HCA Healthcare, Inc. Q2 2026 Earnings Call

Ladies and gentlemen, welcome to the HCA Healthcare second quarter 2026 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir. Good morning.

Welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen, and CFO, Mike Marks. Sam and Mike will provide some prepared remarks and then we'll take questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they're based on management's current expectations. Numerous risks, uncertainties, and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as Adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on Adjusted EBITDA and reconciling net income attributable to HCA Healthcare Inc. is included in today's release.

This morning's call is being recorded. A replay of the call will be available later today. With that, I'll now turn the call over to Sam.

Good morning. We believe that access to healthcare and affordability for Americans begins and ends with health insurance coverage. Most people need support to secure it, whether that is through an employer, the federal government, or some other means. Throughout 2025, our teams advocated for extending, in some form, the enhanced premium tax credits for those individuals who needed it. Unfortunately, the enhanced premium tax credits expired at the end of the year. The effects, as expected, were that many people became uninsured and still needed emergency care from hospitals. As we look at the first half of the year, our expectations proved accurate, although the impact was greater than our estimates. Our colleagues, however, have continued to deliver high quality, compassionate care to an increased number of patients during the first half of the year, while managing well through the various headwinds we faced.

On behalf of our board and our senior team, I want to thank our colleagues for their great work. When I look at the company's mid-year results, I focus on three factors. Before I get to those, I do want to indicate that the company had solid diluted earnings per share growth of 11% in the quarter and 11% year to date. First, we experienced an unfavorable payer mix shift, which created most of the financial pressure for the company. Overall, adjusted admissions for patients who were formerly covered by the health insurance exchanges declined by 15%. We expected some of these patients to shift to other forms of coverage, but this did not happen. Instead, these patients migrated almost one for one to uninsured.

We had three of our 15 domestic divisions that had outsized effects from this payer mix shift, and they accounted for around 50% of the company's overall impact. In the quarter, we had an incremental net benefit from Medicaid supplemental payment programs, primarily related to Florida. These programs, which are fundamental to our providing services to Medicaid patients, play an important role in supporting access to care. This support has been especially important for hospitals as they are now providing more uncompensated care to uninsured patients. Our updated guidance for the year incorporates what we have learned through the first six months with respect to patients who have lost their coverage on the exchanges. We believe most of the attrition this year is attributable to the expiration of the enhanced premium tax credits. The second factor was the strength in demand.

Despite the payer mix shift, we were pleased with our volume growth. Insured volumes, excluding exchanges, across many of our services were solid, with improving trends over the course of the first six months. Emergency room visits, cardiac procedures, and rehab volumes helped drive these improvements. With respect to surgery volumes, the primary explanation for the decline was from reduced demand in elective surgeries across both inpatient and outpatient settings. We believe there are several factors contributing to this dynamic, including declines from patients who were previously covered through the exchanges. Emergency inpatient surgery volumes, which account for approximately two-thirds of our total inpatient cases, were up as compared to last year. As stated, we continue to be encouraged by the overall backdrop in demand.

We believe our longer-term assumptions for demand growth of 2%-3% are supported by market factors and population growth rates that we see in the communities we serve. To meet this expected demand, we have continued to add capacity and facilities to our networks this year. Additionally, we have approved more than $7 billion in capital expenditures that should come online in the next three years. We believe these investments will increase offerings and quality for our patients, improve our competitive positioning, and help us grow. HCA Healthcare has produced strong returns on invested capital over the years, and we believe there will be opportunities to do more in the future. We expect to use our cash flow and balance sheet strength to invest further in our business while also returning capital to our shareholders through our capital allocation plans.

The last factor I want to focus on is the advancement of our financial resiliency program. We continued to see improvement in cost metrics as we moved through the first two quarters. For years, HCA Healthcare has found ways to create economies of scale, increase operational efficiency, and enhance margins. We believe the resiliency program we are advancing now has more capacity through digital transformation, global capabilities, and enhanced workforce development programs. We believe our program will continue to add value this year and on into subsequent years. I close with this. HCA Healthcare has a strong track record of effectively responding to challenges, regardless of the event. From these experiences, we have built a culture of discipline. This culture has helped us stay true to our core mission to care and improve human life.

Next, it has allowed us to allocate resources productively to generate solid returns for our shareholders. Lastly, it keeps us focused on execution to deliver the outcomes necessary to make the company stronger. With that, I will turn the call over to Mike for more details on the quarter.

