HCA Healthcare, Inc. (NYSE:HCA) Q4 2022 Earnings Call Transcript

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Bill Rutherford: Yes. Josh, I don’t think there is anything tempering in the investment at all. I think 4.3% is our expectation. As I mentioned in my comments, we initially expected 4.2%. For €˜22, it came in a little higher because we had some year-end activity that I mentioned around some real estate and some IT. So, I wouldn’t read anything from down to the fourth quarter 4.3%. It’s actually up compared to where our initial expectations are. But as a summary, we still see very good opportunities to deploy capital, we believe, to capture growth opportunities in the marketplace. And we have talked about some of that, whether that would be through our freestanding EDs, whether there is some development of new hospitals, whether it would be expansion of campuses. So, again, I think it’s an important part of our overall capital allocation and I think an important part of our continued long-term focus on growing.

Operator: Our next question comes from Andrew Mok with UBS.

Andrew Mok: Hi. Good morning. I was hoping you could provide a bit more color on the supply cost trends into 2023. What are the assumptions around unit cost increases versus €“ what steps did you take to manage inflationary pressure for multiyear contracts? Thanks.

Sam Hazen: Well, thank you for the question. Our teams and our supply chain teams have done an incredible job over the past 12 months to 18 months on our supply cost portfolio, and especially with the backdrop of inflationary increases. And we have talked about through the year, we have been really seeing really positive trends in and actually to keep our supply cost growth below our revenue growth. Much of that was because some of our contracts, 60% of our contracts or so was under firm pricing for the most of €˜22. As we look forward, I think our basic assumption is to continue to keep our supply cost as a percent of revenue flat from where we ran full year €˜23. That would imply our supply cost per unit is somewhere around that 2% level, plus or minus a little bit.

But again, we are expecting continued good results in that. And again, our team is doing a nice job. We can keep that supply cost as a percent of revenue flat with where we ran this year, with the backdrop of inflationary that’s pretty positive. We have a number of initiatives underway that our teams use. Part of our benchmarking initiatives is to look at utilization and identify best practices across the organization. We also are looking at product selection, partnering with our clinical teams. So, we have a number of initiatives underneath our supply chain operations that are helping us to achieve those results, and we look forward to those continuing as we go into €˜23.

Operator: Our final question comes from John Ransom with Raymond James.

John Ransom: Yes. Hard it is to be clever with the question after all these good questions. I believe three in my question here and have five minutes. So, for me, if we think about, as you reduce your labor turnover, so let’s say it goes hypothetically from 25 to 20, how does that €“ how would that affect your labor cost per €“ either for revenue or per unit? How does that factor into the savings algorithm for us to think about?

Bill Rutherford: How it affects our revenue per unit?

John Ransom: Well. No. I mean salary either salary as a percent of adjusted admits or salary as a percent of revenue, how does reducing turnover? If you reduce turnover about say, 500 bps, how would that affect the labor margin?

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