out immaterial impacts from tariffs. But as we think about kind of underlying growth trend for 2026 on that regard and kind of your majority stake in GPO, how should we kind of think about the opportunities on the supply expense front? Clearly, it was a big portion of the Investor Day in terms of the incremental savings that you -- that the company can generate. So just kind of maybe any color on that front.

Well, I think before I answer the operations question, we have to acknowledge tariffs, right? I mean we've worked really hard this year with HealthTrust and our GPO to manage the tariff environment the very best we can. And I think that the work that they do to try to get longer-term fixed price contracts, the work that they do with our vendor partners to change sourcing and to change product selection and the like has added a lot of value to the company and helping us to navigate the tariff headwind. But I can't tell the future on tariffs yet because any time I try to predict what's going to happen in the next day of truth, social comes out, and I look like an [indiscernible]. So I'm going to stay away from yet trying to call what's going to happen with tariffs other than saying that I think HealthTrust has helped HCA do a really good job of navigating that challenge the best that we can and has put us in an overall pretty good spot. Broadly, in supplies, and I think this year is a great evidence of this. We've been able to manage the inflationary pressures through our contracting and procurement processes in a way that coupled with our resiliency plans and how we manage things like new technology adoption and mix of products and the like that we've been able to have a pretty good year this year on supply cost. I mean we've had a bit of margin even improvement in supplies. And I think that's a reflection of the work of the company. That's not meaning that there's not inflationary pressure. There is. And so we work with our vendor partners to deal with that the best we can. But that we couple that with the strength in the size of HealthTrust to help us manage that really well. And then our resiliency plan has a number of initiatives pointed at supplies that will help us continue to find ways to be efficient in our supply management processes.

Great. And I guess we're almost up on time, but maybe...

I'll mention this, too, because you haven't asked about digital. Supply chain is a great example of one of the administrative platforms that has the most opportunity from AI. If you just think about hundreds of thousands of SKUs with tens of thousands of vendors, supplies coming in from all over the world, big data, data science and building data products that help us manage that, not only the inventory loads, but the cost of the supplies are going to make a big difference over time.

Got it. And clearly, AI is a very incremental tool even from a labor standpoint as well. And that's kind of getting into the next question, just expectations for labor and wage trends heading into next year. Clearly, your investment in the Galen school or College of Nursing is very incremental to the future pipeline of acquisitions. And maybe just kind of talking around the conversion rate. There's a philosophy of having a Galen College of Nursing in every HCA market. Where are we on that perspective and how that kind of is developing from a pipeline?

Yes. It's a big part of our overall workforce development plan. Now we also work with the legacy nursing schools, too, and very heavy partnerships. I mean what Galen has allowed us to do is not only fix an HCA problem, but support our communities. The issue in most of the communities we serve is there's just not enough nursing schools, not enough spots for people who want to go to nursing school. And so it has clamped down on supply over the years. And so Galen opens up all these new nursing school spots for people who want to become nurses. And in our markets, when we acquired Galen, there were 4 campuses in 2021. And as we sit here today, there's 20, I think it's 21. And as we go between now and 2030, we'll be at about 30. And so 30 of our 43 markets will roughly have a nursing school. Some of those markets will have 2. And we believe by the end of the decade, we'll have about 30,000 students in Galen and probably 8,000 to 9,000 annual graduates. So it's been a really good program for HCA and the communities we operate in to build this better supply of nurses in our markets. And we're real proud of those teams. They've done a great job.

Perfect. I think that puts us up on time, and that wraps us up. I want to thank the HCA team for joining us here today.

Thank you. All right. Thanks, everybody.