Thank you, Sam, and good morning, everyone. Let me start by providing commentary on second quarter same facility volume compared to prior year. Admissions increased 2.5%, and equivalent admissions increased 2.7%. In-patient surgeries were down 2.3%. Outpatient surgeries were down 3.4%. ER visits increased 3.6%. Regarding payer mix, same facility equivalent admissions and our insured population, excluding exchanges, increased 3.2% in the second quarter and 2.2% year-to-date versus prior year. Exchanges declined 15%. As Sam noted, these patients losing coverage on the exchanges migrated almost one for one to uninsured. This one for one migration makes up approximately 80% of our uninsured volume growth, with the remaining 20% related to a decrease in Medicaid conversions, mostly in Texas, which has had a modest financial impact. Our second quarter net revenue per equivalent admission growth of 6.4% was probably payment benefit during the quarter.

In addition, our contracted rate increases and governmental payment updates offset the negative rate impacts from payer mix changes relating to the exchanges and to a lesser extent, service mix. Let me now transition to the impact of the exchanges and Medicaid supplemental payment programs in the quarter. The significant payer mix shift related to the exchanges has had an unfavorable impact on Adjusted EBITDA of approximately $400 million. This amount includes an increase of approximately $75 million related to our previous estimate, our first quarter exchange impact. During the second quarter, the company recognized approximately $400 million of incremental net benefit from Medicaid supplemental payment programs. This included a $540 million incremental net benefit related to the recently approved Florida program from October 1, 2024 to June 30, 2026. This benefit was partially offset by retro payments received in second quarter of 2025.

Sam touched on the advancement of our financial resiliency program. Resiliency is core to how we operate the business. Our resiliency program is a long-term, multifaceted, enterprise-wide set of initiatives designed to generate efficiencies across the organization. We were pleased with our cost results in the second quarter. Same facility cost per equivalent admission when considering Medicaid supplemental payment programs was essentially flat versus prior year quarter, and it improved 1.4% sequentially. Let me add a note on our year-to-date performance. Given the challenging policy and reform backdrop, we are pleased with our operating performance at the halfway mark of the year. When we consider the impacts of the exchanges, Medicaid supplemental payment programs, and the impact from the respiratory season and winter storm in the first quarter, our year-to-date operational performance has moderated from our 2025 growth and our initial guidance assumptions.

Our revised guidance in 2026 is more in line with our long-term Adjusted EBITDA growth rate target of 4%-6%. Moving to capital allocation cash flow. Capital expenditures totaled $1.2 billion in the quarter. Additionally, we purchased $2.1 billion of our outstanding shares, and we paid $171 million in dividends for the quarter. Cash flow from operations was $2.3 billion in the quarter, which is a 45% decline from prior year quarter. This decline was primarily due to timing differences in cash flows related to Florida's Medicaid supplemental payment program, as well as the prior year deferral of federal income tax payments to the fourth quarter of 2025. Our debt to Adjusted EBITDA leverage remains in the lower half of our stated target range, and we believe our balance sheet is strong and well-positioned for the future. With that, let me speak to our revised 2026 guidance ranges.

Revenue between $77 billion and $79.5 billion. Adjusted EBITDA between $15.4 billion and $16.1 billion. Net income attributable to HCA Healthcare between $6.3 billion and $6.7 billion. Diluted earnings per share between $28.70 and $30.50. We also included revised key assumptions related to the expected unfavorable impact on Adjusted EBITDA from payer mix shifts due to the health insurance exchange, as well as anticipated incremental net benefit from Medicaid supplemental payment programs as follows. Health insurance exchanges between the negative $1 billion and $1.2 billion. Medicaid supplemental payment programs net benefit between $300 million and $500 million. The variables on the exchanges are difficult to predict and require significant judgments. We have now revised our estimated impacts to Adjusted EBITDA based on the updated information through the first half of the year.

Specifically, the key change in our updated estimate is driven by our evaluation that almost all of the individuals losing coverage on the exchanges are becoming uninsured, versus our original assumption of 80%-85%. In addition, our original assumption around declining utilization for patients that become uninsured due to the loss of insurance coverage did not materialize. Regarding Medicaid supplemental payment programs, our updated guidance implies a $100 million-$300 million headwind in the back half of the year. This second half headwind reflects program approvals and retro payments received in 2025, which are projected to exceed the incremental benefit of the Florida program. As we think about the quarterly progression for the remainder of 2026, we believe the fourth quarter Adjusted EBITDA growth rate, compared to the prior year, may be higher than for the third quarter.

This is based on our assumptions around the timing effects of exchanges, Medicaid supplemental payment programs, and our resiliency program. We are maintaining our stated CapEx range of $5 billion-$5.5 billion, and currently plan to complete most of the existing authorized share repurchase program, subject to market conditions and other factors. I will now hand the call back to Frank Morgan for questions.

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

Thank you. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. Our first question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open. Thank you very much.

I'm hoping you can give us a little more color on your increased estimate for exchange headwinds. What were those key variables that were informing the $1 billion-$1.2 billion estimate, what's given you confidence in the magnitude of that increase? Then also by extension, how we think about that directionally as it paces through the back half of the year. Thanks. Thanks, Ben. This is Mike.

If you think about first half of the year, we've gained a lot of experience, especially in second quarter. Given that experience and understanding of the exchanges better, we've adjusted our estimates accordingly. If you go back to our original set of assumptions, the volume declines that we are seeing in first and second quarter on the exchanges, which are 15% in both first and second quarter, are in line with our original guidance estimates in terms of exchange volume decline. What's different as we had gone through second quarter, is that, we originally assumed that about 80%-85% of the patients who lose exchange coverage would become uninsured. Our data is telling us now that it's closer to one for one. That's really the biggest driver of the updated estimate of the impact.

When I think about first half versus second half. First we are providing a range, this $1 billion-$1.2 billion range that we're calculating for the full year 2026, considers a variety of scenarios. To come up with that estimate for second half, we're using what we've learned through the first six months of the year. We've also studied our past attrition rates over the last several years. In addition, we have pulled, I'm sure just like all of you have, all the external data that we can, with updates as we've gone through the year. Based on that is the driver of our full year guidance update. I would note, though, as we look back to last year, we began to see some slowing exchange volume in the fourth quarter of 2025.

Historically, over many years, our exchange volume would typically peak in fourth quarter. This was not the case last year. In hindsight, we now believe that the exchange reforms that actually started late last year started having an impact, specifically in fourth quarter. I'll give you one example. The pausing of the Low-Income Special Enrollment Period during early 2025, we think now in hindsight, had an impact. Our fourth quarter 2025 exchange volume growth To prior year, it was only 2.5%.

The full year 2025 versus 2024 was over 10%, that gives you a sense of it. We do think when we think about second half of 2026 compared to prior year, that fourth quarter has a bit of an easier comparison. Ben, that's a wrap on the HICS exceptions and our second half guidance.

Thank you. Our next question comes from the line of A.J.

Rice with UBS. Your line is open.

Hi, everybody. Let me maybe just drill down a little bit on surgeries. That's been a topic of conversation this quarter across the board with companies. Your inpatient and outpatient surgeries were down. I wondered if you could go talk a little bit more about the types of surgeries that were impacted relative to service lines. Do you see this as being more elective procedures, postponable procedures that are being deferred? Are you attributing this mainly to the HICS dis-enrollment? Finally, on surgeries, are you giving any allowance for people hitting deductibles as the year progresses and maybe doing those surgeries that have been postponed from the first half later this year?

AJ, this is Sam. There's a lot of questions in there. Let me see if I can sort through a condensed answer here. I think it's important to understand our surgical business. We have, on the inpatient side, two sources of channels, if you will, for surgery. We have the emergency room, which represents about two-thirds of our inpatient surgeries, trauma programs, cardiac events, general surgery, you name it. That continues to grow. We've seen in 2025 over 2024, our emergent inpatient cases were up 2% year-over-year. Thus far, through the first six months of this year, that particular component of our surgical business is also up 2% year-over-year.

That's a stable component of our surgical business. We continue to invest heavily in our emergency room capacity in network offerings to enhance opportunities for patients to enter our system and get the care they need. That's number one. The other piece of our inpatient surgery is clearly elective, which represents about a third. We are down this year more than we were last year. Last year, we were down on elective 2%. This year, we're down on elective 6%. We do believe that HICS demand, which is a big piece of our elective declines on both inpatient and outpatient, is a part of it. This discussion that Mike just referenced around HICS, it's cutting across all aspects of our business. We're seeing it in the ER with our payer mix there.

We're seeing it in outpatient surgery from an elective standpoint. We're seeing it on the inpatient. On the outpatient, it's predominantly all elective, as you would expect. There are some cases that do migrate through the emergency room, but nine out of 10 patients are roughly elective. Here again, HICS demand was a big piece of it, not the sole piece of it, but a big piece of it. We do hear from our physicians that their activity flow is off a little bit this year. They're attributing it, as you would suspect, to sort of the general affordability and pressures that people are experiencing with the economy as a whole. It's hard for us to tease that apart, but that's the best feedback loop that we have. I think there's just a handful of other things that are connected to it.

Obviously, the Medicare inpatient rule change has had an impact. We've seen some cases move from inpatient to outpatient. We do capture some of those. We lose some of those, as you would expect, because the outpatient surgery market is a little bit larger than the inpatient surgery market. Those are some of the factors that we see. We have a response to this, as you would expect of us. We are investing in our ORs to make sure they have the equipment that they need. We're optimizing our operations so that the patient and the physician has the flow and efficiency that they require. We're aligning with our physicians where it makes sense to ensure that they have a connection to our network. With our ASC business, our ASC division actually had earnings growth over the first six months of this year.

We have roughly the same number of facilities in that division. For both surgery and what we consider non-surgical cases like endoscopies, colonoscopies, lithotripsy, pain, our overall volume in our surgery center, due to more units, is up slightly year-over-year, but the acuity of those cases is growing. We continue to add to that network also, as you would expect, so that we have multiple offerings for our patients, multiple offerings for our physicians, and making our network more resilient with additional capacity. We're obviously sorting this out. We think that we're in a good position competitively. We'll have to see, A.J., as we move through the balance of the year, whether or not we see a recovery from some of the early indicators that we've seen in the first six months. Okay, thanks so much. That was great.

Our next question comes from the line of Ann Hynes with Mizuho Securities. Your line is open. Great.

Thank you. Just a follow-on to that question. I think in your prepared remarks, you said you'll be investing $7 billion over 3 years. Is that more offensive than defensive? Just almost as a response to your last question that maybe there's an acceleration of a shift from inpatient to outpatient because some of the CMS regulatory changes. Can you just talk about the competitive environment? Do you think you're still gaining market share? Where do you see the biggest opportunities to gain market share over the next couple of years? Just given some of the markets that are under pressure, I'm assuming your not-for-profit peers are also under pressure. Are you seeing any change in behavior when it comes to their investments competitively? Thanks. Okay, Anne. Thank you.

This is Sam. Let me see if I can pull all that together and respond to your questions there. If you look at our company over the past, let's just say 5 or 6 years with our capital spending, we have added to our inpatient chassis. Just to give you some numbers on that, we had roughly 37,000 beds at the end of 2018 in operations. We have 42,000 today. Our occupancy level since that time has grown from 71% to 75%. So in addition to adding roughly 15% inpatient capacity to our company, our utilization of that capacity has grown by 5 points. Within our $7 billion that I referenced earlier, we do have another 1,000 to 1,200 inpatient beds that we're adding. In addition to that, we are also adding to our outpatient network.

In the second quarter of 2026, as compared to the second quarter of 2025, we have 5% more sites of care than we did last year, and that's roughly 250 or so, if I remember correctly. In our pipeline, we have another 250 to 300 outpatient facilities, either in our capital plan or in our acquisition plans that will come online, we believe, sometime later this year and early next year. That will add roughly 10% to our overall network capacity, more units on the outpatient, as you would suspect. The $7 billion includes components for all of that. It includes new beds, actually new hospitals in some cases, a number of outpatient facilities, some of which I just referenced. All of that goes to help us compete. We are losing no competitive positioning.

We have judged through our mid-year reviews, through our market share analytics, that our competitive positioning is stable to growing net-net. Yeah, there may be a market or two here that has had a competitor do something that we have to now respond to, but that's fluid and dynamic always. Our touch points with our markets allow us to make adjustments, invest in initiatives to respond to those dynamics. We do believe we're gaining market share in many of our markets. Some are flat and some are modestly down. That is normal course for us. Overall, we feel good about our programs that are necessary to extend our networks and create convenience and more offerings for our patients.

The investments back in our hospital-centric components of our facilities, increasing capacity, increasing technology offerings for our physicians and patients, and then creating the kind of availability so that patients can get into the systems, is positive because we see, again, demand growing. Our job, given our position in these communities, is to meet that demand. Let me make this last comment on our markets because I think this is a very important component, and we shared it with our board with our mid-year review just this week. The demographic trends that we see in HCA's markets, we believe are as positive or more positive than they were during the COVID migration that we saw to the southeastern and southwestern parts of the country.

Through our study, through our understanding of other people's studies, we believe those trends are going to be supportive to the overall growth that we expect in HCA's markets. Florida, Texas, Utah, Nevada, South Carolina, Georgia, Tennessee, all of these states are targeted for growth that we think is going to support these investments, provide for more healthcare demand, and create great opportunities for HCA to grow.

Our next question comes from the line of Brian Tanquilut with Jefferies. Your line is open. Hey, good morning, guys.

Mike, as I look at the P&L, shifting gears here to the cost side a little bit. The other OpEx line was up a decent bit, and I'm guessing some of that's just provider tax. If you can just walk us through other moving pieces potentially there, pulling to a broader view, just curious how you're thinking about the resiliency programs. Obviously, HICS was a surprise, any other incremental offsets that we can be thinking about maybe as we even think through 2027 and beyond? Thank you. Yeah, Brian, thank you.

As I mentioned in my prepared comments, when you consider waiver, you're right, our other operating expenses are being inflated because of the provider tax associated with our waiver benefit for sure. If I pull up and just look at our total cost per adjusted admission to prior year in the second quarter, think about that would be SWB supplies and other operating expenses combined, Brian. When I look at that compared to prior year, we're only up about, call it flat, just slightly up over the prior year. That really reflects really good work in second quarter related to our resiliency plan. As Sam noted in his comments and as I reinforced in mine, resiliency is really core to the business, and it's something we've been working on for a long time.

You'll remember that we even highlighted this in our investor day back in 2023, resiliency's been in the company's results going back to the pandemic. As we look at all of the work in flight with resiliency and the gaining maturity of these programs, we're confident that we're going to be able to bend the cost curve and improve our cost trends, if you will, in the second half of the year and into 2027. From the next generation of that work, when you think about digital transformation, building global capabilities, and all the work we're doing to expand shared services, we believe this will produce multi-year benefits for the company as we go out in time. The only other thing I would mention to your question, if I think about the other operating expenses, would be potentially professional fees that are in other operating expenses.

They're up about 8.5% on a same facility basis to prior year, which is moderated and is pretty flat sequentially to first quarter. We're pleased with that work. It's still a little elevated from our other cost trends, we believe we've made progress here in terms of our professional fees.

Yeah. Mike, let me add to that for one minute. I've been with the company for 43 years, I've seen our approach to our business grow when it comes to complexity of services that we offer, whether that's trauma, bone marrow, solid organ transplant, whatever the case may be. If I juxtapose our resiliency program against our service components and how complex and sophisticated our services are in our hospitals, that's exactly where we are with our financial resiliency program. We are getting more sophisticated. We're getting more capabilities to execute on this piece of the agenda. This has been an opportunity for us for years. We just didn't have the tools to get after it.

The tools and capacity that Mike just alluded to reminds me of where our networks were maybe 7 or 8 years ago, where we didn't have a full array of services, or we didn't have the outpatient capabilities that we needed to build out a network. Well, today, with our resiliency agenda, we have these additional components, technology, digital, global, capabilities corporately to support all that. That's why we think this particular program has durability and capability to add value for the company as we push into the future.

Our next question comes from the line of Pito Chickering with Deutsche Bank. Your line is open. Hey, good morning, guys, thanks for taking my question.

Looking at 2Q core EBITDA, excluding DPP and HICS, can you help bridge us how you got to your guidance for the back half of the year? Specifically, can you call out any changes to assumptions on the top line, like surgeries or para-mix? On the bottom line, can you call out any savings in the initiatives that are coming online and details around those initiatives?

Sure. Hey, Pito. This is Mike. First, just a couple of background statements. One, we do have a range, so it's always important to note that when we gave our updated full-year guidance, we gave a range to ensure that it contemplates a variety of scenarios. Inherent in your question, we did think about, in the second half of the year, the assumptions that we're making related to health insurance changes and the incremental net benefit from the Medicaid supplemental payment programs. When we think about the rest of the business, I really think about three drivers that give us confidence here in our guidance for the back half of the year. The first one is really volume. Our second quarter results profile solid volume growth, particularly in our insured population excluding changes.

We do believe that that demand momentum will continue through the balance of the year. The second is our cost. You noted that, but it's clear in second quarter, we have really good performance in our cost trends. From what we're seeing in our resiliency plan and the visibility into the execution of that plan, as well, if you think about the operating leverage that we generated in second quarter from volume growth that we believe continues, we are confident that we will be able to improve our cost trends In the back half of the year, and into 2027 as well.

Lastly, I think it's important to say, we have an excellent management team in the field and in corporate. Our management team has demonstrated through many past challenging cycles the ability to handle challenges and exceed and thrive during environments like that, and like the one we're in now. So I'm confident that as we go through the year, our management team. Abby? My apologies. I wasn't sure if the line had cut out.

Our next question comes from the line of Matthew Gilmore with KeyBanc. Your line is open. Hey, thanks for the question.

Just circling back on the exchange headwind discussion. You had mentioned that three divisions represented 50% of the impact. Can you give some context in terms of either the geographies or just the commonalities in terms of those divisions and why they're seeing a bigger impact?

Yes. This is Sam Hazen. We have three divisions. Our Gulf Coast Division, North Florida, and South Atlantic Division are the three that had a lot of HICS exposure going into the year, and they've had dramatic impacts from the HICS exchange volume shift. Their composite adjusted admission decline in HICS is somewhere between 25% and 28% for the first half of the year, and that has obviously created a lot of pressure. We didn't expect it to be that much in those markets, and the teams have tried to adapt to it, as you would expect, as best they possibly can, but that's a fairly sizable impact. It has had an outsized effect on the company. Obviously, we're all in on all of our divisions. Typically, we have a more balanced performance across the company.

In this instance, it's been a bit imbalanced with those three situations. We're reacting to it appropriately. In two of the three divisions, actually, we have more volume than we did in the previous year in total. Again, the payer mix in those divisions has been compromised by the expiration of the Enhanced Premium Tax Credits, and that's produced a significant move from HICS to uninsured in those markets.

Got it. Thanks. Our next question comes from the line of Whit Mayo with Leerink Partners.

Your line is open. Hey, good morning.

Mike, I just wanted to get an update on the internal views on work requirements for 2027. Just any thoughts on potential coverage leakage or headwinds or just general thoughts would be helpful. Thanks. Sure. Hey, Whit. Obviously, there's a proposed rule out in Medicaid work requirements.

Just a couple of notes. One, we believe work requirements will have an impact in non-expansion states. I'm sorry. They'll have an impact in expansion states, way more than non-expansion states because of this focus on working adults. As a reminder, of all of our Medicaid revenues, about 40% of our Medicaid revenues are in expansion states, 60% are not. We are monitoring this proposed rule, as you can imagine. We're going to have to see how it plays out. There are some litigation and legal challenges around the way that CMS is implementing the work requirements. We'll have to see how they move through the system. We're also monitoring how our states implement these plans.

Most of these, if not all of these expansion states, tend to be a little bit more blue, a little bit more Democratic. We are working with those states to make sure and try to support the notion of a good supportive approach towards implementing work requirements within the bounds of the rule, of course. Our Parallon teams are also getting really organized here, I think about the coverage benefit support teams that we have embedded in all of our facilities in these states, and the work that they do with patients to help them work through the Medicaid application process and help them work through the work requirements process. We've beefed up those teams, Whit, and we are preparing as best we can.

I will say when I just think about the distribution of our assets between expansion and non-expansion states and the work that we're doing to prepare, we still think that on balance, while Medicaid work requirements are going to have an impact, we believe we'll be able to manage through those in a reasonable way.

Okay, thanks. Our next question comes from the line of Justin Lake with Wolfe Research.

Your line is open. Thanks.

Good morning. Sam, really helpful on the surgeries. You gave us 6-month numbers for the inpatient coming through the ER and the electives, the down two and the down six. Maybe if you can give us first quarter versus second quarter and just how things are running through the second quarter. Then can you guys also run us the volume growth by payer and hopefully give us commercial employers separately from exchanges? Thanks a lot. Yeah, I don't have a different explanation for the second quarter versus the year to date.

I think it's hard sometimes in short cycles to make judgments about demand, and 90 days is a short cycle. I think from that standpoint, I don't think the explanation varies much from quarter to quarter, a midyear review, I think, is a more relevant perspective on that. I don't really have anything to add additionally to the commentary on surgeries.

Justin, if I look at same-facility equivalent admissions in second quarter of 2026 compared to prior year, all-in Medicare is up 3.6%, Medicaid is up 2.7%, commercial excluding the exchanges are up 2.4%, the exchanges are down 15%, and the total uninsured is up 15%. I would note the total uninsured equivalent admissions now represents a little over 10% of our total equivalent admissions, and the exchanges now represent about 6.8% of our total equivalent admissions.

If you look at the payer mix, Mike, of the company on the inpatient side this year versus last year, it's almost identical by payer class. When you put health insurance exchanges and uninsured together, and this is why we conclude that there's a bit of a one for one, it's the same number. That's what's happened here, is our payer mix is actually the same in Medicare as it was last year, Medicaid as it was last year, managed care and other as it was last year, and then HICS and self-pay, uninsured together are exactly as they were last year. Our conclusion on one for one is reinforced, we believe, by that sort of fact. For us, obviously, that's not a good thing.

We still have to take care of these patients, and we do, and our people do a wonderful job, but it does put pressure on the P&L.

Sam, to that point, another way we've looked at this again, June year-to-date, same facility compared to prior year. Our healthcare exchange equivalent admissions are down about 22,000, and our uninsured equivalent admissions are up about 26,500.

Yeah. We get the one-for-one migration from the exchanges, then with the uninsured, we also on top of that, have a little bit of this Medicaid conversion slowdown in Texas.

To Sam's point, that is the payer mix dynamic we're dealing with.

To put that into context, those 20-some thousand patients, Mike, that you referenced, we took care of about 1.1 million people. The implications for the company are really hinging on those 22,000 patients. It is what it is. We understand that. You've got to appreciate the context here and the backdrop of 1.1 million adjusted admissions and 22,000, or whatever that number was you gave.

Yeah That represents about 2% of that.

That movement has had obviously a disproportionate effect, and we're responding to it as well as we can.

Our next question comes from the line of Stephen Baxter with Wells Fargo. Your line is open. Hi.

Thanks. I think in the past you've discussed an expectation that the moderation of exchange coverage and volumes could take place over a couple of years rather than all of it occurring in 2026. I guess based on what you've observed this year and the larger headwind that you face, do you still think that's a reasonable planning assumption? Do you think there's any change to the way the dynamics around coverage transitions and volume could look versus this year? Thank you. As we think about attrition rates for the exchanges in 2027, we believe it's reasonable to estimate at this point, even with premium increases that we're starting to see, that the loss of coverage will be less than 2026.

This estimation assumes the core premium tax credits, which are central to the original Affordable Care Act, will continue with no new enhanced premium support. Clearly, there are other factors from both a policy and a market standpoint that could change our thinking. At this particular point in time, that's where we are. We, again, believe most of the attrition this year is directly attributable to patients who were benefiting from the enhanced premium tax credits. Now that those have gone away, we think we'll be in a normal course as we push into 2027.

Our next question comes from the line of Andrew Mok with Barclays. Your line is open. Hi.

Good morning. Can you clarify how many quarters worth of Florida DPP were recognized in the quarter itself, and also clarify whether the retroactive sort of payment that offset the benefit in Q2 were included in the initial guidance? Relatedly, can you share what line of sight you have into the approval of Florida for fiscal year 2026, given the decision to recognize it in Q2 results? Thanks. To set context here for the quarter, we recognized $400 million in incremental net benefit from state supplemental enhancements in the second quarter.

That included $540 million incremental net benefit related to the recently improved Florida program in the time period that is October 1 of 2024 to June 30th, 2026. That's 21 months worth of benefit booked into the second quarter. Now, in the second quarter, that Florida benefit got a little bit netted down because there were some retro payments in the prior year of second quarter of 2025. If I just think about Florida specifically, I'd make maybe two other notes here. The new year that we have an accrual on, clearly, is the time period of October 1, 2025 through June 30 of 2026. We did accrue a benefit into that.

Given that the Florida program is a longstanding program, this approval is an enhancement to that program. Given that the program was approved for state fiscal year 2025, and the state recently submitted the fiscal year 2026 program for reapproval, we feel comfortable going ahead and making that accrual. Just as a note, as we kind of gone through July, we are receiving cash against that approval and feel good about the status of that. Obviously, our guidance also implies that we had booked an accrual for the fourth quarter of 2026 as well. That's part of our overall guidance for the year on the way.

Our next question comes from the line of Ryan Langston with TD Cowen. Your line is open. Great, thanks.

Sorry if I missed it. Hoping you could give us the monthly cadence of surgical and non-surgical volumes in the second quarter. Appreciate any thoughts on the proposed OPPS rule for 2027. Appears to be a nice tailwind for HCA and for-profits in general if it holds in the final rate. Just curious how you view the proposal. Thank you. Yeah. We don't comment about mid-quarter progression, so I'll pause on that one.

I will mention the proposed rule. If I think about both the inpatient and the outpatient rules that have been recently proposed, we are generally pleased with the proposed payment updates in the aggregate. Generally pleased, especially on the outpatient rules is to your point. Even in aggregate, we think they're positive. Obviously, we've got to get them from proposed to final, so that's what we're waiting on.

It's difficult with the month-by-month because of business day alignment, and it sort of skews a comparison, and you have to normalize for that. That's why I think, again, you need some longer runs to really judge what's going on as you push through the different month to month. That's why it doesn't really make sense, we believe, to give you sort of an indication on the second quarter because there were different movements, and I don't even think we have it in here.

Okay. Thank you. Our next question comes from the line of Scott Fidel with Goldman Sachs.

Your line is open. Hi, thanks.

Good morning. Sam, would be definitely interested if you wanted to provide the HCA's perspective, the view on this very quickly sort of hyper-scaling dynamic around the IDR claims from the No Surprises Act. The payers are talking about this being a really significant sort of 50 to 100 basis point impact on overall medical cost trend. CMS just released a whole bunch of data as well. Just curious around, particularly from HCA's perspective, just the potential as we think about reimbursement dynamics and payers looking to offset those higher costs and doing that by trying to put reimbursement pressure on hospitals who may not even be involved in the IDR process. Then the overall effect it's having on sort of overall healthcare costs in the U.S. Definitely curious on your perspective on that.

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

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

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

Your line is open. Great.

Good morning. Thanks for taking the question here. I heard you're making some good progress on professional fees. One of your peers called out the elevated growth here, particularly for anesthesia and radiology. How did those pro fees trend in 2Q across those two areas specifically, and how sensitive are anesthesia subsidies to the current slowdown among elective surgical procedures? Thanks. Well, as I noted in my previous answer, I think it was to Brian, what we're seeing now is about an 8.5% growth, same facility on pro fees the prior year.

Year to date, through June, it's almost 10%. We are seeing some stability here in our pro fees. Clearly, if you go back to our last couple of years, we've come off of two previous years where our pro fees were inflated, as we've been dealing with all of these hospital-based physician group pressures for sure. If you go back in time, as Sam mentioned, the acquisition of the Valesco joint venture and bringing in, through that work, we've been able to stabilize our ER physician component and our hospital medicine physician component. We're in a much better shape there as it relates to the cost side.

It's also, by the way, a great asset for the company, and we believe will drive strategic value in our facilities. What we're dealing with now is similar to what you're hearing. The components of hospital-based pro fees that are still elevated are anesthesia and radiology. Those are really the components that are driving even our, call it, 8.5% growth the prior year quarter, our continued pressures there. We continue to work diligently through both of those lines of businesses, if you will, using the HCA playbook that we're working on, people, process, and technology. Our management teams in the field are hard at work in both of those components, as is our clinical services group here in Nashville. I do think we have stabilized. It's still the part of our cost structure that's running at above inflationary levels for sure.

We feel better today as we sit here in June, coming off the last couple of years.

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

On the uninsured build from Medicaid, can you talk a little bit about what your conversion assumption was versus where it landed, and what's specifically weakening in Texas?

Sure. I think the right way to profile this is as follows. If you look at our growth in uninsured volume, about 80% of that growth is coming from the one-for-one migration out of the exchanges. About 20% of that growth in our uninsured volume to prior year is coming from this slowdown in Medicaid conversions. That'll give you a bit of sizing of the driver here. We talked about this a little bit in first quarter as well. There's really a couple of components that we're watching for that are frankly different than what we saw last year. The first one is the applications for emergency Medicaid, from people, think of them as mostly undocumented people, are down. That is a piece of what's driving Medicaid conversions down is the slowdown on applications to emergency Medicaid.

The other component is a general slowdown of people who are eligible for Medicaid. As we see the self-pay volume attributes, we're just seeing less people that qualify for Medicaid conversions as part of that. Those are the two factors we see, and Texas seems to be feeling the brunt. Not that we're not having a Medicaid conversion slowdown in other components of the business, but Texas is uniquely being affected here. Those would be the drivers I would call out.

Andy, I think we have time for one more question.

Thank you. Our final question comes from the line of Kevin Fischbeck with Bank of America. Your line is open. Your line is open.

Great, thanks. I just wanted to get a little bit more color on the building blocks to the volume, to the guidance change. I guess you guys lowered your overall Adjusted EBITDA by $250, and it looks like you raised the SPP number by $550. It kind of feels like the ex SPP number was cut by about $800, and it sounds like $350 is because of the exchanges. It's still not clear to me what the other $450 is as far as the guidance reduction.

Yeah. Kevin, I tried to deal with that a little bit in my prepared comments. As we've gone through the first six months, and you think about our updated guidance, and to your point, if you take into account the change in assumptions related to the exchanges and the change in assumptions related to state supplemental payments, you're left with, call it, $500 million roughly of reduction to guidance. When I think about that really reflects a bit of the moderation in our growth rates that we are seeing this year compared to where we were in 2024 and 2025, and from where we started the year with our initial guidance rates. I would note, though, when you build it up from the bottom and think about what that implies in terms of operating performance.

Again, considering those adjustments that we talked about, it looks like back to our long-term plan levels of Adjusted EBITDA growth, and really even for a full year basis, maybe even the top end of that range. That's how I think about it, Kevin.

It's just a view that the original guidance had a little bit above the long-term growth algorithm starting point, now you're back at the long-term growth algorithm.

That's really what our experience through the first six months has told us, we're reflecting that in our full year update.

All right. Perfect. Thanks. That concludes our question and answer session.

I will now turn the conference back over to Mr. Frank Morgan for closing remarks.

Abby, thank you for your help today, and thanks everyone for joining us on the call. Hope you have a great weekend. I am around this afternoon if you have questions. Have a great weekend. Thank you.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation.